The referenced PwC Alert highlights the proactive efforts by the Australian Tax Office (ATO) to initiate dispute resolution mechanisms in the audit process, as well as focus on relevant internal training to successfully accomplish these objectives.
The ATO is committed to the following objectives:
- Early engagement and direct negotiation with taxpayers
- Improving all dispute resolution processes starting with the assessment
- ADR utilization at every stage of the dispute resolution process
- Independent review of the audit position prior to conclusion of the audit aimed to narrow / reconsider the issues
- Internal ADR training
- Focused “risk-focused” approach to managing disputes
The ATO’s initiatives are timely, relevant and a welcome effort to adopt Best Practices to resolve disputes prior to costly and time-consuming formal unilateral, bilateral or multilateral appeal avenues via domestic legislation and/or double tax treaty relief.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol, is effective for the following countries:
- March 1: Canada, New Zealand, Slovakia, South Africa
- June 1: Croatia
The Convention provides for the mutual exchange of tax information with other tax administrations.
Best Practice ideas:
- Consistent coordination of responses to tax authorities by multinationals: As tax authorities share more information on a real-time basis, in accordance with the Multilateral Convention, global consistency is required for proper factual and risk determinations around the world.
- Regional and Headquarter tax office coordination to issues: Processes and methodologies should be in place to ensure consistency and internal governance.
- Tax (return) information reporting: More countries are adopting transfer pricing information reporting requirements, including transfer pricing methodology, and identification of relevant intercompany transactions in that country and/or other countries in accordance with their legislation. A review of identifying current, and new information requirements should be established on a global master schedule ensuring internal coordination.
- Tax information questionnaires: A process should be established to identify questionnaires received with a global methodology for proper governance.
KPMG has provided an excellent overview of Australia’s unilateral efforts to carry out OECD’s proposals.
Some key questions include:
- From a OECD perspective, Would penalties be applicable when a Country-by-Country (CbC) template is not completed, if such information is part of the Transfer Pricing Master File?
- The Australian Tax Office (ATO) has already started its process to collect similar information as the CbC template, with 125 review notification letters to be sent to taxpayers, requesting detailed international data and a presentation to the ATO.
- The ATO review would include details of global corporate value chains, including sales, profits, and taxes paid in every jurisdiction, payments to / from low tax jurisdictions, e-commerce and tax risk governance. The ATO should ensure that confidential information is only shared with other tax authorities in alignment with confidentiality protocols judicially established in each respective jurisdiction. Additionally, it will be interesting to note how such information is defined, or not defined, by the ATO to ensure information that is collected from taxpayers will be consistent for analyses.
These actions bring forth additional questions re: the OECD proposals, the ATO’s response and advance warnings to taxpayers of how such information will be collected and provided in advance of the OECD’s timelines. To the extent procedures are enacted by taxpayers to collect such data, while the OECD and other tax authorities provide different rules, definitions and timelines, it will substantially increase time and cost by multinationals to respond to multiple initiatives.
Another point of consideration is the symmetry of ATO’s CbC request with that of the OECD: Will the ATO change their rules to coincide with that of the OECD when such rules are issued, and will the separate country’s legislation trump / override the OECD’s final recommendations?
The Tax Executives Institute (TEI) has commented on the OECD Transfer Pricing Documentation and Country by Country Reporting (CbC) discussion draft.
TEI has provided strategic and logical arguments in response to requested comments by the OECD for transfer pricing documentation and CbC reporting. One of the exemplary comments put forth is that the CbC reporting template should be the last item for completion, based upon actions of the other items, to achieve maximum efficiency, relevance and avoidance of duplication in work efforts.
The TEI comments should be read by all multinationals and interested parties to further understand the business rationale and inherent complexity of the OECD proposal that may lead tax authorities to deviate from the arm’s length principle based solely on the CbC information provided.
The OECD has recently published a revised timeline for its Base Erosion and Profit Shifting (BEPS) Action Plan that can be accessed via the attached link:
With a short timeframe for comment to multiple initiatives, it is imperative to review this timeline change, especially if comments are to be prepared. This revision in timing also provides transparency for the OECD’s aggressive objectives to assess the milestones accordingly.
The OECD timeline also highlights the expedited actions of individual EU Member States, and other countries, to implement independent BEPS initiatives that may, or may not, be in alignment with the OECD’s final proposals. To the extent such objectives are significantly different in principle and approach, it has not yet been envisaged if, and how, such disparities will be resolved by taxpayers and tax authorities.
Tax Fraud: Commission looks at how VAT collection and administrative cooperation can be improved
Today (12 Feb.) the Commission adopted two reports which shed more light on problems linked to fighting Value Added Tax (VAT) fraud within the EU, and which identify possible remedies. The first report looks at VAT collection and control procedures across the Member States, within the context of EU own resources. It concludes that Member States need to modernise their VAT administrations in order to reduce the VAT Gap, which was around €193 billion in 2011. (see IP/13/844) Recommendations are addressed to individual Member States on where they could make improvements in their procedures.
The second report looks at how effectively administrative cooperation and other available tools are being used in order to combat VAT Fraud in the EU. It finds that more effort is needed to enhance cross border cooperation, and recommends solutions such as joint audits, administrative cooperation with third countries, more resources for enquiries and controls and automatic exchange of information amongst all Member States on VAT. Both reports are part of the broad Commission Action Plan to fight against tax fraud and evasion (see IP/12/1325), and can be found online on the European Commission’s Taxation and Customs Union website .
It is interesting to compare developments on topics such as joint audits, automatic exchange of information, and tax controls with that of the OECD and UN for corporate income tax. The reports provide a valuable reference in regards to VAT developments in the EU, which are observed by non-EU countries for Best Practices.