Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

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

DAC6 presentation

Attached is a co-presentation that I was honored to be a part of, and hope the insights are helpful in this ever- changing and subjective EU disclosure initiative.

TPA Global DAC6 17062020

VAT, CJEU clarifies verifications, establishes EU precedence

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.

 

 

IRS office update

Several IRS offices are still at work-from-home status, impacting mail received, sent and phone communications.

The latest status is attached for reference.

https://www.forbes.com/sites/kellyphillipserb/2020/06/11/whats-open-and-whats-not-as-the-irs-begins-to-reopen/#717828a41b0a

DAC6 updates; Deferral & NL

Recent developments include a political agreement reached by the ambassadors of the Member States to submit an amended proposal, with each Member State having to make a formal decision thereto, for deferral of the reporting dates.

  • The prior period, from June 25, 2018 to June 30, 2020 will be deferred to February 28, 2021 (from August 31, 2020)
  • For arrangements commencing July 1, 2020 subject to the 30-day reporting deadline, the 30-day period begins on January 1, 2021 and would include arrangements from July 1 through December 31, 2020.

Next steps will be a written procedure in the EU Council, followed by formal adoption.  If a Member State fails to respond to the proposal, the original reporting timelines will apply.

Dutch guidance has also been issued, providing further clarification.

https://globaltaxnews.ey.com/news/2020-5837-eu-council-ambassadors-reach-agreement-on-amended-proposal-for-deferral-of-mdr-filing-deadlines

 

NL: Mandatory Disclosure Rules/DAC6

The European Mandatory Disclosure Rules (MDR)/DAC6 Directive will come into effect on 01 July 2020. Following its implementation in the Netherlands, intermediaries and/or taxpayers have to report potentially aggressive international tax arrangements to the Tax and Customs Administration. This concerns arrangements that involve residents from various countries and that may be used to avoid tax.

On this page, you can read more about the following subjects:

Intermediaries virtually always have to report a potential tax avoidance arrangement

If you are an intermediary and you are involved in a potentially aggressive international taxarrangement, you have to report it. There are two exceptions to this rule. You do not have to report a potentially aggressive international tax arrangement in the following cases:

  • Another intermediary has already reported the tax arrangement and he has given you a reference number to prove it.
  • You have a legal professional privilege.

Note!

The DAC6 Directive applies to all intermediaries . For instance, tax consultants, lawyers, accountants, civil-law notaries, financial advisers, banks and trust offices.

Taxpayers sometimes have to report a potential tax avoidance arrangement themselves

The taxpayer for whom a potentially aggressive international fiscal arrangement is intended, has to report it himself in the following cases:

  • An intermediary from outside the European Union is involved in the artificial tax arrangement.
  • An intermediary who is involved in the artificial tax arrangement has a legal professional privilege, therefore, he does not have to report the arrangement.
  • No intermediary is involved in the tax arrangement.

When you are not sure if someone else has reported a potential tax avoidance arrangement

When in doubt, report it yourself.

When to report a potential tax avoidance arrangement

The DAC6 Directive has retrospective effect. Potentially aggressive international tax arrangements youare involved in between 25  June 2018 and 01 July 2020 must be reported between 01  July 2020 and31 August 2020.

Every arrangement you are involved in after 01 July 2020 must be reported within 30 days.

Which fiscal arrangements must be reported?

The DAC6 Directive provides a list of hallmarks. If a tax arrangement has one or more of these hallmarks, you have to report it. A guide line with more details and examples will be available soon.

Note!

The hallmarks have been set at a European level and may, therefore, be interpreted differently at times. If you are not sure if a tax arrangement is potentially aggressive, be on the safe side and report it anyway.

Which taxes does the DAC6 Directive apply to?

It applies to:

  • corporation tax
  • income tax
  • Payroll tax
  • dividend tax
  • inheritance tax and gift tax
  • most other taxes

It does not apply to:

  • VAT (turnover tax)
  • customs duties
  • excise duties
  • social insurance contributions
  • charges
  • fees

How to report potential tax avoidance arrangements

You can report them by means of the Cross-Border Arrangements Reporting form, in English. You can complete this form via the data portal of the Tax and Customs Administration from 01 July 2020.

Your report must include:

  • details about yourself
  • details about the taxpayer and his affiliated persons
  • a summary of the content of the artificial tax arrangement
  • the relevant hallmarks
  • the relevant national statutory provisions
  • the value of the artificial tax arrangement
  • the implementation date
  • the relevant EU Member States

After you have submitted your report, we will send you a reference number.

What happens if you don’t report?

You will risk a (high) fine.

More information

For questions about the mandatory disclosure legislation such as questions about the hallmarks, pleasecontact the MDR team of the Tax and Customs Administration by e-mail at MDR-team@belastingdienst.nl

If you have a question about submitting the Cross-Border Arrangements Reporting form, please send an e-mail to the Tax and Customs Administration Contact Centre at gegevensuitwisseling@belastingdienst.nl

If you are a software developer or if you are going to develop software for your own organisation to report potential tax avoidance arrangements, you can register at the Digital Messaging Support [Ondersteuning Digitaal Berichtenverkeer (ODB)] website of the Tax and Customs Administration for the necessary specifications, IT-related questions (for instance, about the required technical specifications of the various fields) and support. You can also contact the service desk at servicedesk.odb@belastingdienst.nl

Answers to frequently asked questions about the mandatory disclosure legislation are collected in the Mandatory Disclosure Rules/DAC6 Knowledge Database (only available in Dutch).

 

EU Tax proposals: Taking a leadership role

On May 27th, a €750 billion entitled “Next Generation EU” has been proposed.  The plan would be made up of grants and loans for every EU Member State, to be repaid via a digital tax, carbon tax and/or a tax on recycled plastics.  However, the European Central Bank is not expected to be a player in this plan, due to Germany’s top court ruling earlier this month that it violated the German constitution.  The referenced link provides additional details.

On May 28th, as follow up,  the EU Commission said it is ready to act on a digital tax if the OECD fails to achieve a global consensus on taxation of the digital economy.  This statement, along with unilateral tax proposals, provides the impetus for OECD to act on this proposal by year-end, for which it has dedicated to fulfill this timeline.

The EU is committed to a global strategy for digital taxation and minimum corporate taxation, and will present their own plans  if the OECD fails by act by the end of 2020. 

https://www.bbc.com/news/world-europe-52819126

DAC6: Best Practices article / NL update

I have authored a DAC6 best practices article, published today by Bloomberg Tax in the Daily Tax Report.

Hope you find the content informative.

https://news.bloombergtax.com/daily-tax-report/insight-dac6-past-present-and-future

Additionally, NL is scheduled to publish DAC6 guidelines tomorrow on its website.

OECD comments: Pillar 1 &2

Bloomberg Tax hosted a webinar on May 21st, featuring Dr. Achim Pross, Head of OECD Centre for Tax Policy and Administration.

The interview PDF features a discussion of the OECD Work on the Digitalised Economy, Pillar 1 and 2, COVID-19 tax issues, and the International Compliance Assurance Program (ICAP).  Dr. Pross acknowledged Pillar 1’s timeline is still this year, whereas Pillar 2 still has some issues to address, including the global minimum tax and U.S. GILTI provisions.

The second attachment featured tax executives and outside advisors, discussing the challenges of the OECD approach in addition to challenges thereto.

Each attachment is a valuable read, illustrating the goals and challenges for everyone.

Bloomberg Tax_The Brave New World of Global Tax_Dissecting Pillar 1 and 2 – FINALBloomberg Tax_The Brave New World of Global Tax_Keynote Interview – FINAL

Indonesia VAT: COVID increase

Effective July 1, 2020 Indonesia will impose a 10% VAT on digital products sold by non-resident internet companies with a significant presence in the Indonesian market, including streaming services, applications and digital games.  The increase attempts to recoup some revenues resulting from COVID-19.

The government expects a 10% drop in state revenue this year due to the impact of the coronavirus pandemic and weak commodity prices, forecasting that economic growth will more than halve to 2.3%, from 5% in 2019. It foresees a fiscal deficit of 5.07% of GDP for 2020, the biggest in more than a decade.

https://www.reuters.com/article/us-indonesia-tax-digital/indonesia-to-impose-vat-on-streaming-other-digital-services-from-july-idUSKBN22R23V

CbC consultation: TEI comments

Tax Executives Institute (TEI) recently provided comments in response to OECD’s Consultation Document for potential changes to the Country-by-Country (CbC) reporting process.

Highlights of comments:

  • Current reports should remain unchanged, as tax administrations have not yet had the experience to transform the data into an effective risk assessment tool.  Additionally, report changes are not easy to implement by multinationals (MNEs)
  • Multiple local filings are still required, which was not the intent of the legislation
  • There should not be additional jurisdictional requirements for a Master File, such data should reside in a Local File.  Additional requirements are not efficient for MNEs to provide
  • The definition of “control” should be over 50% to have availability for data collection
  • The reporting threshold should not be lowered
  • Examples of “revenue” would be helpful
  • TEI does not support providing legal entity information in Table 1
  • Consolidated, vs. aggregate, reporting presents many challenges for MNEs
  • Requests for additional details of reported amounts should be delayed
  • The OECD is currently developing a CbC reporting “Tax Risk Evaluation & Assessment Tool” (TREAT) to support tax authorities in reading and interpreting CbC reports. TEI recommends the OECD publish the TREAT to help MNEs in identifying indicators triggering questions from tax authorities (if the OECD is not otherwise planning on doing so)

    What is not mentioned is the trend toward transparency of tax data, which introduces additional issues as data becomes more granular and subject to interpretation by non-tax readers of such information. 

 

Click to access TEI%20Comments%20-%20OECD%20County-by-Country%20Reporting%20Review%20-%20FINAL%20to%20OECD%205%20March%202020.pdf

Italy IRAP:COVID 2020 concession

The Italian parliament has proposed relief from IRAP for 2020 relating to companies with less than EUR 250 million of sales.  Other incentives, business and personal, are also being proposed to restore some fiscal growth due to COVID.

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