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.
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.
President Trump has announced his simplistic intentions re: tax reform, and the timing is critical although lacking in substantive detail.
Apart from a lower rate (still undecided what that will be), the notion of territoriality is reinforced, in addition to the one-time tax on foreign earnings. The one-time tax is an important part of any legislation, as it will be used to drive the necessary revenues, apart from other provisions, for ultimate passage.
Most importantly, there is a renewed effort by the legislators to undertake discussions with business leaders to better understand the complexity of new legislation and its overall impact on US and global trade. The proposed import / export actions have reinforced a necessity to understand the widespread impact on different industries and the future economic growth limitations.
Realizing there are many moving parts now on Capitol Hill, it is imperative to call attention to those actions that will impact, positively or negatively, a corporation’s future ability to drive economic growth and new jobs.
As UAE’s (and some other GCC States) VAT regime, effective 1/1/2018, becomes closer, it is clear that multinationals (MNEs) need to prepare now re: VAT assessments, information required, system review, etc. to plan effectively for this new indirect tax.
Additionally, India’s new scheme also is in effect starting this year, and a similar exercise should be conducted re: operations conducted in India.
As VAT is an indirect tax, all MNE’s should ensure such local filings are coordinated with regional / global compliance governance controls.
EY’s Global Tax Alert provides additional details re: the GCC’s upcoming rules.
As the subject of permanent establishment (PE) becomes more controversial amid the ever-changing rules, multinationals (MNEs) should have a proactive partnership relationship with their global mobility service provider, whether in-sourced or outsourced.
Global mobility generally reports through the HR function, thus a silo approach may result without the proactive ability of the tax function to create a cohesive team. The concepts of legal employer, economic employer, intercompany allocations, foreign reporting relationships, contractual arrangements, intercompany agreements, etc. all need to be vetted and challenged for every assignment that may have adverse consequences for the employee and/or the company.
Countries are taking a more aggressive PE approach, thus a standard assignment template and / or agreement may not work in today’s post-BEPS world. India, for example, has very specific rules that dictate a PE without special attention to the control and payment arrangements of the assignment. Assessments may take years to resolve requiring additional cost and time, including the necessity of external advisors.
The organizational structure of significant functions that may cause consequences for a MNE’s tax organization should be reviewed, possibly adding dotted line relationships for global mobility, customs, external communications, etc. At the very least, these related functions should be discussing these potential issues on a regular basis, while forming a mini-university for learning.
As the subject suggests, the organizational structure and reporting relationships should not follow the same-as-last-year approach due to the BEPS evolution around the world.
The long -awaited VAT has become a reality in the GCC, effective 1/1/2018.
This provision will require advance (systems) implementation and training, especially for companies in the region not familiar with VAT reporting. Note the UAE and other GCC countries have nil, or minimal rates of corporate tax and this indirect tax will provide a local economic stimulus without creating additional complexities of corporate tax reforms.
This reform is not unexpected, although now the execution phase is very important to provide a seamless transition for reporting and collection.
EY’s Global Tax Alert provides additional details of this development.
Members of the European Parliament (MEPs) have put forth additional recommended disclosures and requirements for the Accounting Directive of public Country-by-Country (CbC) reporting, prior to enactment of the original proposal.
The Accounting Directive allows a simple majority for passage, and involves additional complexities and cost as the OECD model is now just a starting point for new information.
The Parliament would also like to extend the proposal to include the following information in company reports:
EY’s Global Tax Alert, referenced herein, provides the relevant details, although it appears the CbC report is not being construed as one tool for total transfer pricing assessment, but a public tool to determine one’s fair share of tax irrespective of the legal laws and limitations in each country.
An alternative approach would be to design a standard (transfer pricing) audit template for the tax authorities that would include some, or all, of the above factors to the extent deemed important to assess a company’s tax liability in that relevant jurisdiction. However, this non-public and Best Practice audit tool is not the focus in this post-BEPS world, to date.
For purposes of the French-Italian double tax treaty, Italy’s Supreme Court has rendered an important decision re: holding companies and the level of substance required to determine beneficial ownership. This decision is fact specific, although is significant as it applies to pure holding companies and the subjective interpretations of beneficial ownership that are being applied globally.
The Supreme Court held that the status of beneficial owner is ultimately to be determined, as a matter of fact, based on the particular nature of the recipient holding company and the functions typically performed in its operations.
For a pure holding company, a level of organizational structure able to carry out an activity of mere coordination and control over the subsidiary, attend the shareholders’ meetings and collect dividends, should be deemed as adequate. The analysis should instead be based on the actual capability of retaining the dividends received as opposed to having the obligation to repay them to another entity.
In particular, the Supreme Court did not find any merit to the proposition that the French company should be regarded as a conduit, concluding that a holding company that does not have the same organizational structure (premises, personnel, etc.) as an operating company does not necessarily mean that it would be regarded as not being the beneficial owner of dividends.
This case is very interesting as it does not rely on the regular substance of a regular operating company, and thoughtfully distinguishes the legal rights of a holding company to receive and hold dividends without an intertwined obligation to distribute such monies as one may find in a tax-driven conduit structure.
EY’s Global Tax Alert, provided for reference, is an interesting and refreshing insight into this subjective issue that merits no consistency on a global basis.
The Tax Executives Institute (TEI) has provided comments to the FASB’s proposed changes to disclosure requirements for the reporting of income taxes. As the increased transparency demands continue, the attached views exemplify the theoretical and practical considerations for new standards re: added benefits for the readers of financial statements.
As the world of tax increases in complexity, public disclosures should avoid subjective and forward looking projections, as well as avoiding any potential conflicts with strategic forecasts and confidential information.
TEI’s comments are well written and should be welcomed by the tax and financial community looking to increase the transparency and practicality of financial statement times without duplication or non value-added actions.
Click to access Comment-Letter-on-Proposed-Updates-to-ASC-740-Disclosures-PostedJan122017.pdf
I want to wish all my readers / followers a happy, healthy and exciting New Year, as it will certainly be a challenging one in many ways!
Personally, I have moved from the UK to the US this year and find it interesting to compare and contrast the international tax views and press coverage in different jurisdictions.
Thank you for your comments and insights, enjoy the New Year!
With kind regards,
Keith
As 2016 draws to a close, and 2016 country-by-reporting (CbC) obligations become effective for the 2016 tax year, Dec. 31, 2016 is an important filing deadline to file CbC “notifications” in many countries advising tax administrations which entity/ “surrogate entity” will be filing such report when it is due.
This deadline is significant for MNE’s with HQ’s in countries that do not require CbC reporting in 2016 (US, Switzerland, and others), with legislatively imposed fines/penalties for non-compliance.
Apart from various forms of guidance, there is not one place to gather such dynamic information. Thus, every MNE should prepare a matrix of countries in which they conduct business operations (including dormant entities, etc.) with corresponding legislation from every country to ensure such deadlines are timely met. Some countries prescribe forms for the notification, although these forms may not be currently printed or available. Therefore, it is recommended to provide some written notification that should ensure no penalties are ultimately applicable.
EY’s Global Tax Alert provides information for Singapore’s recently announced 2016 CbC voluntary filing rules.
This topic will be dynamic, changing almost daily during the next week. Therefore, prudent monitoring of new developments is suggested for this new reporting tool.
EY’s Global Tax Alert provides the latest developments into the EU’s hybrid arrangements with non-EU Member States to achieve consistency in application of the hybrid mismatch rules. This development is not unanticipated, although will take some time to be fully developed and legislated into action. In the interim, advance planning should take place, recognizing the fact that the current arrangements will not likely be allowed to exist much longer.
The 2016 draft of the UN TP Manual includes India’s latest expression of alignment, as well as differing views from the OECD BEPS Actions 8-10 and 13.
Accordingly, the Indian tax administration is of the view that the guidance flowing from the final report of the BEPS project on Actions 8-10 should be utilized by both the transfer pricing officers (TPOs) and taxpayers in situations of ambiguity in interpretation of the law. However, India has not endorsed the guidance in the BEPS report pertaining to low value adding intra group services under Action 10 and has not opted for the simplified approach. Further, India has endorsed the recommendations contained in the BEPS final report on Action 13, which supported the three-tiered documentation regime comprising a Local File, a Master File and a Country-by-Country Report and has already carried out legislative changes in its domestic law.
India is known for its creativity, non-technical aggressive positions, and the number of years required to appeal initial assessments. Some of these positions, currently in litigation and dispute, have been reiterated as a further stance in their hard line position on transfer pricing to enhance its economic fisc. Accordingly, interested international tax practitioners should be cognizant of these positions, as other countries will surely “look and see” if such positions could also benefit their economic fisc similarly.
EY’s Global Tax Alert is provided for reference.
The European Commission issued a significantly important proposal for a Double Taxation Dispute Resolution; it hopes to remain a leader in this ever-changing international tax arena with a mandate for binding arbitration, as applicable, as one of the leading initiatives. This proposal would require a unanimous adoption by all EU Member States (although UK’s vote may be considered to be of less significance as time moves on, it still counts).
Other proposals of the three-prong package include a renewed focus on the Common Consolidated Corporate Tax Base (CCCTB) and hybrid mismatches with third countries. The last initiative is interesting, as the EU now seeks to expand its reach with those countries outside the EU.
Although each proposal is significant as a stand-alone initiative, the Dispute Resolution would provide the most benefit at a critical time for a win-win relationship going forward.
EY’s Global Tax Alert provides further details on this initiative for reference.
As MNE’s (anxiously) await the final Treas. Reg. Section 385 final regulations (for which the House and Senate seem unable to slow down Treasury’s intent) and its potential impact on cash pools and foreign-to-foreign transactions, Canada has proposed rules providing for deemed dividend and withholding tax treatment for certain cash pool arrangements, notwithstanding notional pool arrangements.
The perceived abuse of cash pools, albeit physical or notional, has trumped the basic business tenets and rationale of international business. As a result, significant complications have resulted in additional costs, compliance and regulatory oversight that stifles basic business transactions.
MNE’s with physical cash pools may have, or will need to, consider notional vs. cash pools as countries look at such opportunities with its sovereign right for revenues and source taxation. Notional cash pools are no longer safe, as a result.
These non-intuitive rules should introduce discussions between tax administrations and MNE’s located in their jurisdiction to truly understand business dynamics prior to enacting draft/final rules affecting such instruments. Until that time, MNE’s will have to consider restructuring that further begets questions of complexity and planning arrangements.
Details of Canada’s proposal are provided in EY’s Global Tax Alert provided as reference.
Strategizing Multinational Tax Risks 
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