On October 19, 2017, Tax Executives Institute (TEI) filed a letter with the Platform for Collaboration on Tax, a joint initiative of the World Bank, OECD, International Monetary Fund, and United Nations, regarding the Platform’s draft toolkit on the taxation of offshore indirect transfers. TEI’s comments focused on the need for the Platform’s toolkit to educate and provide options to nations considering taxing offshore indirect transfers, rather than prescribing a preferred approach, among other things.
The Platform for Collaboration on Tax (the Platform), a joint initiative of the Organisation for Economic Co-Operation and Development, International Monetary Fund, United Nations, and World Bank, released a document entitled The Taxation of Offshore Indirect Transfers – A Toolkit (the Draft Toolkit or Toolkit) on 1 August 2017. The Draft Toolkit was designed to help developing countries address the complexities of taxing offshore indirect transfers of assets, which the Platform states is a practice by which some multinational corporations try to minimize their tax liability.
The toolkit and TEI’s submission paper are referenced herein for review
Highlights of TEI’s comments include the following points:
- There should be symmetry and neutrality as compared to direct asset transfers
- Status of toolkit is unclear, and is not a source of authoritative guidance
- The goal of the draft toolkit is unclear
- A capital gains tax can distort economic transactions
- Gains and losses should be the subject of the toolkit
- Most indirect transfers are made for economic, not tax, reasons
- The general treaty definition of immovable property seems to have been abandoned with no reason
The toolkit can be applauded for launching a multi-organizational approach with some good ideas, although such ideas should be further challenged and developed prior to an overall vision and detailed rules promulgated
Corporate responsibility (CR) reporting is becoming more of a norm for MNE’s, illustrated by KPMG’s report as referenced herein.
Apart from policies, such as Human Rights, that should be a basic component of every MNE’s policy and referenced to the UN standard, tax policies are becoming more of a public norm than ever before.
A UK tax risk strategy is required to be published by every significant UK taxpayer by 12/31/2017 on a public website describing the tax risks of the UK group and how they are managed on a macro and micro based level.
Global tax policies are also proactively published by major MNE’s as part of their Best Practices and Enterprise Risk Management efforts.
A basic global tax policy, published or not, should be a primary tool integral to Board and company governance. Tax risk management, including documentation thereof, will become more of a shout than a whimper by NGO’s, parliamentarians, tax advisors and internal governance standards of every MNE.
Tax policies are also becoming more integrated with business policies in corporate governance.
To the extent policies are lacking in an organization, now is the time to address this important aspect of risk management and Best Practice governance.
The US Senate passed their version of the Fiscal Year Budget 2018, an important step that leads to reconciliation of the budget this coming week by the House and Senate.
Following the budget reconciliation, allowing a majority vote for tax reform, US tax reform is now on the horizon for potential enactment by year-end 2017.
To the extent potential US tax reform has been on the backstage, or ignored by pessimists, this latest step should be a strong indication that everyone needs to understand the Framework, albeit brief, previously announced and advocated by President Trump.
Attention is now in the details, with significant tax and business consequences for the US and the world.
EY’s Global Tax Alert provides additional details on this latest development.
The South African Revenue Service (SARS) released its final notice re: requirements for filing the Country-by-Country (CbC) report, Master File and Local File, in alignment with OECD BEPS Action Item 13.
It is interesting that, pursuant to minimum thresholds, both a Master File and Local File are required to be filed, rather than only the Local File. This may become more of a norm, versus an exception, as the global transfer pricing and risk environment will need to be reviewed in alignment with local business operations. Hopefully, the review will encompass confidential limitations on the information received and will only encompass transfer pricing practices of the local operations rather than extend CbC presumptions or Master File analogies against the local data.
EY’s Global Tax Alert provides the relevant details of the SARS requirement.
The European Commission (EC) has proposed a new set of rules that is meant to introduce efficiencies into long-standing current practices.
The new principles include:
- One Stop Shop
- Destination principle, with VAT on goods collected by the selling State and transferred to the State of destination
- Charging VAT on cross-border trade
- “Certified Taxable Person” certification allowing simpler EU principles to apply
- Quick fixes, including storing goods in another Member State
The EY Global Tax Alert is included for reference, which thereby includes links to the related proposals.
This proposal is significant for all businesses trading in the EU, and its principles should be reviewed to enable proactive planning.
OECD has published new handbooks, one of which relates to country-by-country (CbC) reports and how tax administrations can incorporate this information into their tax risk processes, inclusive of risk tools and governance processes.
Other reports/handbooks have also been issued that will be a valuable reference:
- Tax Administration 2017
- The Changing Tax Compliance Environment and the role of audit
- Shining Light on the Shadow Economy
- CbC: Handbook on effective implementation
I have linked a valuable reference took to assess US sales and use tax risk that will be helpful in understanding the differences between the “sales” and “use” components as well as the controls and systems necessary to control such risks in a Sarbanes Oxley “SOX” environment.
Most importantly, the tax function needs to be involved in monitoring contracts in which this risk may be evident, prior to execution of the document. Sometimes, the sales/use tax function may not be a tax function, albeit within finance or the controllership area. However, this area of tax is increasingly subjective, complex and requires the input of technical internal/external advisors to avoid large surprises and audit assessments across the country.
Additionally, foreign corporations may also want to review any inbound US activities, and related contracts, to assess potential US sales/use and state income tax obligations due to “nexus” within the borders of a state.