Strategizing International Tax Best Practices – by Keith Brockman

Archive for February, 2017

EU: Broader CbC public disclosures envisioned

Members of the European Parliament (MEPs) have put forth additional recommended disclosures and requirements for the Accounting Directive of public Country-by-Country (CbC) reporting, prior to enactment of the original proposal.

The Accounting Directive allows a simple majority for passage, and involves additional complexities and cost as the OECD model is now just a starting point for new information.

The Parliament would also like to extend the proposal to include the following information in company reports:

  • The geographical location of the activities
  • The number of employees employed on a full-time equivalent basis
  • The value of assets and annual cost of maintaining those assets
  • Sales and purchases
  • The value of investments broken down by tax jurisdiction
  • The amount of the net turnover, including a distinction between the turnover made with related parties and the turnover made with unrelated parties
  • Stated capital
  • Tangible assets other than cash or cash equivalents
  • Public subsidies received
  • The list of subsidiaries operating in each tax jurisdiction both inside and outside the EU and data for those subsidiaries corresponding to the data requirements on the parent undertaking
  • All payments made to governments on an annual basis as defined in the Directive, including production entitlements, income taxes, royalties and dividends
  • The report shall not only be published on the website of the company in at least one of the official languages of the EU, but the undertaking shall also file the report in a public registry managed by the Commission

EY’s Global Tax Alert, referenced herein, provides the relevant details, although it appears the CbC report is not being construed as one tool for total transfer pricing assessment, but a public tool to determine one’s fair share of tax irrespective of the legal laws and limitations in each country.  

An alternative approach would be to design a standard (transfer pricing) audit template for the tax authorities that would include some, or all, of the above factors to the extent deemed important to assess a company’s tax liability in that relevant jurisdiction.  However, this non-public and Best Practice audit tool is not the focus in this post-BEPS world, to date.  

http://www.ey.com/Publication/vwLUAssets/EU_Parliament_members_submit_amendments_to_public_County-by-Country_Reporting_proposal/$FILE/2017G_00761-171Gbl_EU%20Parliament%20members%20submit%20amendments%20to%20public%20CbCR%20proposal.pdf

Beneficial ownership: Italy’s top court’s significant findings

For purposes of the French-Italian double tax treaty, Italy’s Supreme Court has rendered an important decision re: holding companies and the level of substance required to determine beneficial ownership.  This decision is fact specific, although is significant as it applies to pure holding companies and the subjective interpretations of beneficial ownership that are being applied globally.

The Supreme Court held that the status of beneficial owner is ultimately to be determined, as a matter of fact, based on the particular nature of the recipient holding company and the functions typically performed in its operations.

For a pure holding company, a level of organizational structure able to carry out an activity of mere coordination and control over the subsidiary, attend the shareholders’ meetings and collect dividends, should be deemed as adequate.  The analysis should instead be based on the actual capability of retaining the dividends received as opposed to having the obligation to repay them to another entity.

In particular, the Supreme Court did not find any merit to the proposition that the French company should be regarded as a conduit, concluding that a holding company that does not have the same organizational structure (premises, personnel, etc.) as an operating company does not necessarily mean that it would be regarded as not being the beneficial owner of dividends.

This case is very interesting as it does not rely on the regular substance of a regular operating company, and thoughtfully distinguishes the legal rights of a holding company to receive and hold dividends without an intertwined obligation to distribute such monies as one may find in a tax-driven conduit structure.

EY’s Global Tax Alert, provided for reference, is an interesting and refreshing insight into this subjective issue that merits no consistency on a global basis.

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