Strategizing International Tax Best Practices – by Keith Brockman

EU blacklist: Additions

The EU blacklist of noncooperative tax jurisdictions, which is used in one of the DAC6 hallmarks for reportable transactions, is revised as of February 18th to include the Cayman Islands, Panama, Seychelles and Palau, in addition to the official list, as included in the referenced link.  It is noted that Turkey was not added to the list.

https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/

The OECD recently published Transfer Pricing Guidance on Financial Transactions, an inclusive framework on BEPS Actions 4, 8-10.  This guidance takes into consideration comments received in the July 2018 discussion draft on financial transactions.

The guidance represent an update to the OECD Transfer Pricing Guidelines.  

This importance guidance presents guidance for:

Determination if the purported loan should be regarded as a loan

Treasury functions, including cash pooling, intracompany loans and hedging

Financial guarantees

Captive insurance

Risk-free and risk-adjusted rates of return

These principles are significant in scope and consequences that also allow countries to implement approaches in their domestic legislation, so there will be areas of dispute as this new guidance is implemented and interpreted.

 

http://www.oecd.org/tax/beps/transfer-pricing-guidance-on-financial-transactions-inclusive-framework-on-beps-actions-4-8-10.pdf

The OECD has published its consultation document: Review of Country-by-Country Reporting (BEPS Action 13).  Comments are requested no later than March 6th.

Chapter 1 contains general topics concerning the implementation and operation of BEPS Action 13, including the MNE group experience of CbC reporting implementation by jurisdictions, the use of CbC reports by tax administrations and other aspects of BEPS Action 13, being the master file and local file.

Chapter 2 contains topics concerning the scope of CbC reporting, including the definition of an MNE group, and the level and operation of consolidated group revenue threshold.

Chapter 3 contains topics concerning the content of a CbC report, including whether aggregate or consolidated information should be provided in Table 1, whether information in Table 1 should be presented by entity rather than by tax jurisdiction, and whether additional or different information is needed.

http://www.oecd.org/tax/beps/public-consultation-document-review-country-by-country-reporting-beps-action-13-march-2020.pdf

One key item in the report is in Section 12: Should Table 1 information be presented on an entity or jurisdictional basis?  There are arguments pro and con, and this is an important item to monitor. 

The German Ministry of Finance recently changed their rules re: maintenance of books and records for tax (including customs) purposes.  The GoBD compliance provisions are especially important in acquiring businesses with German locations, digital technology, changing systems, moving/dissolving German entities and reviewing current documentation rules for multinationals operating in Germany.  Upon audit, German tax authorities will ensure this compliance is verified.

These rules are similar to other EU rules for maintaining records in the country, and should always be a diligence item for M&A, ERP system conversions, etc.  

Final Section 163(j) business interest deduction limitation regulations will be released with newly proposed regulations that will address issues not covered by the coming final regulations.

The proposed regulations under Section 163(j) have not been sent to the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) for review, which may delay the release of the final interest limitation regulations, already at OIRA.

The Tax Foundation has provided a useful reference to state law changes, as 35 states have major tax changes taking effect on 1/1/2020.

This is especially important as more states are still interpreting the Tax Act, and any impact for GILTI, Sec. 163(j) interest limitation, etc.

The reference provides a summary by state of the recent law changes and details.

https://files.taxfoundation.org/20200102161647/State-Tax-Changes-as-of-January-1-20201.pdf

The German Federal Minister of Finance has published a draft law, implementing the EU anti-tax avoidance directive.  However, the legislation is very far-reaching!  Although the provisions are still draft, there are 2020 effective dates.

Highlights

  • Eliminates current TP hierarchy for methods
  • Looks at conduct, vs. contracts
  • Codifies function and risk analysis
  • Best method rule
  • Legal definition of “intangibles”
  • DEMPE implementation
  • Intangible price-adjustment clause
  • Addresses transfer of functions valuation
  • Deductibility of German interest expense
  • Expands related party definition
  • Reduces turnover amount to prepare a TP Master File
  • Codifies APA processes

Deloitte’s TP Alert provides additional details:

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-global-transfer-pricing-alert-19-037-20-december-2019.pdf

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