Strategizing Multinational Tax Risks

EY’s Global Tax Alert provides the latest BEPS developments for the OECD, EU, Israel, Netherlands, Portugal, South Africa, Sweden, Switzerland, Uruguay and Chile.  Brief extracts are provided, with Best Practice comments, with the Tax Alert provided for reference:

Click to access 2016G_00742-161Gbl_The%20Latest%20on%20BEPS%20–%2025%20April%202016.pdf

OECD:

• Bermuda signed the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (CbC MCAA), becoming the 33rd signatory of this instrument.
• On 19 April 2016, the OECD released a communiqué announcing that together with the International Monetary Fund (IMF), the United Nations and the World Bank (collectively referred to as the “International Organizations”) have joined efforts to boost global cooperation in tax matters. The joint initiative, named “Platform for Collaboration on Tax” or simply “the Platform,” aims to produce concrete joint outputs and deliverables under an agreed work plan, strengthen dynamic interactions between standard setting, capacity building and technical assistance, and share information on activities more systematically.

The Platform will work on:

Developing appropriate tools for developing countries
Supporting developing countries to participate in the implementation of BEPS
Building effective tax systems and building awareness
Providing a venue for information sharing

The first of the toolkits addresses tax incentives and was issued in November 2015. The remaining seven toolkits will address the indirect transfer of assets (September 2016), transfer pricing comparability (October 2016), transfer pricing documentation (October 2016), tax treaty negotiation capacity (December 2016), base eroding payments (June 2017), supply chain management (March 2018), and BEPS risk assessment (March 2018).

The proposed amendments to the Accounting Directive would require large multinational companies operating in the European Union to draw up and publically disclose reports on income tax information, including a breakdown of profits, revenues, taxes and employees.  Note, this is an Accounting Directive that provides another legislative approach to implement transparency measures in addition to proposed EU Directives and/or separate country guidelines.  This is also another layer of complexity in reporting by multinational organizations, for which other countries may also adopt as part of statutory reporting that is public information.  This report will also dictate a Q&A proactive approach by organisations to address perceived gaps and comments by the public.  Such reporting, when finalized, should also be summarized to the Board of Directors as an alignment of their responsibilities.

Israel:

The concept of “significant digital presence” has been communicated in a circular to broaden the tax net for internet activities applicable for corporate income tax and VAT purposes.  Other countries have been, and will continue, embracing this subjective area of tax for additional revenue, albeit with subjectivity and avenues for additional disputes.

Portugal & South Africa:
Draft legislation adopting country-by-country (CbC) reporting has been published.  To the extent any US-based multinational thinks additional time is provided due to the potential 1-year lag for US CbC reporting, such legislation demanding obligatory reporting in the parent jurisdiction should reassess future internal reporting timelines and processes.

Switzerland:

A consultation process and draft legislation of CbC reporting for the 2018 tax year has commenced, with voluntary reporting for the 2016 and 2017 tax years.

Chile-Uruguay:

Chile and Uruguay signed a Double Tax Treaty that embodies several BEPS concepts, such as permanent establishment (PE) and hybrid mismatch arrangements.  Note, the new BEPS incentivized treaties are currently legislated in several countries, although the related BEPS guidelines may still not be finalized.  Accordingly, it is relevant to cross-check countries with significant transactions with the signature of new treaties.