Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

OECD: Dispute resolution

The OECD recently issued a consultation document, with comments due by Dec. 18th, addressing dispute resolution mechanisms which arose from BEPS Action 14.

There are 27 questions for comment, including APAs, statistical categories, penalties/interest, timelines, training, etc.

The document is comprehensive and a valuable reference for review, and most importantly an opportunity for stakeholders to submit comments.

PE developments

Attached is EY’s update on PE developments, including COVID-19 situations and implementation of multilateral instruments (MLIs).

India’s summary is interesting, being known for aggressive PE and mark-up percentages, as it was determined that remuneration was arm’s-length, thus the PE issue was irrelevant.

https://www.ey.com/en_gl/tax-alerts/pe-watch-latest-developments-and-trends-november-2020

President-elect: tax reform

As the media organizations called the election over the weekend, notwithstanding legal challenges, US President-elect Joseph Biden is scheduled to officially commence his duties on January 20, 2021.

The Senate, currently a Republican majority, will have January 2021 runoffs in Georgia, that will determine the majority. This majority is key as to how much, or little, tax legislation will be passed the next four years.

It is anticipated that Joseph Biden will strive to increase the US federal income tax rate, and reverse part of the US TCJA provisions.

This new legislative agenda will be both interesting and exciting, as well as the DST push by OECD and UN for their separate proposals.

The attached Tax Foundation is an excellent place to start, for an overview.

Webinar: Draft PCT toolkit on Tax Treaty Negotiations

The Toolkit on Tax Treaty Negotiation (the “Toolkit”), has been prepared in the framework of the Platform for Collaboration on Tax (the “PCT”) by the IMF, the OECD, the UN and the WBG (the “PCT Partners”).

Date and time:Wednesday, November 4, 2020 9:00 am 
Eastern Standard Time (New York, GMT-05:00) 
Change time zone
Duration:2 hours 30 minutes

Please join The Platform for Collaboration on Tax (PCT) for the public consultation webinar of its draft Toolkit on Tax Treaty Negotiations. The toolkit authors and expert speakers will discuss how the toolkit can help developing countries, followed by a demo of the interactive, web-based version of the toolkit and a feedback roundtable with experienced negotiators.

PCT’s draft Toolkit on Tax Treaty Negotiations is a joint effort to provide capacity-building support to developing countries on tax treaty negotiations, building on existing guidance, particularly from the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (the “UN Manual”). The Toolkit provides tax officials with: 

***Information on the steps involved in tax treaty negotiations 
***Practical tips for treaty negotiators on the conduct of negotiations and negotiation styles 
***Easy access to already publicly available resources that treaty negotiators will find useful 

The design of the Toolkit also allows regular updates and improvements based on the feedback from users and experienced negotiators. 

The PCT released the draft toolkit for public feedback from June 29th to September 24th, 2020 through its website and the KSP-TA hub. In addition to written comments, this virtual workshop aims to gather further feedback from stakeholders, particularly treaty negotiating teams.

The Toolkit represents a joint effort to provide capacity-building support to developing countries on tax treaty negotiation, building on previous contributions and reducing duplication and inconsistencies.

https://www.tax-platform.org/news/event/public-consultation-workshop-draft-toolkit-tax-treaty-negotiations

https://www.tax-platform.org/sites/pct/files/publications/PCT_Toolkit_Tax_Treaty_Negotiations_Discussion_Draft.pdf?deliveryName=DM81743

Int’l tax: Cloud computing

Attached is a free pdf/ebook prepared by Alexander Weisser, covering permanent establishment, treaty characterization and transfer pricing.

These issues are becoming more important as we get closer to OECD Pillar One and Two blueprints, in addition to proposed UN Article 12B re: a new digital services tax focused on developing countries.

Alexander has provided advance permission for this informative inclusion:

https://lnkd.in/dQYyWsf

DST global summary

As the OECD is studying the Pillar One blueprint, and the UN is contemplating its own Digital Services Tax (DST) proposal, attached is a useful reference for unilateral DST initiatives.

France has also determined that it will collect its DST payments in December this year, notwithstanding trade/tariffimplications.

The DST regimes will, inexplicably, involve more complexity, differing tax systems globally and the possibility for more disputes to arise, although such disputes may hopefully have efficient arbitration remedies.

Pillar 3: Where did it begin?

As the OECD is looking not at Pillar 1, not Pillar 2, but a new and novel Pillar 3, one may question: Where did this concept come from?

The attached is a You Tube interview with respect to a Tax Notes article that discusses the thinking behind this concept.

The foundation of a Pillar 3 may change, however the idea has permeated the OECD. Thus, I would expect we will hear about this potential transformation, sooner than later.

Sweden: 2021 economic employer rules

Sweden may have, as of 1/1/2021 new economic employer rules vs. the current rules of legal employer. If the legislation is passed as proposed, there will be an increased governance role, and complexity, for employees visiting Sweden for which the local business may derive benefits therefrom.

ey-tax-alert-2020-2241-eyg006367.pdf

FASB Income Tax Disclosure Framework: My Bloomberg Articles for discussion

I look forward to your comments.

OECD: Tax statistics/CbC

The OECD Corporate Tax Statistics, Second Edition, published this year reveals interesting trends, including the results of the anonymized and aggregated Country-by-Country (CbC) data which includes statistics from 26 countries for the 2016 tax year.

Tax administrations are moving toward more data analysis as an audit tool, and multinationals should be aware of this data which is used as a risk assessment tool, among others.

https://www.oecd.org/tax/tax-policy/corporate-tax-statistics-database.htm

ICAP & CbC

The OECD International Compliance Assurance Programme (ICAP) is a voluntary programme for a multilateral co-operative risk assessment and assurance process.

ICAP uses Country-by-Country (CbC) data as part of its risk assessment analysis and includes potential benefits for participating taxpayers re: certainty and avoiding double taxation, among other benefits.

ICAP is still fairly new in practice, although the process should be understood as a tool in pro-active compliance.

https://www.oecd.org/tax/forum-on-tax-administration/international-compliance-assurance-programme.htm

BEAT Regs: One-way street

The IRS and Treasury have released Final Regulations (T.D. 9910) on base erosion and anti-abuse tax (BEAT), with a controversial provision of not allowing the ability to decrease previously waived deductions on an amended return or during an exam.

The Regulations, however, do provide the benefit to waive deductions to avoid BEAT.

India: Transparent tax portal

A new era of Faceless Tax Assessment, and tax transparency is being introduced to provide a non-adversarial or soft-touch regime.

Taxpayers with operation in India should review this new development, especially as other countries will also be watching this update for learnings going forward.

https://economictimes.indiatimes.com/topic/Faceless-appeal

IRS guidance US Regs and UK DST

IRS issued new regulations for translation in Sec. 986(c)

The IRS also issued new LB&I guidance addressing computation of Sec. 986(c) computations, attached for reference.

US T.D. 9909, Final Regulations, in coordination with the issuance of proposed regulations, REG-124737-19, addressing Sec. 245A and the exception to subpart F income under Sec. 954(c)(6). The final regulations address extraordinary dispositions and reductions.

The UK will drop its Digital Service Tax (DST) initiative, knowing it would only increase its stimulus by several hundred million dollars , while COVID-19 has set the country back hundreds of billions of dollars in stimulus. It will be interesting how other countries, who have adopted or are thinking about a unilateral DST, will react prior to the OECD Project addressing this in Pillar One.

ATO: arm’s length debt

The Australian Tax Office (ATO) has recently issued guidance on thin capitalization arm’s length debt and outbound interest-free loans.

The guidance is especially valuable as it provides a risk assessment framework outlining their compliance approach to arm’s length debt.

The ATO is known for its reference to risk assessment frameworks, as this trend will continue in other countries and is a valuable read.

https://www.ato.gov.au/law/view/document?DocID=COG%2FPCG20207%2FNAT%2FATO%2F00001

https://www.ato.gov.au/law/view/document?DocID=TXR%2FTR20204%2FNAT%2FATO%2F00001

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