Strategizing International Tax Best Practices – by Keith Brockman

Happy New Year

I want to wish all my readers / followers a happy, healthy and exciting New Year, as it will certainly be a challenging one in many ways!

Personally, I have moved from the UK to the US this year and find it interesting to compare and contrast the international tax views and press coverage in different jurisdictions.

Thank you for your comments and insights, enjoy the New Year!

With kind regards,
Keith

The attached link provides access to an invaluable transfer pricing (TP) handbook which is an excellent resource for all international tax practitioners/advisors.

With the advent of the BEPS era and new/novel approaches to arms’s-length pricing are voiced, this resource is a great desktop reference with experience gained by the authors in both applying TP principles as well as teaching those principles to tax administrations in developing economies.    

Examples and “boxes” of summary content are provided in the handbook, in addition to a discussion on TP disputes that is inevitable with BEPS Actions and unilateral actions (both legislative and “soft law”) being applied across the world.

A summary of the chapter titles provides a summary of the details therein:

  • TP, Corporate strategy, and the Investment Climate
  • The International Legal Framework
  • Drafting a TP Legislation
  • Applying the Arm’s-Length Principle
  • Selected Issues in TP
  • Promoting Taxpayer Compliance through Communication, Disclosure Requirements, TP Documentation, and Penalties
  • Avoiding and Resolving TP Disputes
  • Developing a TP Audit Program

https://openknowledge.worldbank.org/handle/10986/25095

As 2016 draws to a close, and 2016 country-by-reporting (CbC) obligations become effective for the 2016 tax year, Dec. 31, 2016 is an important filing deadline to file CbC “notifications” in many countries advising tax administrations which entity/ “surrogate entity” will be filing such report when it is due.

This deadline is significant for MNE’s with HQ’s in countries that do not require CbC reporting in 2016 (US, Switzerland, and others), with legislatively imposed fines/penalties for non-compliance.

Apart from various forms of guidance, there is not one place to gather such dynamic information.  Thus, every MNE should prepare a matrix of countries in which they conduct business operations (including dormant entities, etc.) with corresponding legislation from every country to ensure such deadlines are timely met.  Some countries prescribe forms for the notification, although these forms may not be currently printed or available.  Therefore, it is recommended to provide some written notification that should ensure no penalties are ultimately applicable.

EY’s Global Tax Alert provides information for Singapore’s recently announced 2016 CbC voluntary filing rules.

This topic will be dynamic, changing almost daily during the next week.  Therefore, prudent monitoring of new developments is suggested for this new reporting tool.

http://www.ey.com/Publication/vwLUAssets/Singapore_Tax_Authorities_accept_voluntary_filing_of_CbC_Reports_for_Singaporean_tax_resident_MNE_groups_for_FY_2016/$FILE/2016G_04534-161Gbl_SG%20TA%20accept%20voluntary%20filing%20of%20CbCR%20for%20SG%20tax%20resident%20MNE%20groups%20for%20FY%202016.pdf

BEPS update: transparency

The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.

Summary:

OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.

Belgium: New innovation deduction covering patent and other IP rights.

EU: Proposal for hybrid mismatch rules with non-EU countries

Norway: Adoption and regulations for CbC reporting

UK: Interest limitation rules, among other provisions

US: CbC Form 8975 released

From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.  

(CbCR).http://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_19_December_2016/$FILE/2016G_04446-161Gbl_The%20Latest%20on%20BEPS%20-%2019%20December%202016.pdf

EU to Non-EU Hybrid rules

EY’s Global Tax Alert provides the latest developments into the EU’s hybrid arrangements with non-EU Member States to achieve consistency in application of the hybrid mismatch rules.  This development is not unanticipated, although will take some time to be fully developed and legislated into action.  In the interim, advance planning should take place, recognizing the fact that the current arrangements will not likely be allowed to exist much longer.

http://www.ey.com/Publication/vwLUAssets/European_Council_achieves_broad_consensus_on_draft_directive_aimed_at_closing_down_hybrid_mismatches_with_third_country_tax_systems/$FILE/2016G_04247-161Gbl_EC%20draft%20directive%20aimed%20at%20closing%20down%20hybrid%20mismatches%20with%20third%20country%20tax%20systems.pdf

After a long waiting period, with many discussions as to its predicted content, the OECD’s Multilateral Convention pursuant to BEPS Action 15 is ready for prime time.  Links to EY’s Global Tax Alert, and OECD’s Explanatory Statement and Multilateral Convention are provided for reference.

The Multilateral Convention is very flexible as to what a country wants, or does not want, within its treaty related provisions to signify its alliance with BEPS Actions.

EY’s Global Tax Alert states: “The tax treaty related BEPS measures covered by the multilateral instrument include (elements of): (i) Action 2 on hybrid mismatch arrangements, (ii) Action 6 on treaty abuse, (iii) Action 7 on the artificial avoidance of the PE status; and (iv) Action 14 on dispute resolution. The substance of the tax treaty provisions relating to these actions was agreed under the final BEPS package released in October 2015. The multilateral instrument does not modify or add to the substance of these provisions. The instrument is solely focused on how to modify the provisions in bilateral or regional tax treaties in order to align these treaties with the BEPS measures.”

Due to the flexibility of the new Convention, this unilateral based process poses many questions as to the consistency of intent for the related BEPS Actions around the world.  It is certain that, in the short term, there will be considerable complexity and varying interpretations of what the Convention means.  Accordingly, the Explanatory Statement and Multilateral Convention are to be reviewed carefully to understand short and long-term trends in this new era of international tax.

http://www.ey.com/Publication/vwLUAssets/OECD_releases_multilateral_instrument_to_modify_bilateral_tax_treaties_under_BEPS_Action_15/$FILE/2016G_04025-161Gbl_OECD%20releases%20MI%20to%20modify%20bilateral%20tax%20treaties%20under%20BEPS%20Action%2015.pdf

http://www.oecd.org/tax/treaties/explanatory-statement-multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf

http://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf:

The Dutch Secretary of Finance has thoughtfully issued a Decree, whereby the notification period for informing the tax administration of the Country-by-Country (CbC) report for tax year 2016 is delayed until Sept. 1, 2017.

it is intended to officially confirm that the Dutch tax authorities will accept CbC reports that have been filed in other jurisdictions on a voluntary basis (parent surrogate filing) in line with guidance issued by the Organisation for Economic Co-operation and Development (OECD)

The Dutch State Secretary of Finance expects that it may take until August 2017 to have clarity on the automatic exchange of information matching process for reporting fiscal years starting on or after 1 January 2016.

Hopefully, other countries will follow this practical approach, as it represents a win-win for taxpayers and the tax administration.  However, other countries still need to be reviewed, especially for US multinationals, to verify additional notifications required by Dec. 31, 2016.

http://www.ey.com/Publication/vwLUAssets/Dutch_Government_publishes_Decree_extending_deadline_for_filing_first_notifications_under_Country-by-Country_reporting_rules/$FILE/Dutch%20Gvt%20publishes%20Decree%20extending%20deadline%20for%20filing%20first%20notifications%20under%20CbC%20reporting%20rules.pdf

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