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Archive for the ‘Tax Risk Management’ Category
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.
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.
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.
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.
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.
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.
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.
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.
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!
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.
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.
The Court of Justice of the European Union (CJEU) has clarified a Romanian court request that a company cannot be required to verify that a VAT supplier has met its reporting obligations re: fraudulent conduct. The judgment was provided on June 4th, SC CF SRL v. AJFPM, DGRFPC, C-430/19 (CJEU 2020). The court stated that tax authorities cannot require that a company have supporting VAT compliance documentation, nor ensuring that the supplier has the goods and is able to provide them.
The CJEU has established a valuable EU precedent, stating that a taxpayers’ right to deduct VAT is a fundamental principle of the VAT system without limitations, absent evidence of fraud. Additionally, Article 178(a) of Council Directive 2006/112/EC (the VAT Directive) does not require such additional documentation. This would violate the principle of neutrality.
Several IRS offices are still at work-from-home status, impacting mail received, sent and phone communications.
The latest status is attached for reference.