Strategizing International Tax Best Practices – by Keith Brockman

Author Archive

OECD: A Framework for Co-operative Compliance

http://www.oecd.org/tax/administration/co-operative-compliance.htm

This insightful report focuses on practical experiences of 24 countries, with a chart summarizing each country’s status for this initiative.  Additional features are identified leading to successful “co-operative compliance” strategies.

A framework is developed, based on a business case approach, for revenue authorities to measure results, and success.  The report adopts a systematic approach to tax risk and discusses the five pillars established in 2008 based on understandings for:

  • Commercial awareness
  • Impartiality
  • Proportionality
  • Openness through disclosure and transparency
  • Responsiveness

Evolving concepts include:

  • Future direction of initiatives
  • Multilateral co-operative compliance
  • Approaches by tax authorities to measure results and success.

The report provides useful links in Appendix A for country specific information and is an excellent reference to develop further understanding into this rapidly growing initiative, while providing a foundation for Best Practices including:

  1. Documentation of the current enhanced relationship / co-operative compliance methods in use.
  2. Reviewing available co-operative compliance programs for the 24 countries in the report.
  3. Developing a process determining if, when and how the voluntary programs are to be adopted.
  4. Developing a measurement for success based on current initiatives, as well as benchmarking results and experiences with your peers.
  5. Reviewing this evolving initiative annually.
  6. Developing Memorandum of Understanding learnings, as programs are both formal and informal in approach.
  7. Advising regional teams of country developments for continual awareness and future opportunities.
  8. Comparing resource limitations with potential benefits for future co-operative compliance initiatives.

Category:

Audits, OECD / UN, Tax Risk Management

Tagged with:

Global Tax Policy in 2013: report by Ernst & Young LLP

Click to access TPC_outlook.pdf

This informative publication reviews tax policies in 60 countries, against a backdrop of today’s tax environment with continuing controversy and disputes as countries pursue general anti-avoidance rules (GAAR) and suggest public disclosure initiatives for tax payments by multinational corporations.

As OECD and UN tax initiatives are increasing in scope, coupled with developing countries continually evolving their tax proficiencies, this publication provides valuable context for the present and expectations in the near future.

Category:

Tax Risk Management

Tagged with:

OECD: Tax Inspectors Without Borders 2013 initiative

Click to access Tax-Dev_3_CoChair_Statement.pdf

The OECD’s Task Force on Tax and Development will use this concept to assist developing countries by providing international auditing expertise and advice to better address tax base erosion, including tax evasion and avoidance.  This initiative  is led by the Commissioner General of the South Africa Revenue Service, South Africa’s Deputy Finance Minister and Director of the OECD’s Centre for Tax Policy and Administration.

The Tax Inspectors Without Borders program will match demand from countries requesting international tax audit assistance with a supply of international experts, primarily consisting of tax inspectors in other tax administrations.  Accordingly, the experts will now be made available to developing countries.

The initiative is being launched this year, thus communication with the auditors in developing countries should include a discussion on the use of this concept, a listing of the respective experts and the communications that could be shared with the corporation.

It will be interesting to see the development of this initiative, the sharing of information, memorandums of understanding with the corporation or, absent an explicit statement that the country is using this initiative, any impact on the appeal process resulting from assessments of this sharing program.  Additionally, it would be interesting to compare the developing countries that use this program versus, or along with, tax training from the United Nations, posted in the blog dated 2 June 2013.

Category:

OECD / UN, Tax Risk Management

Tagged with:

GAAR: India & International Perspective

Click to access pwc-white-paper-on-gaar.pdf

This publication provides a very interesting treatise on the development of GAAR in India, including an international perspective in Appendix B for the United States, S. Africa, Germany, China, Canada, United Kingdom and Australia.

Importantly, the publication sets forth the OECD definitions for tax evasion, tax avoidance and tax planning for clarity.

This concept is increasing in importance, and should be followed closely with ideas of forming Best Practices re: tax planning, tax documentation, etc.

Ideas for Best Practice consideration:

  • Address the concepts of GAAR, formal or informal, as part of every tax planning exercise.
  • Ensure the global tax team is informed about the latest GAAR developments to increase awareness and responsibility.
  • Brainstorm ideas about GAAR, forming Best Practices for the organization.
  • Proactively ask for input from external advisors to gain different perspectives on this evolving topic.
  • Share your ideas with your peers from other organizations for a win-win result.

Category:

Tax Risk Management, Transfer Pricing

Tagged with:

New Tax Developments: Creating Efficiency & Effectiveness in a Tax Organization

We are all confronted with receiving several daily emails from many sources focused on the latest developments in all areas of tax: International, Federal, State, Direct / Indirect Taxes including VAT, etc.  Individuals in a tax organization, located in various parts of the world, generally try to browse the latest news for their area of responsibility, creating duplication of effort and the collective loss of valuable time.  Additionally, as tax responsibilities increase with limited talent resources and budget constraints, it becomes exponentially more difficult.  Opportunities may be lost, while risks of “not knowing” are also increasing.  The obligation to use new knowledge effectively could be viewed as a process to potentially gain efficiencies.

The following ideas are provided for consideration:

  • Share great resources and bookmarks with peers within your organization and global network, resulting in a Best Practice resource listing.
  • For tax teams organized by function, assign one team member of each function the daily task of reviewing the relevant sources of new developments, summarizing those articles that may be relevant and distribute to other team members to further investigate the impact upon the company and action steps.  This responsibility should be an objective, and measured, part of their job description to further enhance responsibility and accountability.  This change should create more time for other members within that function also browsing the latest, and often identical, developments.
  • Review the budget for cost/benefit effectiveness; coupled with a link to past success based on utilizing that particular resource.
  • Review fees incurred to obtain information, such as tax treaties, from external parties; could this resource be in-sourced more effectively?
  • Meet with your advisors providing tax developments; discuss the possibility of having them briefly summarize benefits (company specific) from key developments when you receive them, versus a straight transcript of all developments that contain many items that are not relevant.
  • Review key developments monthly within the functions and /or overall team to ensure relevant items are receiving priority and action plans.  This review could be internal, as well as coordinated with external advisors, to ensure there are no gaps.  Proactive advisors should recommend this action for a win-win result to encourage interaction and alignment, while also providing a good opportunity for brainstorming other ideas.
  • Review the legal structure efficiency, at least annually, to determine if business strategies have changed and/or new developments have occurred that provide opportunities.
  • Highlight developments aligned with your strategic tax objectives.
  • Align tax developments with the Tax Risk Framework.

I look forward to your insights.

Category:

Leadership, Tax Risk Management

Tagged with:

UN: Practical Manual on Transfer Pricing & Tax Training Initiatives

Click to access UN_Manual_TransferPricing.pdf

This link directs you to the final version of the U.N’s Practical Manual on Transfer Pricing for Developing Countries.  This version corrects minor technical errors in the 2012 version.  The separate country guidance is already attracting controversy since these countries are provided an official platform to express their views on location-specific advantages, etc. that compete with OECD guidelines.

In addition to this document, Alexander Trepelkov, Director of Financing for Development Office (FFDO), U.N. Department of Economic and Social Affairs has stated three primary initiatives of the FFDO.  The three initiatives will create tax training tools to:

  1. Strengthen developing nations’ capacity to conduct transfer pricing analyses,
  2. Negotiate, administer, and interpret tax treaties, and
  3. Develop tax administration systems.

Transfer pricing analyses initiative:

  • A meeting is being held this week to determine the scope and content of the project, focused on supporting tax administrators apply the arms-length principle to transactions between associated enterprises.

Tax treaty initiative: Training tools in development for tax administrators

  • Fundamentals of tax treaties course, including similarities/differences between the U.N. models, is planned for early 2014
  • Advanced tax treaty course to be developed jointly with the OECD, ensuring materials covering the U.N. model are included
  • A joint project to create training tools on tax treaty administration with the German Federal Ministry for Economic Development and Cooperation.

Develop tax administration systems initiative:

  • A joint project with the Inter-American Center of Tax Administrations to develop an empirical method to measure and assess tax administration cost.  Pilot programs are taking place in Costa Rica and Uruguay.

These developments should be closely followed, especially in developing countries that are developing transfer pricing expertise and non-OECD countries that have publicly stated their views in the U.N.’s Practical Manual on Transfer Pricing for Developing Countries.  This insight is also valuable information to review in a pre-audit strategy for such countries, having advance knowledge of their stated positions and differences with OECD methodology.

 

 

 

Category:

Audits, OECD / UN, Tax Risk Management

Tagged with:

Post-Audit Strategies: Best Practices

This post is a complement to my 5 April Pre-Audit Strategies blog.  Pre-audit strategies are addressed, the audit is conducted, ultimate settlement is achieved and workpapers are returned to the files.  Post-audit tax strategies can be utilized to address learnings for future audits, critique the pre-audit strategy approach, and form Best Practices to minimize global risks.

The following ideas should be beneficial in a post-audit tax strategy review:

  •  List all items in the pre-audit strategy checklist, using my prior blog as a reference along with your ideas.  Based on hindsight, provide a rating of 1 to 5 for each strategy with comments.
  • Revise the global checklist, if applicable, for future audits.
  • Cross-reference the pre-audit checklist against the top risks encountered / not initially settled in the audit for correlation.  Are there items that should have been performed before commencement of the audit that were not foreseen at the time?
  • Review utilization of tax counsel in the audit to address significant risks; were they involved, should they have been involved earlier, was counsel appropriate for the risks being contested, what learnings can be gained?
  • Were audit meetings negotiated efficiently using the appropriate individuals?  Should there have been additional training to address significant tax risks, educate the auditor in the company’s transfer pricing methodology, etc.?
  • Should a company overview have been provided, if applicable, to provide context for the auditor prior to requests for data?
  • Conduct a 360 feedback with everyone involved in the audit to gain efficiencies in the ways of working.
  • Were there basic misunderstandings between the auditor and the company that could have been addressed differently?
  • Assess the consistency of audit responses with other audits being conducted globally; are they globally consistent to form a uniform basis for discussions between tax authorities sharing information?
  • Are there new risks identified that should be included in the global Tax Risk Framework?
  • Were audit defense mechanisms reviewed timely to plan effectively?
  • For US multinational companies, were memorandums prepared for foreign audits to obtain additional assurance for receiving the benefit of a Foreign Tax Credit?  Foreign counsel should be proactive in this effort from the beginning of the audit, outlining cost/benefit relationships, practical appeal opportunities, probability of success for alternative appeals, etc.  This memorandum should be discussed early in the audit to align expectations.
  • Review precedents established for future years, and applicability for post-audit years.
  • Review tax reserves established for the audit years, and all open years.
  • Provide a brief memoranda to the audit participants and senior management, summarizing the audit and successful interaction of internal and external resources.
  • Were Double Tax Treaty, bilateral and/ or multilateral defenses used?  Review their effectiveness, or choice not to use.
  • Review the interaction of internal and external resources; who was in control of the strategy?
  • In today’s environment of increased collaboration between the tax authorities and multinational companies, should an enhanced collaborative tax return / audit strategy be considered to provide timely certainty?
  • Develop a post-audit tax checklist as a learning tool for individuals engaged in tax audits.

The above points should form a foundation to engage in this beneficial exercise, highlighting learnings and opportunities, while adopting a Best Practices approach.

I look forward to your valuable comments.

Category:

Audits, Tax Risk Management

Tagged with:

The Tax Foundation: an informative resource

http://taxfoundation.org

The Tax Foundation is a nonpartisan research organization that monitors U.S. fiscal policy.  “The Tax Foundation’s Center for Federal Tax Policy produces and promotes timely and high-quality data, research, and analysis on federal tax issues that influences the debate toward economically principled policies.”  There are interesting articles and publications available at their website.

In a report dated 21 May, 2013 entitled “Are Multinational Companies Dodging Their Taxes?” the Foundation found that U.S. multinational corporations paid more than $100 billion – an average effective rate of 25 percent – in foreign income taxes in 2009.  This information is especially relevant as the issue of international tax payments was addressed on Capitol Hill when Apple executives testified before a Senate subcommittee.

A paragraph at the bottom of the article focuses on the complexity of international taxation for U.S. multinational corporations that is often overlooked in today’s tax environment, stating that “People who criticize U.S. companies for ‘avoiding’ taxes on their foreign earnings need to be more careful with their language and acknowledge that our worldwide tax system requires U.S. firms to pay taxes twice on their foreign profits, before they can reinvest those profits back home.”

Another Tax Foundation publication entitled “U.S. Multinationals Paid More Than $100 Billion in Foreign Income Taxes” is also interesting, as it includes a table that lists 2009 country data in order of Taxable income, Foreign taxes paid/accrued/deemed paid, and Average Effective Tax Rate.  For example, the average effective tax rate is 62.7% for Nigeria, approx. 45% for Indonesia and Italy, while the effective tax rates for Norway and South Korea exceed 60%.

This resource is useful for U.S. multinational corporations, and other multinationals, as an information resource in today’s complex tax environment.

The statement that people need to be more careful with their language can also be correlated to the observation that terms used interchangeably by tax authorities and governments include: tax planning, aggressive tax planning, tax avoidance, evasion and fraud.  The absence of publicly stating important differences of such terms may lead to misleading statements and inappropriate conclusions.

I would encourage everyone to be familiar with this valuable resource.

Related articles

http://www.wired.co.uk/news/archive/2013-05/22/eric-schmidt-tax

Category:

Tax Risk Management

Tagged with:

OECD: (Revised) Safe Harbours, Chapter IV, Transfer Pricing Guidelines

Click to access Revised-Section-E-Safe-Harbours-TP-Guidelines.pdf

The OECD approved this revision on 16 May 2013 and discusses the benefits and concerns for safe harbour provisions.  It encourages appropriate bilateral or multilateral safe harbors for which the previous guidance was generally silent.  In an effort to facilitate negotiations between tax administrations, sample memoranda of understanding (MOUs)” are included for competent authorities to establish bilateral safe harbors for certain classes of transfer pricing cases.  Sample MOUs are provided for low risk activities of Manufacturing, Distribution, and Research and Development Services.

Benefits to be gained:

  • Compliance relief
  • Certainty
  • Administrative simplicity

Safe harbour concerns:

  • Divergence from the arm’s length principle
  • Risk of double taxation, double non-taxation, and mutual agreement concerns
  • Possibility of opening avenues for tax planning opportunities
  • Equity and uniformity issues

Sections 4.128 and 4.129 emphasize the fact that safe harbours can be negotiated on a bilateral or multilateral basis, providing significant relief from compliance burdens and administrative complexity.  Additionally, a safe harbour is not binding, or precedential, for countries which have not themselves adopted the safe harbour.

In an environment of increasing request for assistance from competent authorities, I am hopeful this tool is used proactively and efficiently by competent authorities to provide certainty for past, current, and future low risk activities.  Multinationals should be familiar with these new guidelines and the respective MOUs to aid negotiation efforts in bilateral or multilateral transactions.  Discussion of this principle in meetings with competent authorities will hopefully lead to enhanced mutuality, cooperation and resolution.

Category:

OECD / UN, Transfer Pricing

Tagged with:

8th meeting of Forum on Tax Administration 16-17 May 2013: Cooperative Framework

http://www.oecd.org/site/ctpfta/

The Forum on Tax Administration (FTA) was created in July 2002 by the OECD with the aim of promoting dialogue between tax administrations and of identifying good tax administration practices.  The OECD link provides reference to the opening FTA remarks by Deputy Secretary-General Mr. Yves Leterme, and the Final Communique from the 16-17 May 2013 meeting in Moscow, Russian Federation.

The press release sets the stage with the following remarks:

  • Tax base of governments is being threatened by international tax avoidance and evasion.
  • Part of the answer to international avoidance by businesses is a question of tax policy, rather than administration.
  • The development of a new set of international standards is going to require ever closer cooperation at the international level.
  • International cooperation between tax administrations is enhanced by improved transparency, which helps tax administrations apply the rules effectively.
  • Transparency is also key to the fight against international evasion.
  • The OECD, working with the G20, is developing a new multilateral standard on automatic exchange of information.

The Final Communique’s first paragraph states the need to effectively address tax evasion, aggressive tax avoidance, trans-national tax fraud and aggressive tax planning.  The Communique addresses the need for increased transparency and comprehensive exchange of information, and strongly endorses exchanging information automatically.

Most importantly, the Communique further states: “We have developed a framework of co-operative compliance for the large business segment that provides a sustainable basis for a relationship based on transparency, justified trust and confidence between tax administrations and business.  We will continue to refine this framework, also working with the business community, and recommend all countries to adopt it.”

In today’s tax environment, against the backdrop of terminology including tax evasion, aggressive tax avoidance, tax fraud and aggressive tax planning, the recent and upcoming meetings of the OECD and related organizations are increasingly important.  The trend of a formal cooperative compliance framework is becoming more evident, and multinationals should already be planning for ways to develop such relationships with tax authorities around the world in present and future audits.

Related articles

Category:

OECD / UN

Tagged with:

Google UK: PE Risk – Do no evil

http://www.reuters.com/article/2013/05/16/us-google-britain-tax-idUSBRE94E0WL20130516

In continuing verbal encounters by Google UK before the Parliament’s Public Accounts Committee (PAC), it is interesting to note the following in the above article, supplemented by similar language in the related articles cited below:

  • The company evidently stated that “We are selling, but not closing.”
  • The article cites the fact that a review of LinkedIn profiles revealed sales activities were conducted by employees.
  • The article does not provide the reader a concise description of PE, or its safe harbors in Double Tax Treaties: re: “preparatory and auxiliary activities.”

This arduous lesson in reputational risk reinforces the need to ensure Best Practices are in place for PE, as posted in a prior blog.

It is a very interesting point that LinkedIn profiles were reviewed to further examine potential sales activities carried out in the UK.  A company cannot control the social network profiles of its employees, although it should be very clear in everyone’s job description what is, and is not, allowable for marketing or sales activities.  The Do’s and Don’ts List should be signed annually as a reminder to employees of their responsibilities and limitations in scope.

A company with significant Branch activities should be reviewing how written statements, including emails, are communicated in  discussions of sales, market support or promotional activities.

The statement “We are selling, but not closing” brings a substance vs. form argument into the subjective definition of PE, an argument that is not helpful in forming objective arguments by the company or tax authorities.  Therefore, a company should examine its Best Practices to increase its objective PE evidence, in substance and form, in preparation for controversy.

Does your Tax Risk Policy include any statements re: whistleblower activity, and how such activity should be addressed?

Finally, a company should conduct an annual audit of its significant Branch activities, in possible coordination with internal audit, to further minimize its PE (and reputational) risk on an annual basis.

Related articles

Category:

PE, Transfer Pricing

Tagged with:

Tax Risks & Your Tax Organization: Best Practice Alignment

A proliferation of complex and significant tax risks are at the forefront of global news.  Aggressive tax planning, tax avoidance, tax evasion and fraud are terms used interchangeably to describe actions by multinationals.  Tax authorities, governments, G8, G20, among others, are discussing new ways to combat these perceived risks in the form of additional tax transparency, audit resources, new legislation, etc.  Similarly, tax organization structures should also be reviewed based on a tax risk management approach.  Ideas for developing Best Practices in tax risk management include the following:

  • List the top 5 tax risks; then align these risks with the tax personnel whose primary function it is to focus on such risks.
  • Are the top 5 risks being managed efficiently internally and / or externally?
  • Is each risk the top priority of one or more members of the tax team?
  • Is the strength of each tax member aligned with the respective risk?
  • Are you currently able to shift resources away from geographical / functional responsibilities to address current risks?
  • Are the tax members adding focus on these risks in addition to their other responsibilities?
  • Have specific strategies been developed to address the top tax risks, and champions assignable for each risk?
  • Are specific training courses being developed to better inform the tax team and the business of developing risks?
  • Are proactive discussions being held with senior management and the Board to ensure efficient tax risk management?
  • Is there a quarterly tax risk review to assess status and future actions?
  • Have internal procedures been reviewed, as well as mitigating controls, to address potential risk gaps?
  • Is the business aware of such risks on an ongoing basis?
  • Is this an opportunity to review tax resources to achieve the proper focus on the top tax risks?
  • Compare the current tax organizational structure with the tax risks; is it fit for purpose?
  • Review Best Practices for obtaining APA’s, entering mutual audit procedures such as CAP, horizontal monitoring, enhanced cooperation in today’s increased emphasis on mutuality and and tax transparency with tax authorities.
  • Who conducts audit meetings with tax authorities around the world?  Is this an opportunity to minimize risks at an early stage?  Are these individuals knowledgeable of the top tax risks?  Do you conduct training for audit meetings, including negotiation skills?
  • Is internal audit aligned to identify tax risk gaps in their routine audit reviews?
  • Is Global Mobility trained to identify potential PE risks?  Consider a review of their internal processes for assignments.
  • Who reviews Branch activities to ensure such activities do not inadvertently lead to a PE?
  • Review the Transfer Pricing documentation framework to address transfer pricing issues early.
  • Ensure Treasury is aligned with the tax risks and processes are in place for intercompany loan arrangements.
  • Align cross-functionally to ensure new strategies, or a change in current strategies, are reviewed for tax risk exposure.

In summary, I would encourage a review of the tax organization structure based upon a creative tax risk approach, as compared to the present organization to highlight opportunities and Best Practices.

Category:

Audits, Tax Risk Management

Tagged with:

A European Taxpayers’ Code

http://ec.europa.eu/taxation_customs/common/consultations/tax/2013_tpcode_en.htm

The Commission adopted on 27th June 2012 a Communication on the fight against tax fraud and tax evasion. An Action Plan which details concrete proposals to strengthen the fight against tax fraud and tax evasion was adopted on 6th December 2012.

One of the 34 measures contained in the Action Plan is the development of a European Taxpayer’s Code which is described as follows (action 17):

“In order to improve tax compliance, the Commission will compile good administrative practices in Member States to develop a taxpayer’s code setting out best practices for enhancing cooperation, trust and confidence between tax administrations and taxpayers, for ensuring greater transparency on the rights and obligations of taxpayers and encouraging a service-oriented approach.

The Commission will launch a public consultation on this at the beginning of 2013. By improving relations between taxpayers and tax administrations, enhancing transparency of tax rules, reducing the risk of mistakes with potentially severe consequences for taxpayers and encouraging tax compliance, encouraging Member States’ administrations to apply a taxpayer’s code will help to contribute to more effective tax collection.”

In anticipation of this initiative, some points worthy of consideration are:

  • Does your company have a Taxpayers’ Code or Best Practices within a Tax Policy or Tax Risk Policy?
  • Should the concept of a Taxpayers’ Code be discussed at the beginning of an audit to enhance trust and confidence?
  • Will this initiative be helpful in a simultaneous or joint audit?
  • Should a discussion be initiated with the auditor to establish a mutual Taxpayers’ Code?

I look forward to your thoughts on this interesting topic.

Related articles

Category:

Audits, Tax Risk Management

Tagged with:

Africa Progress Report 2013: Global Tax & Transparency initiatives

http://www.africaprogresspanel.org/en/publications/africa-progress-report-2013/apr-documents

The Press Release and Progress Report 2013 are not restricted to activities within Africa, as they advocate tax and transparency initiatives for the upcoming G8 Summit and the international community.  Japan, Russia, Switzerland, the UK and the US are individually identified in the report.

The Africa Progress Panel (APP) consists of ten distinguished individuals from the public and private sector who advocate for shared responsibility between African leaders and their international partners to promote equitable and sustainable development for Africa.  Mr. Kofi Annan chairs the APP. The Panel functions in a unique policy space with the ability to target decision-making audiences.

The press release sets the stage for the debate with the following statement: “International tax avoidance and evasion, corruption, and weak governance represent major challenges.  The report therefore welcomes the commitment from the current G8 presidency, the UK, and other governments to put tax and transparency at the heart of this year’s dialogue.  International business should follow best practices on transparency.”

Part III of the Report has sub-captions beginning on page 63 entitled: “Aggressive tax planning” drains the public purse, followed on the subsequent page with “When companies evade tax responsibilities.”  This section includes the following statements: “Tax avoidance has emerged as a global concern.  In Europe and North America, public anger has been directed towards highly visible multi-billion dollar firms that minimize their tax liabilities through sophisticated but aggressive tax planning.”

Part IV, “Fair taxation-an international challenge, ” provides the commentaries: “Many resource-rich countries in Africa are losing out as a result of “aggressive tax planning”-a euphemism in some cases for tax evasion.  Transfer pricing is another endemic concern.  Tax evasion is a global problem that requires multilateral solutions.  At the heart of the problem is the unwillingness of the OECD countries and wider international community to strengthen disclosure standards.  Japan, Russia, Switzerland, the UK and the US all operate regimes that allow for aggressive tax planning and limited regulatory oversight.  All tax jurisdictions should be required to declare the beneficial ownership structure of registered companies.  Governments in Africa could also look beyond the OECD dialogue.”

The sub-section entitled “Recommendations for Immediate Action” includes a message for transparency by extractive companies stating: “All countries should embrace the project-by-project disclosure standards embodied in the US Dodd-Frank Act and comparable EU legislation, applying them to all extractive industry companies listed on their stock exchanges.”

A message to the G8 community states: “The G8 should establish the architecture for a multilateral regime that tackles unethical tax avoidance and closes down tax evasion.  Companies registered in G8 countries should be required to publish a full list of their subsidiaries and information on global revenues, profits and taxes paid across different jurisdictions.  Tax authorities, including tax authorities in Africa, should exchange information more readily.”

The message to the international community states: “The G8 should adopt at its 2013 summit in the UK a framework that commits each country to full disclosure through a national public registry of the beneficial ownership of registered companies, with a commitment to create such registries before the 2014 G8 summit.”

This report demonstrates the tone for increased tax and transparency within Africa, and more importantly its message to the G8 and the international community.  Unfortunately, the terms aggressive tax planning, avoidance and evasion are used interchangeably in the Report which is intended to provide a strong message for tax and transparency changes but also provide complexity in seeking solutions.  This message is being seen more often in the news from around the world, and the transparency topic is one that should be discussed with senior management and the Board to ensure alignment going forward.

Articles

Category:

Transfer Pricing

Tagged with:

Branch activity tax risk: Google UK controversy

http://news.yahoo.com/uk-lawmakers-set-date-google-ernst-young-tax-155316417.html

As this news has been widely reported, this controversy highlights the need to aggressively govern the activities of significant Branches worldwide.  This issue is a reminder in today’s tax environment of the necessity for diligence and governance for Branch operations.  The following ideas are presented for review and comment.

  • Review all material on your company’s website re: location of sales activity, associates and job postings.
  • Review job titles and descriptions for all personnel in Branches worldwide.
  • Compare Branch accounts and related disclosures with actual activities on an ongoing basis for consistency.
  • Have a Do’s and Don’ts list that is reviewed annually with individuals having market support activities.
  • Align with Global Mobility re: assignments/transfers of individuals to Branches with Sales titles and responsibilities.
  • Compare actual activities with the legal constraints of a Branch in the relevant jurisdiction.
  • Put a plan in place to regularly determine if a Branch is the best legal form of conducting business, vs. subsidiary, etc.
  • Conduct annual trainings at significant Branches to ensure the activities align with the legal form of doing business.
  • Ensure the concept of PE is well understood by individuals accountable for the Branch operations.
  • What job titles are individuals allowed to include on their business cards?
  • How do Branch personnel represent themselves to the external trade?
  • Is there an objective benchmark (i.e., number of personnel) for Branches that triggers an automatic review?
  • Review the relevant Double Tax Treaty safe-harbor PE provisions.
  • Reputational risk: Consider how Branch activities impact the Tax ERM framework, and monitoring controls in place.

It will be interesting to track the activities of this controversy and analyze how to further minimize risks for Branch activities.

Category:

PE, Tax Risk Management, Transfer Pricing

Tagged with: