Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

UK: EU (Withdrawal) Bill

The UK EU exit bill has been introduced in Parliament, paving the way for suggested interpretations of:

  • Existing EU law
  • Loss of EU Directives
  • New customs regime
  • Transitional EU VAT case law
  • Social security contributions/benefits
  • Corporation tax impact of UK vs. EU law/Directives
  • Employee mobility
  • Employment law

This document portrays a glimpse into the thoughts behind the complex and myriad evolutions that will take place with the Brexit negotiations.  Tax, supply chains, individual changes, VAT, etc. and related unknown implications are still to be discovered; the EY Global Tax Alert provides a primer into the brave new world of a country exiting the EU.  Note, this is also a valuable reference for other countries considering this option.

http://www.ey.com/Publication/vwLUAssets/UK_Government_introduces_European_Union_(Withdrawal)_Bill/$FILE/2017G_04283-171Gbl_UK%20Government%20introduces%20European%20Union%20Withdrawal%20Bill.pdf

Intermediary transparency: EU’s wish list

The European Commission has proposed a new Directive calling for additional transparency into cross-border arrangements.  Initially, this proposal has the liability for such reporting borne by the advisor, however it may apparently be also transferred to the taxpayer.  The effective date would be 1//1/2019 with recurring reporting by the EU Member States on a quarterly basis thereafter.

In a common theme when the “transparency’ envelope is opened, the relevant basket of potential transactions is widened from the most aggressive to ordinary tax-planning transactions.  Hopefully, if the Directive is adopted, the Member States will use discretion and ask questions about such transactions prior to drawing intuitive conclusions  and assessing taxpayers before having all facts and transactional history for consideration.

The potential transactions include arrangements:

  • To which a confidentiality clause is attached
  • Where the fee is fixed by reference to the amount of the tax advantage derived or whether a tax advantage is actually derived
  • That involve standardized documentation which does not need to be tailored for implementation
  • Which use losses to reduce tax liability
  • Which convert income into capital or other categories of revenue which are taxed at a lower level
  • Which include circular transactions resulting in the round-tripping of funds
  • Which include deductible cross-border payments which are, for a list of reasons, not fully taxable where received (e.g., recipient is not resident anywhere, zero or low tax rate, full or partial tax exemption, preferential tax regime, hybrid mismatch)
  • Where the same asset is subject to depreciation in more than one jurisdiction
  • Where more than one taxpayer can claim relief from double taxation in respect of the same item of income in different jurisdictions
  • Where there is a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved
  • Which circumvent EU legislation or arrangements on the automatic exchange of information (e.g., by using jurisdictions outside exchange of information arrangements, or types of income or entities not subject to exchange of information)
  • Which do not conform to the “arms’ length principle” or to OECD transfer pricing guidelines
  • Which fall within the scope of the automatic exchange of information on advance cross-border rulings but which are not reported or exchanged

The proposal will be submitted to the European Parliament for consideration; this additional layer of transparent information will also be viewed by other countries as potential tools to uncover similar arrangements.  Several “arrangements” are also highly subjective, leading to additional transfer pricing disputes and increased double taxation.

EY’s Global Tax Alert provides additional details for this important proposal:

http://www.ey.com/gl/en/services/tax/international-tax/alert–european-commission-proposes-new-transparency-rules-for-intermediaries

UK election: Finance Act changes?

The recent election, resulting in the Conservative Party losing a majority, introduces additional uncertainty into the Brexit process and also affects the Finance Act.

What will happen to the tabled Finance Act proposals that were deleted by the fast-track changes in the last amendment?  Additionally, what will be the effective dates, if they are formally introduced at a later date, April 2017, upon introduction or possible extending into 2018 or not at all based on the political uncertainty.

The normally routine Finance Act process, with no amendments and straightforward measures that can be planned for upon announcement, is no longer true.  At this moment, the tabled measures should not be considered probable to happen due to the new political nightmare that was self-created although not envisioned.

It is hopeful the UK Parliament will stabilize this process going forward, although in the near future there is no definitive certainty.

EY’s Global Tax Alert provides additional details:

http://www.ey.com/Publication/vwLUAssets/The_UK_election_and_its_implications_for_Finance_Act_measures_and_tax_proposals/$FILE/2017G_03722-171Gbl_UK%20election%20and%20its%20implications%20for%20Finance%20Act%20measures%20and%20tax%20proposals.pdf

US developments: BAT still alive?

EY’s Global Tax Alert highlights the heightened uncertainty around the proposed Business Activity Tax (BAT) by the House and interested parties.

The BAT is a revenue raising proposal, thus the revenues from this plan would help to move a bill towards passage via the political complexities and processes required.  It is very important to monitor, as the death of this proposal would mean deriving that lost revenue from another initiative (i.e. raising the tax rate, etc.).  

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_25_May_2017/$FILE/2017G_03417-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2025%20May%202017.pdf

Double Tax disputes: Draft EU Directive

The Council of the European Union has proposed a draft EU Directive, to be in effect by June 30 2019, that would resolve double taxation disputes between Member States.  A summary of the Draft Directive is provided, as well as referenced herein.

This proposal is based upon the foundation of the Union Arbitration Convention (90/436/EEC) re: cross-border tax disputes.

Key points:

  • 3 years, from first notification, to file a complaint by the taxpayer
  • Each competent authority (CA) acknowledges receipt within 2 months
  • Additional 3 months by CA’s to request additional information, by which the taxpayer has 3 months to provide
  • Approx. 6 months later, CA’s decide to accept or reject the complaint; or a CA can decide to resolve unilaterally by which the Directive is terminated
  • Taxpayer may appeal per national rules a rejection of the complaint
  • CA’s try to resolve issue within 2 years, which may be extended by 1 year
  • Upon taxpayer’s request, an Advisory Commission shall be established where the complaint is rejected by not all of the relevant CA’s, or a failure by CA’s to reach agreement.  This request can be denied by a Member State on a case by case basis where a question of dispute does not involve double taxation.
  • Advisory Commission = Chair, 1-2 representatives of each CA, and 1-2 independent persons by each CA
  • Advisory Commission to adopt a decisions within 6 months
  • CA’s may, alternatively, set up an Alternative Dispute Resolution Commission instead of the Advisory Commission; this commission has freedom of techniques to settle
  • Professional secrecy standards are prescribed
  • Advisory or Alternative Commission opines in 3-6 months
  • CA’s shall agree within 6 months of the opinion on how to resolve the complaint; they can decide on a decision that deviates from the opinion or be bound by the opinion
  • Final decision does not constitute a precedent
  •  (Redacted) decision is published and maintained in an online central repository
  • Evaluation of process by June 30, 2024 and issue a report

As the key point summary infers, there are many provisions in the Draft Directive, requiring a proactive effort by the taxpayer and relevant CA’s.  The Directive can be reviewed via the attached link:

http://data.consilium.europa.eu/doc/document/ST-9420-2017-INIT/en/pdf

Belgian’s fairness tax = Unfair

The Court of Justice of the European Union (CJEU) has struck down the controversial “fairness tax” of Belgium, based upon violations of the Parent-Subsidiary Directive and the freedom of establishment.

Taxpayers who have paid this tax should file a claim for refund, and all taxpayers should be aware of any similar “fairness” provision that unfairly discriminates taxpayers based on enacted EU legislation.

EY’s Global Tax Alert provides additional details.

http://www.ey.com/Publication/vwLUAssets/Belgian_fairness_tax_ruled_incompatible_with_EU_law_by_CJEU/$FILE/2017G_03275-171Gbl_Belgian%20fairness%20tax%20ruled%20incompatible%20with%20EU%20law%20by%20CJEU.pdf

Financing risk roadmap: ATO

The Australian Tax Office (ATO) has issued a roadmap and risk guidelines re: intercompany financing parameters.  Taxpayers have an 18-month amnesty period to move their related party financing arrangements to a “green” low-risk zone.  EY’s Global Tax Alert provides further details.

Rest of World: All countries watch what other tax administrations are legislating, thus this roadmap/risk rating process may be arising in many other countries.  This should be an additional warning signal to multinationals to review such arrangements, as what one considers “arm’s-length” may not be completely nil risk dependent on the legislation of particular countries.  Unfortunately, this will lead to additional complexity and probably double taxation consequences.  

http://www.ey.com/Publication/vwLUAssets/Australian_Taxation_Offices_compliance_approach_for_cross-border_related_party_financing_arrangements_has_major_impact_on_multinational_businesses/$FILE/2017G_03234-171Gbl_TP_AU%20TOs%20compliance%20approach%20for%20cross-border%20related%20party%20financing%20arrangements.pdf

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