Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

HAPPY NEW YEAR

May the Year 2020 bring a fresh start, new aspirations and inspiring successes!

Thank you for your continued interest, suggestions and comments, which are very much appreciated.  Have a fantastic 2020!

VAT refund: EC steps in

This is a very interesting case and would seem to form precedence for EU Member States and taxpayers in a similar situation, resulting from a request for a preliminary ruling to the EC from the Supreme Administrative Court, Czech Republic and the Kingdom of Spain also submitted written observations.

 Are tax authorities able to defer the refund of the total amount of excess VAT even though only a small part is still the subject of an ongoing tax inspection? The tax authorities and the Commission believe so, arguing that the deduction under Article 179 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) is to be made only from the total amount.

 This question is particularly sensitive because the part of the claimed deduction still to be investigated might be connected with a third party’s fraudulent transactions, about which the taxable person possibly should have known. According to the Court’s case-law, this would permit (or require) the tax authorities to refuse the deduction in this regard.  But does this also mean that the deduction in respect of other indisputably ‘legitimate’ transactions can be deferred for several years?  Theoretically, the inspection of a single transaction to the value of one euro could therefore defer the tax assessment for all other transactions for several years. 

It can be stated, as an interim conclusion, that Articles 179, 183 and 273 of the VAT Directive do not include a right for the Member States to limit in time the total amount of excess VAT if only part of it is disputed, while the other part is undisputed.

http://curia.europa.eu/juris/document/document.jsf?text=&docid=221824&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=953875

Tax transparency: Shell’s 2018 report

Royal Dutch Shell PLC has published their 2018 tax contribution report, including country-by-country (CbC) statistics.

Public transparency of CbC reports has been in the vision of the EU (Dec. 6, 2019 blog), although it has not yet passed.

Shell’s report reflects a proactive effort to promote global transparency, and is an exemplary model to follow.

https://reports.shell.com/tax-contribution-report/2018/servicepages/downloads/files/shell_tax_contribution_report_2018.pdf

 

EU Code of Conduct

The Council of the EU published its latest report, summarized and referenced herein:

  • The US complies with all the EU Member States re: Automatic Exchange of Information (AEOI) due to its double tax treaty network, FATCA, etc.
  • Guidance on notional interest deductions who wish to adopt a similar method, as not harmful by the Group (no safe harbor; general criteria)
  • Delisting certain non-cooperative jurisdictions
  • Monitoring implementation of commitments by jurisdictions
  • Identification of new preferential regimes
  • Further defensive measures for non-cooperative jurisdictions
  • Treatment of partnerships re: substance
  • The way forward; future monitoring, etc.

This is important guidance, as it provides transparency into the tax measures adopted, or not adopted, by various jurisdictions.  It also provides potential measures to incentivize non-cooperative jurisdictions.

https://www.ey.com/Publication/vwLUAssets/EU_Code_of_Conduct_Group_issues_update_report,_including_new_guidance/$FILE/2019G_005707-19Gbl_EU%20Code%20of%20Conduct%20Group%20issues%20update%20report%20-%20new%20guidance.pdf

https://data.consilium.europa.eu/doc/document/ST-14114-2019-INIT/en/pdf

http://data.consilium.europa.eu/doc/document/ST-12284-2019-REV-1/en/pdf

2019 BDO Board Survey

BDO’s 2019 Board of Directors survey is attached.

The 2019 BDO Board Survey, conducted by Market Measurement, Inc., an independent market research consulting firm on behalf of the Corporate Governance Practice of BDO USA, examined the opinions of 180 corporate directors of public company boards.

Respondents represent a distribution of organizations across industries and market value, from less than $200M to more than $10B.

Re: impact of the Tax Cuts and Jobs Act (TCJA), approx. 47% of the respondents were affected by the reduced Federal tax rate, although less than 20% were impacted by tax losses, foreign earnings impact or interest expense limitations.  This is very surprising with the TCJA GILTI provisions.

Almost two-thirds of directors (65%) report a high or moderate understanding of their company’s total tax liability.

Page 7 of the report is interesting, as it illustrates actions pursued as a result of tax reform.  These actions include MA&A, stock buy-backs, increased dividends and repatriation of cash to the US.

https://www.bdo.com/getattachment/9a99015e-cd22-4d93-94b2-68cc0d243e1f/attachment.aspx?2019_BDO-Board-Survey_web.pdf

Germany’s Research Allowance

Commencing in 2020, a new R&D incentive will be in place for German R&D activities.  This incentive was passed to stimulate its goal of raising R&D expenditures to 3.5% of GDP by 2025.

This incentive is worthy to review, especially as there is certainty re: certification of activities qualifying as R&D upfront, vs. a potential audit dispute years later.

https://www.ey.com/Publication/vwLUAssets/German_Federal_Council_approves_Research_Allowance_Act/$FILE/2019G_005410-19Gbl_German%20Federal%20Council%20approves%20Research%20Allowance%20Act.pdf

CbCR: Not (yet) public for EU

Although this initiative did not receive a majority vote by the EU Competitiveness Council (COMPET), the real story is whether a unanimous (Tax Directive, Article 115 TFEU) or majority (Accounting Directive, Article 501(1) TFEU) vote is needed.

The Legal Service of the Council of the EU concluded on 11 November 2016, that the proposal must be based on Article 115 TFEU.  For the legal basis to be changed by the Council, nevertheless, unanimity is required.

Thereafter, the European Parliament’s Committee on Legal Affairs, pursuant to Rule 39(3) of the Rules of Procedure, decided of its own motion, to provide an opinion on the legal basis of the proposal amending the Accounting Directive. The Committee considered that there is a link between transparency and public scrutiny. It concluded on 12 January 2017 that the proposal must be based on Article 50(1) TFEU, instead of Article 115 TFEU. This opinion contradicted legal advice given to the Council of Member States in November 2016.

This contest will continue, with possible appeals depending on whether the Accounting or Tax Directive rules will be followed.  To date, several countries do not agree to public reporting, thereby other EU Members have envisioned using the Accounting Directive majority rule vote to pass this initiative.

 

https://www.ey.com/Publication/vwLUAssets/EU_Public_CbCR_fails_to_move_forward_in_latest_European_vote/$FILE/2019G_005555-19Gbl_EU%20-%20Public%20CbCR%20not%20approved%20in%20latest%20vote.pdf

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