Strategizing International Tax Best Practices – by Keith Brockman

Archive for December, 2015

Argentina’s FX Controls eased

Argentina has eased its foreign exchange controls, effective this month.  The changes affect imports, services, repatriations and bank controls.  Deloitte’s International Tax Alert provides further details:

Click to access dttl-tax-alert-argentina-26-december-2015.pdf

Foreign exchange controls are important to monitor, as they affect transfer pricing, cash funding/repatriation, timing of reimbursements and contemporaneous documentation requirements for clearance.  Argentina’s announcement is good news for international business, and it is hopeful that other countries with similar controls follow their lead.

Tax and treasury practices should be integrated with respect to foreign exchange controls to gain maximum efficiencies in any organization.

 

Place of effective management: India’s creativity anew

India’s Ministry of Finance has issued draft guiding principles for determining the place of effective management (POEM).  The Finance Act of 2015 contained provisions providing for the significant change in determining POEM, to be effective April 2016.  The guidelines have a comment period until 2 January 2016; a link to the guidelines is provided:

Click to access POEM-note-for-uploading.pdf

The guidelines present subjective determinations of determining POEM based on substance over form and a recurring annual test.  There are presumptions, such as location for a majority of Board meetings, with exceptions based on facts and circumstances.

As drafted, the new guidelines present increased uncertainty for multinationals having any operations or services with Indian residents, thus this latest report should merit high priority due to the April 2016 effective date, as well as brief period provided for comments.

 

 

Brazil: Holding company test

Brazil has placed Dutch holding companies back on its list of privileged tax regimes, as it has determined that such companies that do not have “substantial economic activity” will be subject to adverse Brazilian tax consequences.  EY’s Global Tax Alert provides additional details:

Click to access 2015G_CM6098_BR%20places%20Dutch%20holding%20cos%20wout%20substantial%20eco%20activity%20back%20on%20PTR%20list.pdf

Best Practices: All multinationals should review not only Dutch holding companies, but all holding companies to test economic substance.  Russia has enacted recent rules on beneficial ownership, also looking at economic substance to determine the availability of treaty benefits.  Other countries are expected to be more active in this subjective determination, thus this will be a topic for disputes gong forward.

A Holiday Wish

Merry Christmas and Happy Holidays to all: best wishes for a healthy, happy and joyous holiday season!

All the best,

Keith

 

CbC: US proposed Reg’s – a question of timing

The US Treasury has released proposed Regulations setting forth details for country-by-country (CbC) reporting by US-based multinationals.  A link to the proposed Reg’s is provided:

Click to access 2015-32145.pdf

The proposed Reg’s have been issued for comment, and two significant timing issues arise in the current version:

  1. Final Regulations would not take effect until tax years beginning after publication in the Federal Register, which would be 2017 for calendar-year taxpayers.
  2. The CbC report would be submitted to IRS with the US corporate income tax return, due Sept. 15.

Although the proposed Reg’s are conformed to the OECD model and have been purposeful in its comments on confidentiality and the exchange of information provisions for CbC reporting, the timing mismatch for the 2016 tax year presents a complexity that hopefully will be overcome in the Final Regulations.  If no changes are made to the effective date, the 2016 tax year would be a dysfunctional method of reporting around the world, based on whom are considered surrogate entities or determining which countries have rules that provide for direct submission to their tax authorities absent a US requirement.  

Additionally, the submission of the CbC report by Sept. 15 accelerates the year-end timing envisioned by the OECD.  This acceleration should be expected by multinationals, thereby leaving less time to coordinate and review the information via developing an efficient and sustainable CbC reporting process.

 

 

US int’l update

The US House and Senate have paved the way for the President’s signature on a bill that extends important international tax topics:

  • Subpart F active financing exception – permanent extension
  • 5-year extension of the CFC look-through rule (through 2019)

A summary of the bill is provided in EY’s Global Tax Alert:

Click to access 2015G_CM6082_Report%20on%20recent%20US%20international%20tax%20developments%20-%2018%20December%202015.pdf

Separately, the US has also indicated that regulations should be forthcoming before year-end for the country-by-country (CbC) reporting rules, which is good news for many.

These rules should provide some international tax certainty for US-based companies, notwithstanding the absence of significant reform for the worldwide tax system.

France: New legislation

The French Parliament has approved the 2016 Finance bill, subject to constitutional review. A summary of the provisions are provided in EY’s Global Alert:

Click to access 2015G_CM6081_French%20Parliament%20approves%20Finance%20Bill%20for%202016%20and%20Amending%20Finance%20Bill%20for%202015.pdf

Key points:

  • Country-by-Country (CbC) reporting is adopted for French parented multinational companies, consistent with OECD Guidelines.
  • Compulsory e-filing.
  • Annual filing of transfer pricing documentation.
  • Effective 1/1/2016, intra-French distributions will be subject to a 1% taxable income inclusion, as well as distributions received from EU or EEA qualifying subsidiaries.
  • The general anti-abuse clause of the amended EU Parent-Subsidiary Directive is adopted.
  • The 2015 AFB amends the French participation exemption regime, as well as the withholding tax (WHT) treatment applicable to dividends distributed by French entities to EU resident entities, in order to comply with the EU Directive 2011/96/UE dated 30 November 2011.

The new rules pose additional burdens for distributions within a French tax group, while recognizing CbC reporting and being proactive with respect to the filing of transfer pricing documentation.  Accordingly, it should be followed as other countries adopt similar rules in the near future.

 

 

France: CbC public reporting receives a last-minute “no” vote

Following up the post of 8 December, France’s National Assembly provided a last-minute “no” vote with respect to providing country-by-country (CbC) reports for the public domain.

This has incited an outcry by the enthusiasts behind the transparency measure for additional insight into a multinational’s global tax posture.

Notwithstanding the “no” vote in France, this scenario is expected to emerge in other countries as the OECD BEPS implementation of CbC reporting is established in the local legislative frameworks.

In summary, the premise of multinational organizations for public CbC reports should still be the framework behind the date gathering process that is commencing.

EU Council: New Directive

The EU Council has provided a Directive that would introduce legislation ensuring the EU maintains its leadership role in anti-BEPS recommendations, as well as providing good tax governance for the rest of the world.  EY’s summary of the Directive is provided for reference:

Click to access 2015G_CM6047_EU%20Council%20adopts%20directive%20on%20exchange%20of%20info%20on%20tax%20rulings,%20agrees%20on%20other%20corporate%20tax%20issues.pdf

Key points:

  • Automatic exchange of tax rulings would be effective 1/1/2017.
  • Changes would be introduced for the EU Code of Conduct.
  • EU anti-BEPS proposal to include the following BEPS Actions:
    • 2: Hybrid mismatches
    • 3: CFC rules
    • 4: Interest limitations
    • 6: General anti-abuse rule (noting its inclusion for the Royalty & Interest Directive, similar to the Parent-Subsidiary Directive)
    • 7: PE status
    • 13: Country-by-Country (CbC) reporting
  • Common Corp. Tax Base (absent later consolidation phase) proposal to be introduced in 2016

The EU continues its pace to maintain its global lead in addressing anti-BEPS concerns, which will impact non-EU countries around the world.  Thereby, it provides another set of rules that would be mandated to achieve EU conformity.

 

 

 

TAXE’s term ends; a new committee carries on

The term for European Parliament’s special committee on tax rulings and other measures (TAXE) has ended, and the European Parliament has introduced a similar committee for an additional six-month term.  The new committee shall also have 45 members.

As with TAXE, one of the powers of the new committee is “to analyse and assess aggressive tax planning carried out by companies established or incorporated in the Member States, also regarding the third-country dimension including the exchange of information with third countries in this respect.”

A link to the announcement is provided for reference:

Click to access 20151202RES05870.pdf

This new committee signifies EU’s continued focus on aggressive tax planning and transparency, with many countries following its lead.

Public CbC reporting: France moves forward

France’s lower house of Parliament has approved an amendment that would require public reporting of country-by-country (CbC) information.  The amendment will need approval by the Senate, with final confirmation by the French National Assembly before being enacted.

This step represents another move forward, along with the EU proposals, to provide CbC information to the public domain.

Multinational companies should prepare today for public CbC reporting in the near future, as the cannon shots have been fired and they will soon land, resulting in a multitude of inquiries and perceptive conclusions.  Additionally, organisations should have a seamless process to receive, review and decide on communicative courses of action in response.

LOB: European Commission takes aim

The European Commission has aimed its sights upon the Limitation on Benefits (LOB) provision between Netherlands and Japan.  Netherlands has been asked to change this treaty provision on the grounds that it is incompatible with EU law.

As the LOB provision is widely used in the US treaty network, as well as many other countries, the impact of this recent development may expand exponentially with global ramifications.  Accordingly, this pursuit should be closely followed.

Deloitte’s summary is provided for reference:

http://www2.deloitte.com/nl/nl/pages/tax/articles/european-commission-challenges-lob-in-treaty-with-japan.html

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