Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

Tax disclosures: Global / BEPS incentivized

Jurisdictions are legislating global tax disclosure statements as a separate filing requirement or included with the respective local corporate income tax return.  Recent examples seem to highlight this new initiative, including France and Chile.  Examples of information requested include entities with legal ownership of IP, entities that have no assets or substance (i.e. holding companies), etc., irrespective of intercompany transactions with the local entity.

These new disclosures have added additional risks for operational compliance, as well as a need to centralize such information.  Some multinationals (MNEs) have placed this compliance responsibility with a local / regional team for efficiencies.  However, this new reporting trend will require closer coordination of headquarters that has relevant knowledge of the global ownership of IP and legal structures.

Answers to these dislosure questions will pose new audit risks as tax administrations will make further inquiries and/or initiate an audit to assess potentially high risk transactions. This emphasis will include a vigorous challenge to treaty based positions with holding companies, including any general anti-avoidance or anti-abuse rules within the treaty or domestic legislation.

Additionally, audit queries based upon global disclosures will require seamless coordination with headquarters or the individuals possessing this information.  Therefore, audit teams and ways of working will need to be strategized for information that is not generally retained by the local business team.

MNEs should monitor new disclosures and ensure there is an efficient governance process to accurately address the BEPS incentivized queries.  This may involve a shift in responsibilities within the transfer pricing documentation process.

The post BEPS era signifies a new way of thinking, including the respective documentation responsibilities and structure of an internal transfer pricing team.

 

 

Category:

Tax Risk Management

Tagged with:

Chile: BEPS + disclosures

The Chilean Internal Revenue Service has implemented a 24 question disclosure based on BEPS, although going farther than the OECD’s Actions.  EY’s Global Tax Alert is provided for reference:

Highlights:

  • Percentage of related party revenues
  • EBITDA percentage of related party expenses
  • Foreign related parties with no staff or relevant assets, and identify those which participated in intercompany transactions
  • Corporate reorganizations, transfer of functions involving foreign companies.

  • Taxpayers listed in the Large Business Division (Grande Contribuyente) must file SS No. 1913, as well as those considered large companies by the Chilean IRS. SS No. 1913 must be filed annually from 2016 onwards before filing the corporate return (Form 22), which is due in April.

A careful reading of the new disclosures should be undertaken by those having Chilean operations; this is also a trend that will probably develop in other countries.

 

Click to access 2016G_CM6128_Chile%20creates%20new%20sworn%20statement%20linked%20to%20BEPS%20Actions.pdf

Category:

Tax Risk Management, Transfer Pricing

Tagged with:

Argentina’s FX Controls eased

Argentina has eased its foreign exchange controls, effective this month.  The changes affect imports, services, repatriations and bank controls.  Deloitte’s International Tax Alert provides further details:

Click to access dttl-tax-alert-argentina-26-december-2015.pdf

Foreign exchange controls are important to monitor, as they affect transfer pricing, cash funding/repatriation, timing of reimbursements and contemporaneous documentation requirements for clearance.  Argentina’s announcement is good news for international business, and it is hopeful that other countries with similar controls follow their lead.

Tax and treasury practices should be integrated with respect to foreign exchange controls to gain maximum efficiencies in any organization.

 

Category:

Tax Risk Management, Transfer Pricing

Tagged with:

Place of effective management: India’s creativity anew

India’s Ministry of Finance has issued draft guiding principles for determining the place of effective management (POEM).  The Finance Act of 2015 contained provisions providing for the significant change in determining POEM, to be effective April 2016.  The guidelines have a comment period until 2 January 2016; a link to the guidelines is provided:

Click to access POEM-note-for-uploading.pdf

The guidelines present subjective determinations of determining POEM based on substance over form and a recurring annual test.  There are presumptions, such as location for a majority of Board meetings, with exceptions based on facts and circumstances.

As drafted, the new guidelines present increased uncertainty for multinationals having any operations or services with Indian residents, thus this latest report should merit high priority due to the April 2016 effective date, as well as brief period provided for comments.

 

 

Category:

PE, Tax Risk Management

Tagged with:

Brazil: Holding company test

Brazil has placed Dutch holding companies back on its list of privileged tax regimes, as it has determined that such companies that do not have “substantial economic activity” will be subject to adverse Brazilian tax consequences.  EY’s Global Tax Alert provides additional details:

Click to access 2015G_CM6098_BR%20places%20Dutch%20holding%20cos%20wout%20substantial%20eco%20activity%20back%20on%20PTR%20list.pdf

Best Practices: All multinationals should review not only Dutch holding companies, but all holding companies to test economic substance.  Russia has enacted recent rules on beneficial ownership, also looking at economic substance to determine the availability of treaty benefits.  Other countries are expected to be more active in this subjective determination, thus this will be a topic for disputes gong forward.

Category:

Tax Risk Management

Tagged with:

A Holiday Wish

Merry Christmas and Happy Holidays to all: best wishes for a healthy, happy and joyous holiday season!

All the best,

Keith

 

Category:

Tax Risk Management

US int’l update

The US House and Senate have paved the way for the President’s signature on a bill that extends important international tax topics:

  • Subpart F active financing exception – permanent extension
  • 5-year extension of the CFC look-through rule (through 2019)

A summary of the bill is provided in EY’s Global Tax Alert:

Click to access 2015G_CM6082_Report%20on%20recent%20US%20international%20tax%20developments%20-%2018%20December%202015.pdf

Separately, the US has also indicated that regulations should be forthcoming before year-end for the country-by-country (CbC) reporting rules, which is good news for many.

These rules should provide some international tax certainty for US-based companies, notwithstanding the absence of significant reform for the worldwide tax system.

Category:

Tax Risk Management

Tagged with:

France: New legislation

The French Parliament has approved the 2016 Finance bill, subject to constitutional review. A summary of the provisions are provided in EY’s Global Alert:

Click to access 2015G_CM6081_French%20Parliament%20approves%20Finance%20Bill%20for%202016%20and%20Amending%20Finance%20Bill%20for%202015.pdf

Key points:

  • Country-by-Country (CbC) reporting is adopted for French parented multinational companies, consistent with OECD Guidelines.
  • Compulsory e-filing.
  • Annual filing of transfer pricing documentation.
  • Effective 1/1/2016, intra-French distributions will be subject to a 1% taxable income inclusion, as well as distributions received from EU or EEA qualifying subsidiaries.
  • The general anti-abuse clause of the amended EU Parent-Subsidiary Directive is adopted.
  • The 2015 AFB amends the French participation exemption regime, as well as the withholding tax (WHT) treatment applicable to dividends distributed by French entities to EU resident entities, in order to comply with the EU Directive 2011/96/UE dated 30 November 2011.

The new rules pose additional burdens for distributions within a French tax group, while recognizing CbC reporting and being proactive with respect to the filing of transfer pricing documentation.  Accordingly, it should be followed as other countries adopt similar rules in the near future.

 

 

Category:

Tax Risk Management

Public CbC reporting: France moves forward

France’s lower house of Parliament has approved an amendment that would require public reporting of country-by-country (CbC) information.  The amendment will need approval by the Senate, with final confirmation by the French National Assembly before being enacted.

This step represents another move forward, along with the EU proposals, to provide CbC information to the public domain.

Multinational companies should prepare today for public CbC reporting in the near future, as the cannon shots have been fired and they will soon land, resulting in a multitude of inquiries and perceptive conclusions.  Additionally, organisations should have a seamless process to receive, review and decide on communicative courses of action in response.

Category:

OECD, Tax Risk Management

Tagged with:

UK Autumn Statement: 2015

UK’s Autumn Statement 2015 has been announced, with several measures aimed at changing corporate tax behavior and promoting transparency with the objective to achieve a modern and fairer tax system.  A link to the Statement is provided for reference:

https://www.gov.uk/government/publications/spending-review-and-autumn-statement-2015-documents/spending-review-and-autumn-statement-2015

Key points:

  • A 60% penalty of tax due for successful general anti-abuse rule (GAAR) cases, to be implemented in 2016.  The revenue impact of this measure is highly uncertain, as it is also meant to be an incentive to change corporate tax behavior.
  • A desire to be to the most digitally advanced tax administration in the world.
  • New criminal offense for corporates failing to prevent tax evasion; failure to prevent their agents from criminally facilitating tax evasion by an individual or entity.
  • Hybrid mismatch rules to be effective 1/1/2017, following the OECD’s BEPS Guidelines.
  • Corporates to publish tax strategies as they relate to, or affect, UK taxation.
  • Cooperative compliance framework.
  • “Special measures” regime to tackle businesses that persistently engage in aggressive tax planning.

A carrot, stick and transparency approach is contained within the Statement, and thus important to follow as other countries will surely review UK’s leading initiatives to gauge impact on their respective economy.  The GAAR related penalty, which is inherently subjective, will be dictated in some fashion by HMRC’s aggressiveness to assess GAAR and a willingness to pursue it through the respective appeal avenues or court.  The tax strategy initiative will also be interesting to monitor as to its breadth and potential impact upon a company’s risk rating.

Category:

Tax Risk Management

Tagged with:

Transparency & Disclosure: zooming in

EY’s recent publication takes a close-up view of transparency and disclosure trends, including a detailed analysis of several countries’ latest trends.  A link to the report is provided for reference:

Click to access EY-are-you-ready-for-your-close-up.pdf

Key Points:

  • Transparency issues of the future:
    • Country-by-Country (CbC) implementation and inconsistency of approaches
    • New transfer pricing documentation requirements
    • Public access for CbC reports and tax rulings
    • Growing trend to disclose a company’s planning, strategy, risk appetites and effective tax rates
    • Tax codes of conduct, formal and informal
    • Increased disclosure of aggressive tax positions
    • Electronic data gathering
    • Use of third-party data
    • Direct ERP access
    • Matching of data and watching for transactional trends
  • EU transparency update, including proposed Directives
  • Country transparency updates: Argentina, Australia, Brazil, China, Denmark, Ecuador, France, Germany, Greece, Mexico, Netherlands, Poland, Singapore, South Africa, South Korea, Spain, UK, US

The level of future transparency will continue to increase, with new and dissimilar demands by countries around the world.  This report unveils the global trends and issues, with comprehensive analyses of various transparency trends of major countries.  Accordingly, it is a publication that should be reviewed to better understand where the current trends are requiring future demands for transparency in a new world of international taxation.

Category:

Tax Risk Management

Tagged with:

Public disclosures: Get ready!

As tax disclosures, more specifically the country-by-country (CbC) report, approach probable reality, what is your company doing to prepare for such transformation?

  1. Is the CbC report being prepared with perceptive gap Q & A’s addressed?
  2. Who is the first / primary point of contact for a public query – How are contact details communicated for global awareness?
  3. Is tax aligned with corporate communications re: who is responsible for preparing, delivering, answering queries?
  4. Are shareholders aligned in the process, to disclose or not disclose?
  5. Will tax posture change, via public disclosures, as public disclosures become more common?
  6. What is the impact of your peer companies providing proactive disclosures?
  7. Is there a process to monitor tax disclosures of peer companies for review, not to be surprised.
  8. Is there a similar process for internal queries as a response to ever-growing tax investigations / allegations in the public?

These questions highlight the priority needed to focus upon this new trend and proactively address this new world!  Tax authorities will be reviewing such disclosures, so multinational organisations should be also aware.

Category:

Tax Risk Management

Tagged with:

US FTC for UK DPT?

EY’s Global Tax Alert provides a summary of the US congressional developments, including a review for US Foreign Tax Credit (FTC) applicability of the UK’s Diverted Profits Tax (DPT) which went into effect April 2015.

This review highlights a renewed focus on receiving a US FTC for income that may have been taxed in another (low-tax) jurisdiction and for which a country asserts a right to tax in its jurisdiction.  The answer is not yet clear, and this analysis also points the way forward for similar tax measures being legislated by various countries.

Click to access 2015G_CM5920_Report%20on%20recent%20US%20international%20tax%20developments%20-%2030%20October%202015.pdf

Category:

Tax Risk Management

Tagged with:

Hungary’s tax risk system

The Hungarian government has submitted draft proposals for the 2016 budget.

Two important provisions are provided for review and advance planning:

  • Tax risk rating system of “risky” or “reliable” with corollary changes to tax authority deadlines and penalties.
  • Changes to IFRS, from Hungarian GAAP, for 2016.

EY’s Global Tax Alert provides additional details of these proposals:

Click to access 2015G_CM5889_Hungary%20submits%20new%20proposal%20for%202016%20tax%20law%20changes%20and%20publishes%20IFRS%20transition%20timeline.pdf

The risk rating system is becoming more of a norm, versus an exception, in various jurisdictions.  Accordingly, MNE’s should review its tax risk policies/framework to ensure a favorable “reliable” rating is achieved.

Category:

Tax Risk Management

Tagged with:

European Parliament’s tax policy paper

The European Parliament’s Policy Dept. A has provided a tax policy paper upon the request of the TAXE Special Committee of European Parliament.  An EY summary, and detailed report, are provided for reference:

Click to access 2015G_CM5880_European%20Parliament%20publishes%20paper%20on%20the%20EU%20Third-Country%20Tax-Governance%20Issues.pdf

Click to access IPOL_IDA(2015)563449_EN.pdf

Key topics:

  • Developing country tax governance issues
  • Tax system trends and challenges
  • Impact of tax havens on EU countries
  • Challenges faced by tax policy makers
  • Exchange of information
  • Tax transparency
  • Illicit activities
  • Harmful tax competition

As the EU has stepped in to take the lead on various post-BEPS initiatives, this policy paper is recommended reading to gauge the trend in these topics that will also take place worldwide.

Category:

OECD, Tax Risk Management, Transfer Pricing

Tagged with: