Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

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

DAC6: Germany out

The German ministry has advised that they will not delay the optional 6-month reporting obligation, thus the reporting dates revert to the end of July 2020 for 30-day reporting, and 31 August for historical arrangements.

It is interesting to note that Germany has retreated from their prior 30-day delay, citing system setup obstacles.  Additionally, this last-minute retreat of position did not affect the delay of FATCA and CRS reporting.  The exchange of DAC6 with other Member States by Germany will be delayed due to the positions taken to delay such reporting.

Everyone is awaiting further background on this position, which would align with Finland’s refusal to also adopt the 6-month deferral period.

 

Australia: TP/COVID guidance

The Australian Tax Office (ATO) has provided valuable guidance re: addressing the effects of COVID-19 and potential transfer pricing arrangements.

The main takeaway is to ascertain the financial effects before and after COVID-19, using objective data to provide a reasonable basis for reviewing transfer pricing risks and arrangements.

This guidance should represent a template to review transfer pricing arrangements in other countries.

https://www.ato.gov.au/Business/Business-bulletins-newsroom/General/COVID-19-economic-impacts-on-transfer-pricing-arrangements/

EU DAC6 deferral: UK is in

The UK has signified its intent to adopt the optional 6-month deferral of DAC6 reporting.

The UK joins Belgium and Luxembourg in this adoption, 25 Member States to go!

https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim800010

EU: DAC6 optional deferral announced

The Council of the EU has announced an optional 6-month deferral for adoption of DAC6 by each Member State, with an optional 3-month extension if approved unanimously.

Luxembourg and Belgium have already announced their intent to adopt such delay, hopefully the other Member States will signify their intent as soon as possible.

https://www.consilium.europa.eu/en/press/press-releases/2020/06/24/taxation-council-agrees-on-the-postponement-of-certain-tax-rules/

 

PE update

An update of recent PE developments:

  • BEPS Multilateral Instrument (MLI) updates for PE actions by several countries, as OECD MLI provisions for PE are not mandatory, thus these developments should be closely monitored
  • Home office PE’s are clarified in several countries, especially important for companies with no other business presence in that country and their job is a significant function of the company
  • US IRS Rev. Proc. 2020-30 re: COVID-19 guidance for possible PE situations
  • Denmark ruling, noting a significant home office employee performing a significant job function for the company was not preparatory or auxiliary
  • Malaysia’s clarification of “place of business”

PE will be a significant concern as the uncertainty of COVID-19 continues, with various cross-border travel restrictions.  Companies may want to consider planning alternatives and avoid this trap that some countries may want to exploit in their search for revenues.

EY’s summary highlights the above provisions in greater detail.

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

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