Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD’ Category

OECD’s APAC meeting results

The BEPS Asia-Pacific technical meeting was held last week, with the participants expressing many common themes, while also hinting at future developments.

Key points:

  • 75 participants from 17 countries attended, in addition to many agencies.
  • A strong sense of BEPS collaboration was a consistent message.
  • The Multilateral Instrument will be pivotal for implementation of treaty related issues, especially in developing countries.
  • The use of profit split transfer pricing methods are insightful for the future.
  • Individual tax incentives will continue.
  • Transfer pricing toolkits are welcome, especially for practical application of the rules. 
  • A regional network event has been planned for next year.

Although several countries have already expressed a strong BEPS intent to provide new legislation for unilateral fiscal growth, there appears to be a strong sense of community in the development of practical and effective guidelines that may be implemented to stimulate tax collections.

 

ASIA-PACIFIC TECHNICAL MEETING ON BEPS YOGYAKARTA, INDONESIA, 11-12 NOVEMBER 2015 CO-CHAIRS’ SUMMARY OF DISCUSSIONS

Mr. John Hutagaol1 and Mr. Kyounghwan Moon2 co-chaired the first Asia-Pacific Technical Meeting on BEPS, hosted by Indonesia in cooperation with the OECD Korea Policy Centre (Tax Programme). The Co-Chairs prepared this summary of the discussions of the meeting which was shared with all participants.

The objectives of the technical meeting were 1) to update participants on the outcomes of the BEPS project and reflect country perspectives following the delivery of the BEPS Package, 2) to discuss the implementation and monitoring phase of the BEPS project, and 3) a technical ‘deep dive’ into the toolkits currently being developed by international and regional tax organizations.

This technical meeting follows the consultation held in Seoul, Korea, in February 2015. It gathered together 75 participants from 17 economies from the Asia-Pacific region3, as well as representatives from ATAIC, AIPEG, JICA, the OECD Korea Policy Centre (Tax Programme) and SGATAR.

The Meeting

In his opening address, Mr Mardiasmo, Vice Minister of Finance of the Republic of Indonesia, emphasised the importance of working together in the region to develop solutions to the global tax challenges faced by all. The discussions addressed the following topics:

  • The presentation of the final BEPS Package and its different actions.
  • The development of practical toolkits to implement targeted and workable solutions tocounter BEPS issues.
  • The challenges and opportunities in the BEPS implementation phase, including the areaswhere follow up work is needed and ideas on how to design the inclusive framework with all interested countries on an equal footing as well as continuing regional engagement.

    A. Key Messages

    1. The BEPS Package was welcomed and participants highlighted the importance of learning from other countries’ experiences and best practices.

    2. Participants demonstrated a strong interest in cooperation with each other and with the OECD. They were particularly supportive of developing a platform to work together on an equal footing with regard to the implementation of the BEPS outcomes.

    1 Director of Tax Regulation II, DGT, Indonesia.
    2 Director, MOSF, Korea
    3 Australia, Bangladesh, Brunei Darussalam, Cambodia, Chinese Taipei, Indonesia, Japan, Korea, Malaysia, Myanmar, Papua New Guinea, People’s Republic of China, Philippines, Saudi Arabia, Singapore, Thailand and Vietnam.

1

3. Participants recognised the importance of the multilateral instrument to implement the BEPS Project. 12 out of the 17 economies represented at the meeting have already joined the ad hoc Group for the negotiation of the instrument.

4. The importance of regional meetings and cooperation with regional organisations, such as ATAIC and SGATAR, was a means of engaging countries to provide their input and to express their views.

5. Participants highlighted the resource constraints faced in national administrations. They called for effective capacity building initiatives, and welcomed support from international and regional organisations.

6. Participants welcomed the work presented and the progresses made on specific toolkits and reports. They emphasised the need for the toolkits to be practical and based on country experiences.

7. Participants recognised the significance of engagement of business and civil society in implementing BEPS solutions.

B. Discussions

1. BEPS Final Deliverables

Participants welcomed the BEPS package and agreed that the implementation of the BEPS outcomes will be the next big challenge. They highlighted the importance of sharing information, balancing the need to tackle BEPS issues and to promote cross-border commercial activities. They anticipated that the Multilateral Instrument will provide clear guidance on implementing treaty-related measures, particularly with regard to measures to combat treaty abuse. They also looked forward to further guidance to be developed with regard to transfer pricing issues including the use of profit split methods.

There was particular interest in the outputs from Actions 4, 7, 8-10, 13 and the work on the digital economy. Specifically, there was detailed discussion on the scope of the changes to the definition of a permanent establishment, and on the implementation of Action 13 on country-by-country reporting.

2. Toolkits: Tax incentives for investment

Participants welcomed the report published on tax incentives and recognised that the report offered useful building blocks on the design of effective and efficient tax incentives. Participants provided useful examples of the operation of incentives in their economies, noting the opportunities and challenges with the various incentive schemes, and understood the importance of enhanced regional and international cooperation.

3. Toolkits: Indirect transfer of assets

This issue provided particular challenges to the economies in the region, and further information and guidance was welcomed. The meeting agreed to feed into the toolkit process through a questionnaire. There was in-depth discussion of the technical issues raised in the toolkit, as well as the practical implications.

2

4. Toolkits: Comparability issues and transfer pricing documentation

Participants welcomed the development of a transfer pricing comparability toolkit. They added that this toolkit would not only be useful for low income countries, but could help to address issues in a broad range of countries. Participants welcomed the planned practical nature of the toolkit, particularly given the importance of transfer pricing measures to their economies.

Participants welcomed the opportunity to work regionally and globally in enhancing the utility and effectiveness of the toolkits on transfer pricing. The OECD will work with SGATAR in disseminating questionnaires on comparability data and transfer pricing documentation to the countries in the region.

C. Implementation phase and participation of the Asia-Pacific countries in the inclusive framework

Participants acknowledged that direct participation in the Committee on Fiscal Affairs and working party meetings were a great opportunity, but that resource constraints may affect direct engagement.

Participants stressed the urgency of implementing the measures agreed in the BEPS package in a consistent manner. In particular, participants were interested in implementing the new transfer pricing documentation rules, and how to implement the treaty-related measures. Participants welcomed the initiative to build a more inclusive framework. They appreciated the positive experience represented by the Global Forum on Transparency and Exchange of Information for Tax Purposes, including the peer review mechanism and the wide participation on an equal footing, but noted differences between the scope of the two initiatives.

Participants supported the OECD capacity building initiatives including the Tax Inspectors Without Borders, Global Relations programme and bilateral Tax and Development programme.

Participants considered that the regional network meetings are a useful mechanism to obtain and to share information and experiences, as well as to build stronger relationships in the region.

Next Steps

1. The outcomes of the meeting will be reported to the CFA in January. This input will feed into the design of a more inclusive framework for which a proposal will be presented in early 2016 to the G20 Finance Ministers.

2. Questionnaires relating to the toolkit process will be sent to participants to provide input to better focus the workstreams addressed and the solutions proposed.

3. A regional network event will be held in 2016.

Finally, participants thanked Indonesia and OECD-Korea Policy Centre (Tax Programme) for hosting the successful and fruitful meeting.

3

Click to access beps-technical-meeting-asia-pacific-co-chairs-summary-of-discussions-november-2015.pdf

Category:

OECD

Tagged with:

OECD VAT/GST Guidelines

The OECD has published its international VAT/GST Guidelines, which are expected to be approved in 2016.

Jurisdictions are encouraged to use existing bilateral, regional or multilateral arrangements on mutual co-operation to practically comply with the Guidelines.  The soft-law guidelines provide additional insight into the taxability of intangibles and services.

Links to EY’s Indirect Tax Alert and the OECD Guidelines are provided for reference.

Click to access 2015G_CM5949_Indirect_OECD%20publishes%20consolidated%20International%20VAT%20GST%20Guidelines.pdf

Click to access international-vat-gst-guidelines.pdf

As indirect taxes are becoming more significant and visible, it is apparent that the governance of such taxes should be coordinated with direct taxes in multinational organisations for significant transactions and conformity of principles.  This area of tax is also increasingly specialized, with potential risks that should be considered in a global tax risk framework.

Category:

OECD

Tagged with:

Dutch viewpoint: Retain advantages post-BEPS

The Dutch government has provided comments to the BEPS Guidelines, as they have generally been patient re: unilateral legislation that would represent non-conformity with the recently announced actions.  However, they would be ready to adopt tax incentives for Dutch taxpayers if there are unintended BEPS consequences that would weaken its attractive tax environment.  

PwC’ Tax Insights article provides details for this update:

Click to access pwc-dutch-government-responds-to-final-beps-reports.pdf

The article is refreshing re: BEPS conformity, including transparency, by the Dutch government.  The adoption of its innovation box regime as of 1/1/2017 will reflect the modified nexus approach of the BEPS Actions.

However, it is also interesting to note the measures it may take to retain its attractiveness for multinationals if there are adverse BEPS consequences.  This viewpoint is significant to watch, as other countries may adopt similar measures that will represent additional complexity and nonconformity around the world.  Additionally, each country will have its own view, in addition to unique incentives to protect its local tax base.

Category:

OECD

Tagged with:

BEPS related developments

EY’s Global Alert highlights several OECD / unilateral actions resulting from the BEPS Action Items announced earlier this month.

Click to access 2015G_CM5827_The%20Latest%20on%20BEPS%20-%2026%20October%202015.pdf

Highlights:

  • Czech Republic’s 2016’s income tax proposal, including the EU Parent-Subsidiary Directive change limiting exemption of tax deductible distributions, although retaining its own general anti-abuse rule (vs. that in the Directive).
  • EU’s State Aid decisions re: Luxembourg and Netherlands, for which legal appeals are expected.
  • Honduras transfer pricing information return requirement.
  • Indonesian thin capitalization limit of 4:1, remainder of interest non-deductible (thereby incurring one-sided taxation re: interest income of recipient).
  • Ireland’s Knowledge Development Box, following the OECD’s recommendations, and country-by-country (CbC) reporting by Irish headquartered groups with a secondary filing mechanism.
  • Norway’s 2016 budget proposal, with an interest limitation of 25% of taxable EBITDA.
  • Slovakia’s 2016 income tax changes, including implementation of the EU Parent-Subsidiary Directive.

This new post-BEPS period is starting off with a multitude of activities by countries and the EU that is not expected to slow down in the near future.  These developments will shape the transfer pricing regime, and resulting complexity and disparity, around the world.  Accordingly, these trends should be monitored and addressed in a corporation’s tax risk framework accordingly.

Category:

OECD

Tagged with:

European Parliament’s tax policy paper

The European Parliament’s Policy Dept. A has provided a tax policy paper upon the request of the TAXE Special Committee of European Parliament.  An EY summary, and detailed report, are provided for reference:

Click to access 2015G_CM5880_European%20Parliament%20publishes%20paper%20on%20the%20EU%20Third-Country%20Tax-Governance%20Issues.pdf

Click to access IPOL_IDA(2015)563449_EN.pdf

Key topics:

  • Developing country tax governance issues
  • Tax system trends and challenges
  • Impact of tax havens on EU countries
  • Challenges faced by tax policy makers
  • Exchange of information
  • Tax transparency
  • Illicit activities
  • Harmful tax competition

As the EU has stepped in to take the lead on various post-BEPS initiatives, this policy paper is recommended reading to gauge the trend in these topics that will also take place worldwide.

Category:

OECD, Tax Risk Management, Transfer Pricing

Tagged with:

BEPS: Indirect tax impact

EY’s Global Tax Alert highlights the indirect tax consequences resulting from final guidance of the BEPS Action Items:

Click to access 2015G_CM5836_Indirect_OECDs%20recommendations%20on%20BEPS%20project%20has%20wider%20indirect%20tax%20implications.pdf

Key observations:

  • Interaction of Article 1 (Digital Economy) and Article 7 (PE) may create a wider gap for findings of a indirect tax “fixed establishment” and a direct tax “permanent establishment” (PE), although some countries do not respect such distinction.  Thus , business models merit a review for such changes.
  • Article 8 (Intangibles) set forth changes in allocation and valuation that may affect customs valuations.
  • Actons 8-10 (transfer pricing) may invite additional focus by tax authorities on VAT/GST and customs.
  •  Action 13 (country-by-country reporting) may invite scrutiny of indirect taxes.

The focus of BEPS has been on direct taxes, while its impact will now be measured for purposes of indirect taxes.  Thus, a BEPS review should encompass direct and indirect tax effects, including VAT/GST and customs.  

Category:

OECD, Tax Risk Management

Tagged with:

OECD BEPS Action Items

Attached is the link to access the OECD webcast and all of the BEPS Action Items released on 5 Oct. 2015.

http://www.oecd.org/ctp/beps-2015-final-reports.htm

Needless to say, the process of reading, and reviewing, the Action Items has commenced by many.

Importantly, multinationals now have the final rules by which the impact on their organization can be assessed, and action plans developed accordingly.  However, there will be timing differences as to when such guidance is implemented into law by countries, as well as “soft law” conformity.

Category:

OECD

Tagged with:

UK’s CbC Draft Regulations: accuracy check by HMRC

HMRC has provided a technical consultation and explanatory memorandum for new regulations of UK’s country-by-country (CbC) reporting.  Comments are due by 16 Nov. 2015.  A link is provided for reference:

https://www.gov.uk/government/publications/technical-consultation-country-by-country-reporting

An interesting, and debatable, provision is Section 9 of the technical consultation, Provision for information, which is copied herein.  To the extent that a company is considered a “reporting entity,” the provision provides for a request of information, that may reasonably be required, (within 14 days in a form specified by HMRC) to substantiate the accuracy of the CbC report.  

On the heels of the OECD release of the Action Items, including Action 13 CbC reporting, HMRC has released this documentation for consultation.  However, Section 9 may be far-reaching in that there is no transparency into the intent of HMRC or purpose of such potential request.

For example, does this exercise include the accuracy of all entities included in the CbC report?  What type of documentation would be requested, and in what form?  Should the request be limited to UK entities only?  If there are potential inaccuracies in countries other than the UK, what happens then?  What transparency is provided for this process?  Will this request be reviewed prior to informing the taxpayer?  Will such review be shared with other countries?

This provision seems to be far-reaching, and could be followed by other countries.  Therefore, it is paramount that all multinationals monitor such developments, as this will significantly increase complexity.

Provision of information

9.—(1) An officer of Revenue and Customs may, by notice in writing, require a reporting entity to provide the officer with such information (including copies of any relevant books, documents or other records) as the officer may reasonably require for the purposes of determining whether information contained in a country-by-country report filed by that entity is accurate.

(2) A notice under paragraph (1) may specify or describe the information to be provided.

(3) Where a person is required to provide information under paragraph (1), the person must do so—

  1. (a)  within such period, being no less than 14 days; and
  2. (b)  at such time, by such means and in such form (if any),

as is reasonably specified or described by Revenue and Customs.

Category:

OECD, Tax Risk Management, Transfer Pricing

Tagged with:

BEPS update

Apart from the expectations surrounding the 5th October release of the OECD BEPS Action Items, the referenced EY Global Tax Alert provides relevant details for the following BEPS related activities:

  • Australia: Multinational anti avoidance law (MAAL), transfer pricing documentation
  • Belgium: Payments to “tax haven” jurisdictions
  • Bulgaria: Consultation draft re: the EU Parent Subsidiary Directive; although the broader local GAAR would be retained
  • China’s recent developments (refer to my 26 Sept. post)
  • Denmark: Transfer pricing documentation
  • Japan: Court case re: PE and “preparatory or auxiliary” exception
  • Kuwait: Virtual Service PE interpretation (refer to my 23 Sept. post)
  • NL: Transfer pricing doucmentation

Click to access 2015G_CM5800_The%20Latest%20on%20BEPS%20-%2028%20September%202015.pdf

The latest developments, along with future unilateral actions that follow the intent of the new OECD Action Items, should be monitored closely.  Additionally, such concepts should be reviewed for domestic legislative compliance, vs. intent.

Category:

OECD

Tagged with:

Denmark’s CbC proposals

Denmark has published its requirements for country-by-country reporting (CbCR), effective for the 2016 tax year by ultimate Danish parent companies.  The content of the report aligns with OECD BEPS Action 13, including the reporting date by the end of 2017.

There are notification requirements re: a “surrogate parent entity” for which the parent jurisdiction will be entering into exchange information agreements for CbCR.

Details are provided in EY’s Global Tax Alert:

Click to access 2015G_CM5788_Denmark%20publishes%20proposal%20to%20introduce%20Country%20by%20Country%20Reporting.pdf

Category:

OECD, Transfer Pricing

Tagged with:

TFEU: Tool for EU Directives

The European Commission (EC) and European Parliament (EP), including the TAXE Committee on Rulings established by the EP, have recently endorsed many provisions that would normally require the unanimity of approval by the Member States.  Knowing this has not resulted in success with prior initiatives, a renewed focus may be taking place re: Article 116 of the Treaty on the Functioning of the European Union (TFEU) which empowers the EC/EP to issue a Directive accordingly.

Article 116 TFEU:

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member Sates  is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in an agreement eliminating the distortion in question, the EP and the EC, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives.  Any other appropriate measures provided for in the Treaties may be adopted.

 

The TFEU is the same legal mechanism used to address State Aid, and may also be the choice of implementation to establish Directives for one or more of the following initiatives:

  • EU Common Corporate Tax Base (CCTB)
  • Country-by-Country (CbC) reporting, public disclosure
  • Tax rulings, (redacted) public disclosure
  • Permanent Establishment (PE) definition
  • Anti-BEPS Directive, transforming OECD “soft law” into an EU legislative framework
  • Interest & Royalty Directive requiring confirmation of EU tax being paid elsewhere
  • EU Dispute Resolution approach

Everyone should monitor the EC, EP and TAXE for continuing developments, as they may form the basis for new global standards to enact the intent of BEPS initiatives.

Category:

OECD

Tagged with:

Dutch draft TP & CbC law

The Dutch State Secretary of Finance has released a draft law that correlates to BEPS Action 13 for transfer pricing documentation and country-by-country (CbC) report.

The CbC report will not be required to be filed in the Netherlands if such report is filed with a jurisdiction that has an information exchange agreement with the Netherlands on such reports.

Click to access 2015G_CM5764_TP_NL%20releases%20draft%20law%20implementing%20new%20TP%20doc%20requirements%20in%20line%20with%20BEPS%20Action%2013.pdf

  • The draft law states that a transfer pricing adjustment may not be based on the CbC report.
  • The CbC report aligns with the BEPS Action 13 requirements.
  • The Master and Local file re: transfer pricing documentation will be required contemporaneously with the filing of the tax return, with such information to be provided upon request.
  • A criminal offense will take place, for the most serious cases, if the CbC reporting requirements are not satisfied.

The draft law should be reviewed by organisations with operations in the Netherlands, noting it follows the BEPS Action 13 proposal.

The contemporaneous requirement for the Master file and Local file should be met to avoid potential fines/penalties.

Category:

OECD

Tagged with:

BEPS global update

EY’s Global Tax Alert provides a succinct summary of the latest BEPS (incentivized) developments around the world.  A link to the Alert is provided for reference:

Click to access 2015G_CM5699_The%20Latest%20on%20BEPS%20-%2017%20August%202015.pdf

Overview of the Alert:

  • OECD: Documents re: initiative for automatic exchange of financial account information
  • Africa: Best Practice regional meeting to develop measures for countering BEPS
  • Australia: Exposure draft law re: transfer pricing documentation to be effective 1/1/2016
  • Brazil: Report to eliminate interest on net equity (INE) regime
  • Chile: Foreign residents are to provide a sworn statement to receive treaty benefits
  • Europe: TAXE Committee’s interim report re: tax rulings and BEPS related topics
  • Ireland: Knowledge development box
  • Italy: Patent box regime
  • Japan: Interest limitations
  • Korea: VAT re: electronic services
  • Luxembourg: EU Parent-Subsidiary Directive inclusions (anti-hybrid and anti-abuse clauses)
  • Saudi Arabia: Virtual Service PE
  • Spain: Patent box regime

The Alert highlights the continuous and frenzied pace of the BEPS measures, as well as the unilateral efforts that are mirroring the intent of BEPS, although not necessarily in a consistent and cohesive framework.

 

Category:

OECD

Tagged with:

European Parliament urges CBCR public transparency

The European Parliament adopted a resolution to tackle tax avoidance and tax evasion via transparency measures to ameliorate limited resources of tax administrations.  A summary and full content of the proposal are referenced herein:

http://www.europarl.europa.eu/oeil/popups/summary.do?id=1396472&t=d&l=en

http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P8-TA-2015-0265

Key observations:

  • Publish country-by-country reporting (CBCR) template as part of annual reporting; The European Commission is to provide a legislative proposal to amend the Accounting Directive accordingly.
  • Establish a consistent definition of “tax havens” by the end of 2015.
  • Provide a blacklist of countries that do not combat tax evasion or that accept it.
  • New treaties with developing countries should tax profits where value is created.
  • EU Member States should agree on a Common Consolidated Corporate Tax Base (CCCTB).
  • The EU should be taking a leading role to combat tax havens, tax fraud and evasion, leading by example.
  • Beneficial information should be public; the Financial Action Task Force’s (FAFT) anti-money laundering recommendation is a minimum.
  • Public scrutiny of tax governance and the monitoring of tax fraud cases; protect whistleblowers and journalistic sources.
  • Transition period for developing countries to adopt the Automatic Exchange of Information mechanism.

These initiatives are accelerating the focus and intent for public tax disclosures in the very near future.

Most importantly, inclusion of the CBCR template as required documentation of annual reporting will automatically accelerate the due date for completion of such information.  Thus, the year-end 2017 timeline proposed by the OECD will give way to this proposal and similar unilateral actions.

Category:

OECD, Tax Risk Management

Tagged with:

Poland’s latest Draft Bill accelerates CbC reporting

Poland’s latest amendments to its Draft Bill incorporates a major change to the date for submission of a country-by-country report (CbCR).

The original draft (refer to 28 May 2015 post) provided a 1/1/2016 effective date, with the CbCR due at the end of 2017 for 2016 data.  However, the latest draft moves the effective date of the Bill to 1/1/2017, however it also states that the CbCR must be attached to the 2016 corporate income tax return, generally due 3 months after the end of the tax year.

The final version of the bill should be monitored closely, as it would accelerate submission of the CbCR to 31 March 2017 for 2016 activity, which is significantly earlier than the 31/12/2017 date (for calendar year taxpayers) envisioned by the OECD’s BEPS Action 13 Discussion Draft.

The latest changes reflect the increasing emphasis on transparency and assessment of transfer pricing risk, a trend that is closely followed by all other countries in assessing their urgent need for transparency.

The EY publication link is attached for additional reference:

Click to access 2015G_CM5559_TP_Poland%20amends%20draft%20bill%20on%20TP%20documentation.pdf

Category:

OECD, Tax Risk Management

Tagged with: