Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

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.

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OECD / UN, Tax Risk Management

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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.

 

 

 

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Audits, OECD / UN, Tax Risk Management

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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.

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OECD / UN, Transfer Pricing

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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.

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OECD / UN

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OECD Draft Handbook on Transfer Pricing Risk: Public information

Click to access Draft-Handbook-TP-Risk-Assessment-ENG.pdf

OECD published this draft handbook on April 30, with comments due by Sept. 13.  I highly recommend reviewing the entire handbook.  Section 4.5 of the Handbook outlines the use of publicly available information for identifying overall risk assessment.  We are all aware of this information, although I will share some thoughts on being proactive in forming Best Practices around this topic.

Company website:

  • Does tax review the web content on a regular basis to ensure there are no innocent misstatements to defend.
  • As the web content is updated for marketing, sales and other relevant information, does tax receive a copy of the updates prior to releasing them to the public.
  • Are any of the statements on your website in conflict with your stated transfer pricing or other tax methodologies.
  • Does the website contain information on legal presence in each country; if so, what is the alignment process with tax.

Statutory financial information:

  • Many countries provide this information to the public; are these financials reviewed to ensure consistency with transfer pricing methodologies either internally or an external advisor. 
  • Additional disclosures increase every year; how familiar are you with new disclosures on a global basis.  Is there a process that can be implemented to identify tax sensitive information.
  • An individual with tax training should review this information prior to finalization to ensure there are no PE, transfer pricing or other tax risk areas addressed.

Coordination of Publicly Available Information:

  • Is there a central index listing all publicly available company information on a global basis.
  • Is this a process for which someone can be a champion to ensure timely updates.
  • If tax disclosures are prepared for public use, are the disclosures of taxes paid by country, etc. consistent with the statutory financial information that is available.  Should there be a process to rationalize, or explain, any discrepancies.
  • Are press releases reviewed by tax to ensure consistency of tax methodologies and minimization of potential tax risks.
  • Is issuance of publicly available information centralized or decentralized, depending on the content.
  • If comments are issued on this draft, who ensures the content is internally consistent since it will be on the OECD website.

 

 

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OECD / UN, Transfer Pricing

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UN link to source of relevant information

http://www.un.org/esa/ffd/tax/
This site is a valuable resource of information, including the following topics and links to relevant documents:

  • Strengthening UN role in international tax cooperation
  • UN Model Convention
  • Transfer Pricing (including Practical Manual for Developing Countries)
  • Exchange of information on tax matters
  • Manual for the Negotiation of Bilateral Tax Treaties
  • Capacity Building

I invite you, and members of your team, to fully explore the site and use as a basis for international tax training and reference.

This link is also added to my new “Recommended Links” page for future reference.

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OECD / UN, Transfer Pricing

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OECD: Countering tax avoidance, evasion & aggressive tax planning

http://www.oecd.org/ctp/aggressive/atp.htm

As you may know, the OECD has an Aggressive Tax Planning (ATP) Steering Group, whose objectives include:

  • Identify current trends
  • Share experiences
  • Focus on timely information sharing in understanding new schemes
  • Provide information enabling countries to adapt their tax risk management strategies

Additionally, the work of the ATP Steering Group is supported by the OECD Aggressive Tax Planning Directory.  The ATP Directory is an online resource for governments to depict types of schemes discovered and fact patterns thereto, and details of their detection.

  • While “tax avoidance” and “tax planning” are frequently used terms, in direct contrast to “tax evasion,” it would be worthwhile to review Global Tax Policies and Tax Risk Management Strategies and verify if additional clarification is needed due to today’s tax environment.
  • Centralization of information by OECD: is your company also centralizing its issues, tax risks and strategies for synergy?
  • Are current trends being analyzed to adjust “tax planning” strategies and relevant tax risks?
  •  Are you ready to explain the difference between tax planning, aggressive tax planning, tax avoidance and tax evasion?

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OECD / UN, Tax Risk Management

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