Strategizing International Tax Best Practices – by Keith Brockman

Archive for October, 2016

EU’s Dispute Resolution: Follow the leader

The European Commission issued a significantly important proposal for a Double Taxation Dispute Resolution; it hopes to remain a leader in this ever-changing international tax arena with a mandate for binding arbitration, as applicable, as one of the leading initiatives.  This proposal would require a unanimous adoption by all EU Member States (although UK’s vote may be considered to be of less significance as time moves on, it still counts).

Other proposals of the three-prong package include a renewed focus on the Common Consolidated Corporate Tax Base (CCCTB) and hybrid mismatches with third countries.  The last initiative is interesting, as the EU now seeks to expand its reach with those countries outside the EU.

Although each proposal is significant as a stand-alone initiative, the Dispute Resolution would provide the most benefit at a critical time for a win-win relationship going forward.

EY’s Global Tax Alert provides further details on this initiative for reference.

http://www.ey.com/Publication/vwLUAssets/European_Commission_announces_proposal_on_double_taxation_dispute_resolution_mechanisms_in_the_European_Union/$FILE/2016G_03538-161Gbl_EC%20announces%20proposal%20on%20double%20taxation%20dispute%20resolution%20mechanisms%20in%20the%20EU.pdf

US Sec. 385: Final reg’s at last

The US Treasury and IRS issued the long-awaited Sec. 385 rules re: debt characterization, documentation and potential impact on a company’s international treasury system and related borrowings/distributions.

There are some exemptions everyone was wanting: foreign-to-foreign transactions, cash pooling (notwithstanding related documentation), in addition to relaxed timing for documentation matched to the timing for filing the US federal income tax return and a transition rule pre-2018.  However, there are strict documentation rules re: cash pools, including a trigger for substantially modifying terms of the agreement and other significant changes.

Note, the new rules are in addition to the subjective rules on debt characterization in IRC Sec. 385, further complicating characterization of debt instruments.

EY’s Global Tax Alert provides a comprehensive summary of this latest development, which all multinationals are studying to determine what impact it has for 2016, and future operations.

As treasury operations and tax strategies/planning are ineffective operating in silo fashion, it is also a good time to assess the organizational structure for tax and treasury operations to ensure they are operating as one strategic unit.  

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_14_October_2016/$FILE/2016G_03341-161Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2014%20October%202016.pdf

Canada targets cash pools

As MNE’s (anxiously) await the final Treas. Reg. Section 385 final regulations (for which the House and Senate seem unable to slow down Treasury’s intent) and its potential impact on cash pools and foreign-to-foreign transactions, Canada has proposed rules providing for deemed dividend and withholding tax treatment for certain cash pool arrangements, notwithstanding notional pool arrangements.

The perceived abuse of cash pools, albeit physical or notional, has trumped the basic business tenets and rationale of international business.  As a result, significant complications have resulted in additional costs, compliance and regulatory oversight that stifles basic business transactions.

MNE’s with physical cash pools may have, or will need to, consider notional vs. cash pools as countries look at such opportunities with its sovereign right for revenues and source taxation.  Notional cash pools are no longer safe, as a result.

These non-intuitive rules should introduce discussions between tax administrations and MNE’s located in their jurisdiction to truly understand business dynamics prior to enacting draft/final rules affecting such instruments.  Until that time, MNE’s will have to consider restructuring that further begets questions of complexity and planning arrangements.

Details of Canada’s proposal are provided in EY’s Global Tax Alert provided as reference.

http://www.ey.com/Publication/vwLUAssets/Canada’s_proposed_legislative_amendments_may_tax_cross-border_notional_cash_pooling_arrangements/$FILE/2016G_03209-161Gbl_CA%20proposed%20leg%20amdmts%20may%20tax%20cross%20border%20notional%20cash%20pooling%20argmts.pdf

TEI: European Commission’s VAT Expert Group (re)appointment

As a long-standing advocate of Tax Executive Institute’s (TEI’s) expertise and peer networking for all executive tax members of multinationals, their reappointment as a member of the VAT Expert Group is a sound testament to their advice for the international tax community.

Additionally, TEI’s training programs, and opportunities to be a guest speaker, should be taken advantage of if one has the opportunity.

TEI Appointed as Member to the European Commission’s VAT Expert Group
TEI Staff

On September 30, 2016, the European Commission reappointed TEI as a member of the VAT Expert Group for a three-year term. The VAT Expert Group was established in 2012 for the purpose of “advis[ing] the Commission on the preparation of legislative acts and other policy initiatives in the field of VAT” and “provid[ing] insight concerning the practical implementation of legislative acts and other EU policy initiatives in the field of VAT.” The VAT Expert Group’s next meeting will take place on October 17, 2016 in Brussels.

TEI has participated as a member of the VAT Expert Group since its inception. Allard van Nes will continue to continue to serve as TEI’s primary representative and Lorry G. Limbourg will serve as Mr. van Nes’ alternate. TEI wishes to thank Lynne Clare for her work as the alternate representative during TEI’s prior terms.

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