Strategizing International Tax Best Practices – by Keith Brockman

Archive for June, 2013

Board Oversight and Responsibilities for Tax Risk Management

http://www.cica.ca/focus-on-practice-areas/governance-strategy-and-risk/directors-series/director-briefings/item74308.pdf

http://www.itdweb.org/documents/Erle.pdf

Two excellent articles are linked to review Best Practices for tax risk management from a Board perspective.  The first article is by the Canadian Chartered Professional Accountants and poses various questions and concepts for Directors to ask.  The second article, approached from a practitioners point of view, was written by a KPMG partner.  A related article is also attached as reference at the end of this posting.

The first article reviews various tax risks, including risks of tax planning and subsequent implementation, financial disclosures, tax compliance and audits.  Examples of interesting insights and questions include the following:

  • Are outside consultants an integral part of tax planning?
  • Are direct, and indirect, tax risks addressed?
  • What are the capabilities of internal resources?
  • Are post implementation monitoring processes in place?
  • What are the trends of tax authorities in major jurisdictions?
  • How does the company keep up with change?
  • Is reputational risk considered in tax appeals or court filings?
  • What is the mindset of internal management in foreign jurisdictions re: alignment of overall strategies?
  • What are the source of tax planning ideas?
  • Have tax saving opportunities been missed?

The second article entitled “Tax Risk Management and Board Responsibility” defines a  tax philosophy and establishment of a Tax Risk Framework.  A tax philosophy pyramid is presented that correlates to tax risk.  In addition, the following components of a Tax Risk Management Strategy are discussed:

  • Strategy
  • Risk management
  • Tax profile, relationships and communication
  • Processes and technology
  • Internal qualifications of tax staff

Both articles are excellent reading, and should form a basis for Best Practices to ensure alignment with Board responsibilities and expectations.

OECD FTA MAP forum to develop Best Practices

A new forum, open to all members of the Forum on Tax Administration (FTA), will convene later this year to discuss Best Practices for improving MAP.  Topics that may be discussed include:

  • Development of a strategic plan
  • Resource limitations
  • Relationship building
  • Identifying trends in disputes
  • Increasing APA’s and accelerated CA procedures
  • Roll-over adjustments
  • Multilateral case procedures
  • Taxpayer’s involvement in MAP resolution
  • Achieving certainty sooner for a win-win result

This new forum will be an interesting development for all.

OECD report to the G20: Status, training, effectiveness

http://www.oecd.org/tax/2013-OECD-SG-Report-to-G20-Heads-of-Government.pdf

The OECD report provides relevant information worthy of review, including the following items:

  • 119 member jurisdictions have committed to the Transparency & Exchange of Information initiative (except for Lebanon),
  • Status of ongoing technical assistance and training objectives,
  • Competent Authority database is in place, containing information for over 70 jurisdictions,
  • Measurement techniques to determine effectiveness, and
  • Appendices listing various factors in providing exchange of information, including confidentiality provisions, rights and safeguards.

These notable efforts are ongoing, providing timely and informative information that should be shared.

Best Practice Correlation: Risk Governance & Tax Resources

Tax jurisdictions and authorities are increasing their global focus in all aspects of tax risk, most recently promoting Beneficial Ownership transparency rules and other initiatives at the G8 Conference.  Conversely, multinational tax teams should also be increasing their resources, and time spent, on addressing global tax risks, enhancing internal governance including a Tax Risk Framework / Policy, scenario planning, and informing the business.

We can view this correlation as the increased significance of tax risks, including reputational risk, compared to tax resource allocation for risk governance.  It may also be beneficial to distinguish internal and external tax resources used in the risk methodology.  The comparison may provide interesting results, from which the proper emphasis could be used to form additional Best Practices.  This comparison could also be viewed in contrast to tax compliance and other tax projects for additional perspective.

I invite your comments on this thought, and Best Practices that you can share.

OECD Global Forum on Transparency and Exchange of Information: Activities

http://www.oecd.org/tax/transparency

The Global Forum has 120 members and is the premier international body re: implementation of internationally agreed transparency standards and exchange of information.  This Forum is very active in today’s tax environment, as demonstrated by its recent activities including:

  • 2nd meeting of the Competent Authorities on 30-31 May 2013, attended by 174 delegates from 77 jurisdictions.  Delegates shared procedures for Exchange of Information networks to tackle tax evasion, tools to enhance effective communication between Competent Authorities, as well as providing opportunities to  share experiences and practices.
  • Regional Training Seminar in Brazil 7-10 May 2013, attended by 70 tax administrators from Argentina, Brazil, Columbia, Costa Rica, Dominican Republic, El Salvador, Paraguay and Uruguay.  Panama and the United Kingdom provided expert trainers, focusing on an OECD overview of Exchange of Information, the 2012 update to Article 26 of the OECD Model Tax Convention and its Commentary, and the Multilateral Convention on Mutual Administrative Assistance.
  •   Regional Training Seminar in Dakar, Senegal 24-26 April 2013, attended by 20 tax authorities in 8 francophone African countries (Burkina Faso, Cameroon, Democratic Republic of Congo, Gabon, Morocco, Niger, Senegal and Tunisia).  The African countries are recent members of the Global Forum and will have Phase 1 peer reviews in 2014.  Belgium and Qatar provided expert trainers, focusing on the peer review process and preparation for evaluation of legal and regulatory frameworks for the exchange of information.

The activities of this Forum are visibly expanding transparency initiatives and the exchange of information around the world.  The recent G8 conference encouraged all countries to join in order to share mutual benefits.

Regional and global tax teams should review internal processes to ensure global consistency and adherence with internal governance protocols.  Additionally, a dialogue should be established between tax and the business leaders to heighten global awareness and ensure strategic alignment.

OECD: Tax Transparency report

http://www.oecd.org/ctp/exchange-of-tax-information/taxtransparency_G8report.pdf

This OECD report entitled “A Step Change in Tax Transparency” was prepared for the G8 meeting and summarizes recent developments, action plans for global automatic exchange of information and a feasibility assessment.

In today’s tax environment the exchange of tax information is quickly evolving and gaining momentum.  This report provides valuable context for discussion.

EU VAT forum / VAT Rulings test case

http://ec.europa.eu/taxation_customs/taxation/vat/key_documents/eu_vat_forum/index_en.htm

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/vat-forum-note-information_en.pdf

The EU VAT forum is a collaboration between tax authorities and business representatives to work on common interests.  The first link provides additional information, including a list of the member organizations that were appointed for a three year mandate starting on 1 October 2012.

Thirteen EU Member States have also agreed to participate in a test case for cross-border VAT rulings.  This program commenced on 1 June 2013 and is scheduled to last until 31 December 2013.  The link provides procedural rules for submission of a private ruling request.  The following Member States participate in this project:

  • Belgium
  • Estonia
  • Spain
  • France
  • Cyprus
  • Lithuania
  • Latvia
  • Hungary
  • Malta
  • Netherlands
  • Portugal
  • Slovenia
  • United Kingdom

It would be beneficial to follow developments of the EU VAT forum, including the test case for cross-border rulings, to build upon Best Practices developed globally and integrated into the tax risk framework.  Additionally, it would be an ideal time to form peer relationships, if not already developed, with business members of the EU VAT forum.

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