This site is a valuable resource of information, including the following topics and links to relevant documents:
- Strengthening UN role in international tax cooperation
- UN Model Convention
- Transfer Pricing (including Practical Manual for Developing Countries)
- Exchange of information on tax matters
- Manual for the Negotiation of Bilateral Tax Treaties
- Capacity Building
I invite you, and members of your team, to fully explore the site and use as a basis for international tax training and reference.
This link is also added to my new “Recommended Links” page for future reference.
In a speech by European Council President Herman Van Rompuy, he mentioned energy and taxes as two issues that will be discussed at the meeting in May. Interestingly, the press release states: “The other issue I put on the May agenda for European leaders is tax evasion and avoidance. There we have to seize the current political momentum, especially on improving exchange of information between our countries. Tax fraud is exactly the kind of issue where it is first and foremost for Member States to act, but where they cannot effectively do so on their own.”
- The phrases “tax evasion,” “avoidance” and “tax fraud” all seem be used interchangeably with no distinction in application or meaning. This seems to be a growing trend in public communications, leading to potentially wrong conclusions and inappropriate actions. Ensure the relevant phrases, supplemented by intent, are used to convey the message.
- Ensure one or more members of Tax are keeping aware of these meetings and trends.
- Inform senior management regularly of current trends, as perceived by the European Council and Member States.
Attached for reference is an informative Global Mobility presentation, inclusive of tax risk components.
Apart from Permanent Establishment (PE) risk, among others, I want to focus on the integration of International Tax and Global Mobility, with the following thoughts:
- Are the International Tax and Global Mobility functions aligned to address tax risks and opportunities? Are there regular meetings, information sharing and discussions of strategies, risks and opportunities?
- Are PE and related tax risks explained and discussed with Global Mobility in recurring training programs?
- Are International Tax personnel familiar with legal vs. economic employer concepts and other related mobility risks?
- Should there be dotted line and/or direct reporting structures?
- Are there red flags/alerts upon assignments/transfers of Regional/Global Sales personnel to ensure PE is not created?
- Are the legal entities to which personnel are assigned in existence?
- Should someone with international tax expertise be placed on the Global Mobility Team to minimize potential risks?
- How is Global Mobility aware of new trends, risks and opportunities, especially re: international tax?
- Is Secondment and utilization of Double Tax Treaty benefits aligned?
- How are assignments to new markets executed? Is International Tax involved in the beginning prior to execution?
- Are there specific contacts in Legal, International Tax and Global Mobility to communicate potential issues?
- Are there cross-functional training programs to highlight new issues, discuss risk gaps and Best Practices?
I welcome your ideas.
As you may know, the OECD has an Aggressive Tax Planning (ATP) Steering Group, whose objectives include:
- Identify current trends
- Share experiences
- Focus on timely information sharing in understanding new schemes
- Provide information enabling countries to adapt their tax risk management strategies
Additionally, the work of the ATP Steering Group is supported by the OECD Aggressive Tax Planning Directory. The ATP Directory is an online resource for governments to depict types of schemes discovered and fact patterns thereto, and details of their detection.
- While “tax avoidance” and “tax planning” are frequently used terms, in direct contrast to “tax evasion,” it would be worthwhile to review Global Tax Policies and Tax Risk Management Strategies and verify if additional clarification is needed due to today’s tax environment.
- Centralization of information by OECD: is your company also centralizing its issues, tax risks and strategies for synergy?
- Are current trends being analyzed to adjust “tax planning” strategies and relevant tax risks?
- Are you ready to explain the difference between tax planning, aggressive tax planning, tax avoidance and tax evasion?
PwC has published their 16th Annual Global CEO Survey: Tax strategy and corporate reputation: a business issue.
In addition to interesting observations in the survey, the following ideas are presented for consideration:
- Have you had a discussion with your CEO about tax risks & strategies, including reputational risk? S/he could also share with you their perceptions and information exchanged with their peers.
- The upcoming G8 meeting will be discussing tax avoidance: do you plan to update your CFO & senior management?
- Are Board of Director presentations planned for strategic and reputational tax risk? (Don’t wait for them to ask)
- Do you have a Tax Planning Policy? If so, has it been discussed with the Board?
- Is senior management aligned internally, and with the Board, on a position for tax transparency?
- Is global tax planning a CEO priority, as focus on this topic is increasing among governments?
- How are you avoiding tax strategy surprises?
I look forward to your comments.
Permanent Establishment (PE) risk is receiving increased visibility around the world, in established countries and emerging markets. Therefore, have you increased your focus to strategize Best Practices to minimize this risk? The following ideas are presented for consideration:
- Coordination of employee transfers/assignments to understand new roles and responsibilities, legal entities, etc.
- PE global training to increase awareness, collaborating with the Human Resource function.
- Review tax treaties for all business changes to understand PE triggers and exceptions.
- Utilizing special purpose entities to centralize, or isolate, potential risks.
- Developing a Do’s and Don’ts list to discuss with the business; attach to Job Descriptions, as applicable.
- Formal PE technical training, at least annually, for all employees having international tax responsibilities.
- If consideration of PE risk is coordinated by external advisors, develop a collaboration plan to review regularly.
- “Presence” test PE safe harbor, dependent on treaty: Who is counting the days and coordinating related steps of a project?
- “Preparatory & Auxiliary” PE treaty exception: review Form vs. Substance on a recurring basis.
- Develop PE expertise and clarify roles of internal staff and external advisors.
- Proactive vs. reactive PE determinations, understand when a proactive PE determination may be beneficial.
- Follow PE trends of aggressive jurisdictions with scenario planning.
- Collaborate with the business to understand upcoming strategies that may introduce new PE risks.
- Review “Branch” activities annually to determine if they exceed allowable actions in the respective countries.
- Establish a collaborative process for entry into new countries to ensure tax coordination and risk identification.
- Ensure a communication protocol is established for response to PE allegations that are made public.
- Following current events for OECD and UN model conventions, as well as related commentaries
- Identification, with mitigating controls, in tax risk and ERM framework
European Commission Recommendation of 6/12/2012 regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters.
The European Commission focuses on automatic exchange of information to be widely applied, per attached reference. Section B.1, Access to Information, provides: Competent authorities of the third country concerned have the power to obtain and provide information that is the subject of a request under an agreement on exchange of information, from any person within their territorial jurisdiction who is in possession or control of such information.
Best Practice points to consider:
- Globally consistent process of providing tax information to all tax authorities
- Coordination of local Business/Regional & Corp. HQ for all transfer pricing responses to tax authorities
- Educating Business Units re: Ways of Working by tax authorities for a better understanding of global risks
- Ensuring local Business Units are aware of general transfer pricing methodologies utilized
- Continual awareness of Business Finance Leaders of transfer pricing risks and exchange of information