Strategizing International Tax Best Practices – by Keith Brockman

OECD provides ERM tool

The OECD has, via a pilot program, developed five stages of ERM maturity against which tax administrations can self-assess their progress, for which anonymous data will also be helpful for the OECD going forward.

Multinationals have employed such tools for several years, and tax administrations can now assess their progress and risk status going forward.

http://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/maturity-model-series/enterprise-risk-management-maturity-model.htm

OECD Pillar I & II comments

Attached is EY’s summary of the recent meetings, in which comments were provided for various applications of Pillar I and II.

The EU has also expressed its desire to move forward with a digital service tax if the OECD falls behind in its targeted 2021 dates to prescribe rules. The OECD’s approach will also encounter issues re: dispute resolution in multiple countries, for which countries may not yet be ready for.

As the U.S. presidency is now decided, its direction will also influence the ongoing discussions for global implementation.

https://www.ey.com/en_gl/tax-alerts/oecd-inclusive-framework-political-leaders-promote-global-consen

The Joint Committee on Taxation has published a valuable reference for expiring tax provisions 2021-2029.

Although the benefits of Sec. 954(c)(6) were recently extended for 5 years, other provisions will be changing in the next few years, absent additional legislation.

https://www.jct.gov/publications/2021/jcx-1-21/

Joint Committee refunds

This report was issued in June, 2020, and is interesting to note the Treasury Inspector General’s report re: IRS process for refund claims.

This audit was initiated to assess the effectiveness of the IRS’s efforts to examine returns with refunds in excess of $2 million ($5 million for C corporations) and report to the Joint Committee on Taxation (JCT) on such refunds.

This issue is made more interesting as more companies are getting ready to file federal income tax carryback claims due to COVID-19 losses, for which such carry back was made possible by the Cares Act.

Mark January 14-15 on your calendar to attend the OECD consultation meeting for Pillar One and Two. Details provided for reference.

http://www.oecd.org/tax/beps/public-consultation-meeting-reports-on-the-pillar-one-and-pillar-two-blueprints.htm

US Sec 163(j), 954(c)(6)

The Consolidated Appropriations Act, 2021 (CAA) and OIRA have advanced interesting developments for early 2021.

New Section 163(j) interest regulations have not yet been posted on the IRS website, thereby this fact is significant for calendar-year taxpayers as they will not have to diligently read, and strategize, such information for year-end 2020, dependent upon the approach to evaluation of new legislation and timing.

Additionally, the exceptions to related party payments for Section 954(c)(6) have been extended for 5 years in the CAA. This is a new, and welcome, certainty provision for multinationals. Most importantly, this provision may also add in scheduling future taxable income to evaluate positive and negative evidence for affixing a Valuation Allowance on deferred tax assets that will reverse in the future.

The Employee Retention Tax Credit has also been extended, and liberalized, for the first two quarters of 2021.

UK: DAC6 conforming

UK has put forth new legislation, commencing 1/1/2021, focusing on Hallmark D only while they are presumably modifying the EU rules to new UK rules.

As an update, HMRC has clarified that only Hallmark D arrangements, including historical arrangements, are required to be reported commencing 1/1/2021.

https://www.legislation.gov.uk/uksi/2020/1649/regulation/2/made

Mexico: Outsourcing delay

The Mexican government has decided to delay this decision until February 2021.

It is hopeful the related profit-sharing consequences of such actions will also be addressed

However, impending legislation is not to be understated, as the breadth of their mandatory disclosure rules are both expansive and transparent moreso than the EU DAC6 provisions.

Germany/US CAA

A joint statement was published by IRS on the Competent Authority Agreement re: automatic exchange of Country-by-Country (CbC) reports between Germany and the US.

The statement refers to conformity with BEPS Action 13, transfer pricing documentation, CbC reporting and increased cooperation in tax matters.

Denmark: New TP / PE rules

As of 1/1/2021, the TP Master File and Local File are required to be submitted to the tax authorities within 60 days after filing the tax return, with daily penalties imposed for not meeting the timeline.

The permanent establishment (PE) rules are also being modified: the PE definition will be conformed to the 2017 OECD definition, with deviations for a building site becoming a PE from day 1, and a trading activity is required for a PE resulting from investments in shares, receivables and financial instruments.

Additionally, the Court of Justice of the European Union (CJEU) on 12 June 2018 (case C-650/16, Bevola) held that Danish law was incompatible with European Union law because a Danish company could not claim a tax deduction for a final loss in a foreign PE. Denmark’s revised guidance will be effective from 2019, providing opportunities to claim such losses.

OECD: Dispute resolution

The OECD recently issued a consultation document, with comments due by Dec. 18th, addressing dispute resolution mechanisms which arose from BEPS Action 14.

There are 27 questions for comment, including APAs, statistical categories, penalties/interest, timelines, training, etc.

The document is comprehensive and a valuable reference for review, and most importantly an opportunity for stakeholders to submit comments.

PE developments

Attached is EY’s update on PE developments, including COVID-19 situations and implementation of multilateral instruments (MLIs).

India’s summary is interesting, being known for aggressive PE and mark-up percentages, as it was determined that remuneration was arm’s-length, thus the PE issue was irrelevant.

https://www.ey.com/en_gl/tax-alerts/pe-watch-latest-developments-and-trends-november-2020

President-elect: tax reform

As the media organizations called the election over the weekend, notwithstanding legal challenges, US President-elect Joseph Biden is scheduled to officially commence his duties on January 20, 2021.

The Senate, currently a Republican majority, will have January 2021 runoffs in Georgia, that will determine the majority. This majority is key as to how much, or little, tax legislation will be passed the next four years.

It is anticipated that Joseph Biden will strive to increase the US federal income tax rate, and reverse part of the US TCJA provisions.

This new legislative agenda will be both interesting and exciting, as well as the DST push by OECD and UN for their separate proposals.

The attached Tax Foundation is an excellent place to start, for an overview.

The Toolkit on Tax Treaty Negotiation (the “Toolkit”), has been prepared in the framework of the Platform for Collaboration on Tax (the “PCT”) by the IMF, the OECD, the UN and the WBG (the “PCT Partners”).

Date and time:Wednesday, November 4, 2020 9:00 am 
Eastern Standard Time (New York, GMT-05:00) 
Change time zone
Duration:2 hours 30 minutes

Please join The Platform for Collaboration on Tax (PCT) for the public consultation webinar of its draft Toolkit on Tax Treaty Negotiations. The toolkit authors and expert speakers will discuss how the toolkit can help developing countries, followed by a demo of the interactive, web-based version of the toolkit and a feedback roundtable with experienced negotiators.

PCT’s draft Toolkit on Tax Treaty Negotiations is a joint effort to provide capacity-building support to developing countries on tax treaty negotiations, building on existing guidance, particularly from the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (the “UN Manual”). The Toolkit provides tax officials with: 

***Information on the steps involved in tax treaty negotiations 
***Practical tips for treaty negotiators on the conduct of negotiations and negotiation styles 
***Easy access to already publicly available resources that treaty negotiators will find useful 

The design of the Toolkit also allows regular updates and improvements based on the feedback from users and experienced negotiators. 

The PCT released the draft toolkit for public feedback from June 29th to September 24th, 2020 through its website and the KSP-TA hub. In addition to written comments, this virtual workshop aims to gather further feedback from stakeholders, particularly treaty negotiating teams.

The Toolkit represents a joint effort to provide capacity-building support to developing countries on tax treaty negotiation, building on previous contributions and reducing duplication and inconsistencies.

https://www.tax-platform.org/news/event/public-consultation-workshop-draft-toolkit-tax-treaty-negotiations

https://www.tax-platform.org/sites/pct/files/publications/PCT_Toolkit_Tax_Treaty_Negotiations_Discussion_Draft.pdf?deliveryName=DM81743

Attached is a free pdf/ebook prepared by Alexander Weisser, covering permanent establishment, treaty characterization and transfer pricing.

These issues are becoming more important as we get closer to OECD Pillar One and Two blueprints, in addition to proposed UN Article 12B re: a new digital services tax focused on developing countries.

Alexander has provided advance permission for this informative inclusion:

https://lnkd.in/dQYyWsf

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