Strategizing International Tax Best Practices – by Keith Brockman

Author Archive

Debt/cap review: Finland/US/…

Finland is expanding its rules on interest deductibility, including additional breadth over the OECD/BEPS Actions.  Finland is following many other countries, in disallowing such deductions while not providing a deferral/exemption of interest income in the related jurisdiction for interest income.

Additionally, US tax reform has also introduced new interest limitation rules, based upon a 30% tax adjusted EBITDA concept.

This is the ideal time to review one’s capital structure worldwide; is it achieving the economic interests that were in place?  Most MNE’s will be affected in one or more countries from the BEPS, and expanded BEPS, actions by many countries.  The expanded legislative framework dictates a new review of global capital structures.

https://home.kpmg.com/xx/en/home/insights/2018/01/tnf-finland-proposed-changes-to-interest-deduction-limitation-rules.html

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OECD

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BEPS update: ICAP

Attached are the latest BEPS developments; of particular importance is the International ComplianceAssurance Programme (ICAP).  This program is a voluntary program that focuses on the Country-by-Country (CbC) reports to openly discuss tax risks.

This is a welcome collaborative effort between the tax administrations and MNEs, vs. using the CbC reports to draw unfounded assumptions.

Tax audits should also use this approach at the beginning of an audit to foster understanding and risks.

Click to access 2018G_00553-181Gbl_The%20Latest%20on%20BEPS%20-%2029%20January%202018.pdf

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OECD, Tax Risk Management

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Leadership: 2018

Annual reviews are now being discussed, with employees wondering what technical goals and objectives lie ahead.

Most importantly, the art of leadership skills and training should be a required attribute on everyone’s agenda.  There are books for self-learning, and also real-time training can be conducted via leading small cross-functional meetings, being a champion on projects for coordination, and team activities

Leadership and developing leadership skills, in addition to requisite technical abilities, are what will make the difference for everyone.

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Tax Risk Management

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Italy: New web tax & PE

The Italian Budget has enacted a 3% web tax, and a new PE definition based on economic, vs. physical, presence.

The Tax is due by the buyers of the above services unless the supplier declares in the invoice that it has not reached the threshold of 3,000 transactions in the calendar year.

The PE definition goes beyond the OECD’s intent, and will certainly lead to additional disputes in Italy and other countries developing such a subjective measure that also attracts double taxation.

EY’s global tax alert provides additional details as reference.

Click to access 2017G_07179-171Gbl_Italy%20enacts%20Web%20Tax%20and%20new%20PE%20definition.pdf

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PE

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US Tax Act: Foreign earnings

As a further update to the US Tax Act, SEC has provided a 1-year window to provide a reasonable estimate with continual true-ups for a 1-year period to finalize the complex tax accounting effects.  Note that APB 23 is still alive, which has prompted several questions on its application against the background of the deemed repatriation transition tax.

The Act will significantly change earnings disclosures in the near future and the US debt market where debt may be more expensive due to interest limitations.

EY’s update provides details and relevant links for reference.

Click to access 2017G_07177-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2029%20December%202017.pdf

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Tax Risk Management

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US Tax Act: SIT implications

McDermott Will & Emery highlights the state tax effects of the deemed repatriation and GILTI tax; some of which may not may be intuitive.  The deemed repatriation income is included under Sec. 951(a), whereas the GILTI inclusion is includable under new Sec. 951A.

The concept of special deductions also is highlighted for further analysis.

Note, as different technical details of this bill are further reviewed, the SIT aspect becomes even more complex with timing issues by states not uniform from the federal changes.

The deemed repatriation inclusion will be includable in 2017 US federal income tax returns for calendar-year taxpayers, whereas most provisions will take effect in 2018 or later.

https://www.mwe.com/en/thought-leadership/publications/2017/12/state-tax-implications-repatriation-transition

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Tax Risk Management

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US tax bill passes House

One chamber (House) passed, on to the Senate later today!

http://www.cnn.com/videos/politics/2017/12/19/house-votes-tax-reform-bill-sot.cnn/video/playlists/president-trumps-tax-reform/

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Tax Risk Management

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US tax reform; imminent?

The House and Senate conferees agreed at the end of last week on a reconciliation bill to be forwarded this week for a final vote, and then signature (i.e. “enactment”) by President Trump.  An excellent summary of some key corporate provisions is included by McDermott, Will & Emery, and the actual text of the bill is linked for reference.

The complexity is abundant for year-end public company reporting, especially by US MNE’s, including a complex calculation of the accumulated foreign earnings upon which the one-time transition tax will apply.

It is not too soon to begin a discussion with auditors re: expected deliverables, especially concerning the practical aspects of the calculations that will be involved for year-end and the first quarter of 2018.

It is both a challenging and exciting time to be an international tax practitioner/advisor, as this is a revolutionary change in the history of US tax reform for all.

https://www.mwe.com/en/thought-leadership/publications/2017/12/tax-reform-conference-committee-reaches-agreement

Click to access CRPT-115HRPT-466.pdf

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Tax Risk Management

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French CbC: US certainty?

The French Parliament has announced rules for the transmission of the French Country-by-Country (CbC) reports by US MNE’s, although it is yet not 100% certain whether such rules are penalty proof or 100% certain.

As the US has not formally named France as a partner exchanging such information, these dialogues apparently continue.  Thus, all taxpayers should be monitoring this important area through year-end for future developments and additional certainty.

EY’s Global Tax Alert summarily describes the applicable procedures.

Click to access 2017G_07009-171Gbl_TP_FR%20CbCR%20requirements%20may%20impact%20US%20MNE%20groups.pdf

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OECD

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EU’s List is published: Uncooperative Jurisdictions

The Council of the European Union (ECOFIN) has published its list of uncooperative tax jurisdictions, numbering 17:

American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates

The listing criteria are focused on three main categories: tax transparency, fair taxation and implementation of anti-BEPS measures.

 

There are potential counter-measures that could be employed by other jurisdictions, and there is the possibility of other countries aligning such countries on a comparable list.  This list will be reviewed annually, thereby expanding or diminishing accordingly.

EY’s Global Tax Alert provides historical context for development of this list.

Click to access 2017G_06895-171Gbl_Council%20of%20the%20EU%20publishes%20list%20of%20uncooperative%20jurisdictions%20for%20tax%20purposes.pdf

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OECD, Tax Risk Management

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Senate tax bill

Amid the last-minute penciled-in amendments and heated discussions, the Senate Bill was narrowly passed by a vote of 51-49, with the text referenced herein.

The bill now moves to a reconciliation phase between the House and Senate, with such bill potentially forwarded to the President for signature before Christmas.

Several amendments were passed, including a phase-out of the corporate property expensing provision after 2022, reinstatement of corporate AMT and an increase of the deemed repatriation tax for accumulated foreign earnings (thereby achieving greater tax revenues for passage).

The 479-page bill is still incredibly complex, in effect layering upon the present US tax rules in many areas, and the final reconciliation stage will produce additional changes.  However, it is expected that the Senate’s provisions will largely remain in place as the votes are more critical for passage and major shifts in an already contentious bill may point to possible defeat of the bill, which President Trump is not willing to accept.

Next stage after passage: A review, starting now, of earnings and profits, etc. that will drive the relevant tax accounting adjustments required for year-end closing of the books for calendar-year taxpayers due to “enactment” of the bill prior to Dec. 31st.

https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rXqXuQfYbRas/v0

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Tax Risk Management

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UK: Post Brexit Customs

As the UK prepares for a post Brexit deal with the EU, details are emerging re: the customs rules that are being contemplated.  Needless to say, it will not be as simple as the EU framework that accommodates this system currently.

EY’s summary provides details and highlights to think about re: current supply chains and routes to market for goods entering or leaving the EU via the UK.

Click to access 2017G_06713-171Gbl_Indirect_UK%20Government%20introduces%20new%20Customs%20Bill.pdf

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Tax Risk Management

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France: Budget retribution

Due to the unconstitutionality of the 3% tax on dividend distributions outside the French group based on the equality principle, the French Parliament has imposed an additional surtax to rectify its budget deficit.

This legislation will increase, for large companies, the effective tax rate to 39.4% or 44.4%  depending on the size of the turnover.  Unfortunately, this additional tax will be imposed on the relevant large companies that did not make a prior distribution subject to the 3% tax that will now be refunded.

This tax increase was necessitated by the unconstitutionality of the original 3% tax; which imposes a learning that such taxes that may be unconstitutional should be claimed as a refund early in the process notwithstanding the final developments.  

Deloitte’s summaries provide further details on this development for reference.

Click to access dttl-tax-alert-france-6-october-2017.pdf

Click to access dtt-tax-worldtaxadvisor-171124.pdf

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Tax Risk Management

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Poland’s new law: interco. limitations

Poland’s Corporate Income Tax Law will be formally amended, effective 1/1/2018.

  • One of the most important provisions is the limitation in intercompany royalty and service payments, using an absolute limitation and EBITDA basis.  (Note, a corollary offset does not provide matching offsets for the income inclusion by intercompany affiliates.)

This limitation goes beyond the OECD’s guidelines, and extrapolates interest deductibility  that is veiled as a “base erosion” device.

Multinationals need to review and plan accordingly for this limitation, which provides some APA safe harbors obtained with the Polish Ministry of Finance.  To the extent an APA is not possible and the limitation is exceeded, a company’s effective tax rate will be increased by this legislation.  

EY’s summaries of this important development are included for reference:

Click to access 2017G_06049-171Gbl_Poland%20-%20APA%20to%20remove%20tax%20deductibility%20limitation.pdf

Click to access 2017G_06726-171Gbl_Poland%20passes%202018%20corporate%20income%20tax%20reform.pdf

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Tax Risk Management

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Climate change: Disclosures

Katharine Blue, U.S. sustainability services leader for KPMG, highlights the necessity for disclosing the risks of climate change, which many companies are not yet adequately disclosing.

The KPMG Survey of Corporate Responsibility Reporting 2017 found that three-quarters of the largest companies worldwide by revenue (the G250) don’t acknowledge climate change as a financial risk. And nearly half of the largest 100 U.S. companies by revenue (the N100) don’t acknowledge financial risks of climate change in annual reports.

In 2015, Mark Carney, chairman of the Financial Stability Board (FSB) and chair and governor of the Bank of England, formed the Task Force on Climate-related Financial Disclosures (TCFD), the first international initiative to examine climate change in the context of financial stability.

There are two types of risk: physical and transition risks that should be reviewed for disclosure.

The referenced article provides valuable insight into this ever-growing issue, for which the lack of attention poses disclosure gaps/risks.  

http://ww2.cfo.com/risk-management/2017/11/companies-struggle-quantify-climate-risk/

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Tax Risk Management

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