Strategizing International Tax Best Practices – by Keith Brockman

Commencing in 2020, a new R&D incentive will be in place for German R&D activities.  This incentive was passed to stimulate its goal of raising R&D expenditures to 3.5% of GDP by 2025.

This incentive is worthy to review, especially as there is certainty re: certification of activities qualifying as R&D upfront, vs. a potential audit dispute years later.

https://www.ey.com/Publication/vwLUAssets/German_Federal_Council_approves_Research_Allowance_Act/$FILE/2019G_005410-19Gbl_German%20Federal%20Council%20approves%20Research%20Allowance%20Act.pdf

Although this initiative did not receive a majority vote by the EU Competitiveness Council (COMPET), the real story is whether a unanimous (Tax Directive, Article 115 TFEU) or majority (Accounting Directive, Article 501(1) TFEU) vote is needed.

The Legal Service of the Council of the EU concluded on 11 November 2016, that the proposal must be based on Article 115 TFEU.  For the legal basis to be changed by the Council, nevertheless, unanimity is required.

Thereafter, the European Parliament’s Committee on Legal Affairs, pursuant to Rule 39(3) of the Rules of Procedure, decided of its own motion, to provide an opinion on the legal basis of the proposal amending the Accounting Directive. The Committee considered that there is a link between transparency and public scrutiny. It concluded on 12 January 2017 that the proposal must be based on Article 50(1) TFEU, instead of Article 115 TFEU. This opinion contradicted legal advice given to the Council of Member States in November 2016.

This contest will continue, with possible appeals depending on whether the Accounting or Tax Directive rules will be followed.  To date, several countries do not agree to public reporting, thereby other EU Members have envisioned using the Accounting Directive majority rule vote to pass this initiative.

 

https://www.ey.com/Publication/vwLUAssets/EU_Public_CbCR_fails_to_move_forward_in_latest_European_vote/$FILE/2019G_005555-19Gbl_EU%20-%20Public%20CbCR%20not%20approved%20in%20latest%20vote.pdf

MNE Tax Policies: Examples

As year-end is approaching, many multinationals take this opportunity to review, and revise accordingly, their global tax policies/principles.  Additionally, UK also has an requirement to publish the company’s UK tax principles, which is usually a subset of the global policy.

Global tax policies/principles are generally approved by the Board of Directors, although not an express requirement, however it is a Best Practice.

Examples include Unilever, Siemens Gamesa, Siemens, Shell, Mars and Starbucks, which are all in the public domain.

https://www.unilever.com/sustainable-living/what-matters-to-you/tax.html

https://www.siemensgamesa.com/-/media/siemensgamesa/downloads/en/investors-and-shareholders/corporate-governance/corporate-policies/corporate-tax-policy.pdf

https://assets.new.siemens.com/siemens/assets/api/uuid:49770a8e-194c-4a8a-a86c-7f4caef5423c/version:1544174457/siemens-tax-code-of-conduct-and-tax-policy.pdf

https://www.shell.com/sustainability/transparency/shells-approach-to-tax.html#

https://gbr.mars.com/about/tax-strategy

http://globalassets.starbucks.com/assets/77CB10D4E6DD403A92D568DE90148166.pdf

 

US Regs: BEAT overview

KPMG’s initial observations of the final and proposed BEAT regulations are attached for reference:

https://assets.kpmg/content/dam/kpmg/us/pdf/2019/12/19569.pdf

US FTC Regs: Overview

KPMG has provided a quick turnaround on the final and proposed Foreign Tax Credit regulations, linked for reference.

https://home.kpmg/content/dam/kpmg/us/pdf/2019/12/tnf-ftc-initial-impressions-dec3-2019.pdf

 

US BEAT/FTC Reg’s

Final and proposed Regulations were issued with respect to the Foreign Tax Credit and BEAT.  Noting this regulation package collectively amounts to over 650 pages, it will require time and attention to webcasts, etc. to fully understand the breadth of these rules, especially as they may pertain to 2018 and/or 2019.

https://www.irs.gov/pub/irs-drop/td-9882.pdf

https://www.irs.gov/pub/irs-drop/reg-105495-19.pdf

https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-25744.pdf

https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-25745.pdf

KPMG has issued a 2019 survey benchmarking tax disputes, linked for reference.

The report is divided into four sections:

  1. Tax audits and disputes-the changing environment
  2. Tax dispute management today
  3. Leveraging technology
  4. Tax dispute management of the future

Some observations in the report:

  • Tax authorities are becoming more aggressive, with less appetite to settle
  • Increased penalties
  • Cooperative compliance is still the highest rated tool to resolve disputes
  • More focus on international transactions
  • More information sharing by tax administrations
  • Dedicated resources in multinationals for dispute resolution, including global head of controversy
  • Hiring talent with dispute management experience
  • Internal process for handling audit disputes
  • Dispute management budget > 10% of tax budget
  • Tax dispute technology, apart from Excel, is still in its infancy
  • New trends: Global head of controversy, dedicated budget/staff/technology, escalation/communication processes and a global tax audit software platform

As audits escalate, disputes will likewise increase.  Accordingly, this issue warrants additional attention especially with respect to processes and talent.

https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/10/the-global-tax-disputes-environment.pdf

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