Finland is expanding its rules on interest deductibility, including additional breadth over the OECD/BEPS Actions. Finland is following many other countries, in disallowing such deductions while not providing a deferral/exemption of interest income in the related jurisdiction for interest income.
Additionally, US tax reform has also introduced new interest limitation rules, based upon a 30% tax adjusted EBITDA concept.
This is the ideal time to review one’s capital structure worldwide; is it achieving the economic interests that were in place? Most MNE’s will be affected in one or more countries from the BEPS, and expanded BEPS, actions by many countries. The expanded legislative framework dictates a new review of global capital structures.
Attached are the latest BEPS developments; of particular importance is the International ComplianceAssurance Programme (ICAP). This program is a voluntary program that focuses on the Country-by-Country (CbC) reports to openly discuss tax risks.
This is a welcome collaborative effort between the tax administrations and MNEs, vs. using the CbC reports to draw unfounded assumptions.
Tax audits should also use this approach at the beginning of an audit to foster understanding and risks.
Annual reviews are now being discussed, with employees wondering what technical goals and objectives lie ahead.
Most importantly, the art of leadership skills and training should be a required attribute on everyone’s agenda. There are books for self-learning, and also real-time training can be conducted via leading small cross-functional meetings, being a champion on projects for coordination, and team activities
Leadership and developing leadership skills, in addition to requisite technical abilities, are what will make the difference for everyone.
The Italian Budget has enacted a 3% web tax, and a new PE definition based on economic, vs. physical, presence.
The Tax is due by the buyers of the above services unless the supplier declares in the invoice that it has not reached the threshold of 3,000 transactions in the calendar year.
The PE definition goes beyond the OECD’s intent, and will certainly lead to additional disputes in Italy and other countries developing such a subjective measure that also attracts double taxation.
EY’s global tax alert provides additional details as reference.
As a further update to the US Tax Act, SEC has provided a 1-year window to provide a reasonable estimate with continual true-ups for a 1-year period to finalize the complex tax accounting effects. Note that APB 23 is still alive, which has prompted several questions on its application against the background of the deemed repatriation transition tax.
The Act will significantly change earnings disclosures in the near future and the US debt market where debt may be more expensive due to interest limitations.
EY’s update provides details and relevant links for reference.
McDermott Will & Emery highlights the state tax effects of the deemed repatriation and GILTI tax; some of which may not may be intuitive. The deemed repatriation income is included under Sec. 951(a), whereas the GILTI inclusion is includable under new Sec. 951A.
The concept of special deductions also is highlighted for further analysis.
Note, as different technical details of this bill are further reviewed, the SIT aspect becomes even more complex with timing issues by states not uniform from the federal changes.
The deemed repatriation inclusion will be includable in 2017 US federal income tax returns for calendar-year taxpayers, whereas most provisions will take effect in 2018 or later.