Strategizing International Tax Best Practices – by Keith Brockman

Archive for November, 2013

EU Parent-Sub Directive: GAAR/Mismatch proposals

The proposals for the EU Parent-Subsidiary Directive have been published, with a summary and KPMG review in this post.

Proposed amendments on 25 Nov., 2013

•    Domestic law implementation

•    Financial mismatches (PPL, hybrids, etc.)

•    GAAR:

Artificial arrangements: to gain improper tax advantagesand defeats object, spirit & purpose of tax provisions

•     Compliance with Directive by 31 Dec. 2014

Determination of artificiality (one or more):

•     Legal characterization, vs. legal substance, of individual steps

•     Does not reflect economic reality

•     Arrangement is not ordinarily used in reasonable business conduct

•     Arrangement has offsetting or cancelling elements

•     Transactions are circular in nature

•     Arrangement results in a significant tax benefit which is not reflected in the business risks undertaken by the taxpayer

https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/eu-nov25-2013.pdf

This proposal follows GAAR implementations by several countries in advance of the OECD BEPS Action Plan.  This subjective anti-avoidance action should be followed, as other countries will also be examining the relevant wording and guidance therein.

Tax transparency & Country reporting: PwC briefing

The timely and comprehensive PwC update is insightful into the various aspects of the transparency and country-by-country reporting initiatives.  Selected topics include:

  • Extractive Industries Transparency Initiative (EITI)
  • Dodd-Frank Wall Street Reform and Consumer Protection Act
  • EU Directives on Accounting and Transparency
  • EU Capital Requirements Directive (CRD IV)
  • Appendices re: country-by-country reporting information requirements, EITI reporting framework, EU Accounting and Transparency Directive requirements, and EU Capital Requirements Directive IV.

http://www.pwc.com/en_GX/gx/tax/publications/assets/pwc_tax_transparency_and-country_by_country_reporting.pdf

This guide is a valuable overview of the multiple initiatives re: transparency and country-by-country reporting.  Tax executives should use this guide in developing a conceptual tax framework for providing summary/detailed data, developing a relevant methodology for capturing such information and providing supplemental information that may be beneficial.

 

Parent Sub Directive: EU Anti abuse proposals

European Commission tackles tax avoidance: tightening key EU corporate tax legislation

http://europa.eu/rapid/press-release_AGENDA-13-40_en.htm

On 25 November, the European Commission will adopt a proposal to amend the Parent Subsidiary Directive (2011/96/EU) in order to close off opportunities for corporate tax avoidance. The Parent Subsidiary Directive was originally conceived to prevent the double taxation of same-group companies based in different Member States. However, loopholes in the Directive have been exploited by some companies to avoid paying any taxes at all. The proposal aims to close these loopholes. First, it will introduce a common anti-abuse rule into the Directive. This will allow Member States to ignore artificial arrangements used for tax avoidance purposes and to tax on the basis of real economic substance. Second, it will ensure that the Directive is tightened up so that specific tax planning arrangements are no longer eligible for the tax exemptions provided under the Directive.

The background:

The issue of corporate tax avoidance is very high in the political agenda of many EU and non-EU countries, and the need for action to combat it has been highlighted at recent G20 and G8 meetings.

One of the key problems to be addressed is that of double non-taxation i.e. where loopholes in national tax systems are exploited by companies to pay no tax at all. Double non-taxation deprives Member States of significant revenues and creates unfair competition between businesses in the Single Market. Tackling this problem requires urgent and coordinated action at EU level.

On 6 December 2012 the Commission presented an Action Plan for a more effective EU response to tax evasion and avoidance. This action set out a comprehensive set of measures, to help Member States protect their tax bases and recapture billions of euros legitimately due (IP/12/1325). The revision of the Parent Subsidiary Directive is one of the measures announced in the action plan.

The event:

Algirdas Šemeta, the European Commissioner for Taxation, Customs, Anti-Fraud, Statistics and Audit will present the proposal at the midday briefing in the Commission’s press room. Press materials will be available on the day.

  1.  Available on EbS

The sources:

Information on fight against tax fraud and evasion:

http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm

Information on Commissioner Šemeta:

http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm

This important proposal should be monitored by all multinationals re: potential impacts upon current or future planning and relevant documentation.

South Africa’s Davis Tax Committee: Update / BEPS alignment & input

Following his 2013 Budget announcement, the Minister of Finance publicised the members of a tax review committee on 17 July 2013. The committee, now known as the Davis Tax Committee (DTC), will examine the role of South Africa’s tax system to promote growth, job creation, sustainable development and fiscal self-reliance. It will take the long term objectives of the National Development Plan into account in its work.  The following links provide reference to the DTC homepage and biographies of its members.

http://www.taxcom.org.za/aboutus.html

http://www.treasury.gov.za/TaxReviewCommittee/Tax%20Review%20Committee%20-%20Brief%20Biographies.pdf

Using its Terms of Reference as the point of departure, the DTC has adopted a work programme that has prioritised the establishment of specialist sub-committees on small businesses, the appropriateness of the tax base and tax mix in South Africa, and base erosion and profit shifting (BEPS).

The DTC has also adopted an approach that is participatory and consultative. This will provide for wide engagement with all stakeholders. Special dialogue sessions are arranged on an ongoing basis to take into account a diversity of interests and opinions. The DTC accordingly calls upon all interested parties to make use of the opportunity to contribute to the mentioned priorities for now.

Top priority of the DTC at the moment is to address ways in which the tax system can be improved to facilitate entrepreneurship and the growth of small businesses. Various tax packages already exist to encourage small businesses. The DTC needs to review these packages to find an optimal tax package that assists small businesses in contributing towards economic growth and reducing the high unemployment rate. Urgent contributions in this regard will be most welcome by 20 November 2013.

Contributions with regard to the tax burden and tax mix are invited by 30 November 2013. The BEPS Sub-Committee is working on a longer timeframe that is aligned with the OECD BEPS Action Plan. Contributions with regard to BEPS are welcome by 31 January 2014.

All contributions can be made via e-mail to taxcom@sars.gov.za . More details on the work of the DTC and its Terms of Reference can be found on its website, http://www.taxcom.org.za .

For multinationals with operations in S. Africa, it is beneficial to maintain reference to the operations of the DTC, their alignment with the OECD BEPS Action Plan and provide input, as applicable.  

Nigeria: New TP Division & Disclosure forms

In concert with the global emphasis on transfer pricing, Nigeria’s Federal Inland Revenue Service (FIRS) has issued new transfer pricing  (TP) forms to be filed with the annual corporate income tax returns for 2013.  Additionally, a new Transfer Pricing Division has been implemented following Best Practices by other tax administrations.

A Transfer Pricing Declaration form and Transfer Pricing Disclosure form are released to implement the TP regulations issued in 2012. The Transfer Pricing Declaration form includes information on the company’s directors and parent company, whereas the Transfer Pricing Disclosure form requests information about the company’s performance in relation to the group, in addition to disclosure of zero consideration goods, services, or intercompany loans.

The new disclosures highlight the trend for increased disclosures, for which there should be Best Practices implemented to ensure timely compliance and global consistency of tax reporting positions.

A KPMG summary is included as an insightful reference.

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Pages/nigeria-new-transfer-pricing-forms-dedicated-tax-office.aspx

OECD Task Force on Tax & Development: Meeting update

The OECD Task Force’s role is to advise the OECD Committees in delivering a Tax and Development Programme focused on developing countries.  Co-chaired by South Africa and the Netherlands, its members include OECD and developing countries, business, and regional/international organisations.

http://www.oecd.org/tax/tax-global/taxanddevelopment.htm

http://www.oecd.org/tax/tax-global/taskforce-tax-development-korea-outcome-statement.pdf

The annual meeting was held 30-31 October in Seoul, Korea, with the following points of emphasis.

  • State building, accountability and effective capacity development, including governance of tax incentives and a feasibility study on Tax Inspectors Without Borders initiative (9 June post)
  • More effective transfer pricing regimes in developing countries, with country initiatives in Columbia, Ghana, Honduras, Kenya, Rwanda, Tanzania and Vietnam developed in partnership with the EU and World Bank.
  • Increased transparency in the reporting of financial data by MNEs, identifying Best Practices while monitoring developments of the Dodd-Frank Act and proposals for revising the EU Transparency Directive.
  • Countering international tax evasion/avoidance and improving transparency and exchange of information, preparing countries for peer reviews by the Global Forum on Transparency and Exchange of Information and developing exchange of information projects in Kenya and Ghana.

The report provides added value with numerous links to referenced initiatives (i.e., Tax Inspectors Without Borders, EU Transparency Directive) for a comprehensive understanding of the multiple initiatives being developed.

UK transparency initiatives announced

The Prime Minister announced that ownership details of UK companies will be made publicly accessible.

This announcement was preceded by a Discussion Paper in July 2013 outlining various proposals of the initiative, including the statement in paragraph 11: “The names of legal owners appear on an individual company’s share register, which is publicly available.  But if we want to know who really owns and controls a company, we must identify its beneficial owners too.  The beneficial owners are the individuals that ultimately own or control the company – either because they hold an interest in more than 25% of the company’s shares or voting rights; or because they control the management of the company in some other way.”

Links to the announcement, Discussion Paper, and executive summary of the Discussion Paper are attached for reference.

https://www.gov.uk/government/news/public-register-to-boost-company-transparency

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223909/bis-13-959es-transparency-and-trust-enhancing-the-transparency-of-uk-company-ownership-and-increaing-trust-in-uk-business-executive-summary.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/212079/bis-13-959-transparency-and-trust-enhancing-the-transparency-of-uk-company-ownership-and-increaing-trust-in-uk-business.pdf

This initiative is likely to be followed closely by other countries, and details requiring UK disclosure should be reviewed early to adopt Best Practices and address questions arising in the UK and around the world from this public disclosure announcement.  

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