Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

DAC6: Sweden is late, due date unchanged

The Swedish Government issued, on 4 February 2020, a final bill to Parliament implementing the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6 or the Directive).

An earlier draft was issued in December 2019, the final legislation is expected to be enacted in March 2020, and penalties apply after it goes into force July 1, 2020.

EU Member States were to adopt and publish national laws required to comply with the Directive by 31 December 2019. Sweden did not meet this deadline.  This major miss of the OECD deadlines for a complex, subjective and arguably far-reaching disclosure legislation brings forth the question: Why is there not a similar delay for implementation by taxpayers and reporting parties?  Unfortunately, the OECD has not provided any comments on this mismatch of Member State responsibilities and taxpayer obligations.

The scope of the taxes covered under the Swedish new draft legislation is fully aligned with the Directive and applies to all taxes except VAT, customs duties, excise duties and compulsory social security contributions.

In accordance with DAC6, the main benefit test (MBT) will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement, is the obtaining of a tax advantage.

The Government’s explanatory notes indicate that a “tax advantage” includes a tax advantage outside of Sweden (and there is no suggestion that such tax advantage must arise in respect of EU taxes).

The Government further concludes that there is no requirement that the tax advantage occurs during the current fiscal year, it can occur also in the future, for example, in the form of deferred taxation. It states, however, that it must be a tax advantage based on current rules.

DAC6 is complex, subjective and frustrating as each Member State applies their own interpretation of the final rules, as well as reporting formats.

Taxpayers with operations or transactions affecting Sweden, or other Member States, will likely over-report transactions for the initial period, and hope for further clarifications in the near future.  However, penalty consequences are so significant with respect to each (subjective) reportable arrangement that some companies may find it difficult to prove the negative – that each arrangement was reported timely.

https://www.ey.com/Publication/vwLUAssets/Sweden_issues_final_proposal_on_Mandatory_Disclosure_Rules_to_Parliament/$FILE/2020G_000817-20Gbl_Sweden%20issues%20final%20MDR%20proposal%20to%20Parliament.pdf

EU blacklist: Additions

The EU blacklist of noncooperative tax jurisdictions, which is used in one of the DAC6 hallmarks for reportable transactions, is revised as of February 18th to include the Cayman Islands, Panama, Seychelles and Palau, in addition to the official list, as included in the referenced link.  It is noted that Turkey was not added to the list.

https://www.consilium.europa.eu/en/policies/eu-list-of-non-cooperative-jurisdictions/

Books/records: German MOF change

The German Ministry of Finance recently changed their rules re: maintenance of books and records for tax (including customs) purposes.  The GoBD compliance provisions are especially important in acquiring businesses with German locations, digital technology, changing systems, moving/dissolving German entities and reviewing current documentation rules for multinationals operating in Germany.  Upon audit, German tax authorities will ensure this compliance is verified.

These rules are similar to other EU rules for maintaining records in the country, and should always be a diligence item for M&A, ERP system conversions, etc.  

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

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