Tax Risk Management | Strategizing Multinational Tax Risks | Page 21

Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

Singapore: TP comments

The Inland Revenue Authority of Singapore (IRAS) has issued a consultation paper requesting comments on a revision to their transfer pricing (TP) guidelines. The particular questions for which comments are requested, no later than 24 September, consist of the following:

Challenges in preparing TP documentation contemporaneously
Difficulties in obtaining group and entity information in Annex A of the paper
Examples of low-risk documentation areas
Frequency of documentation updates

A link is provided for reference to the consultation paper:

Click to access pconsult_IT_Transfer%20Pricing%20Documentation_2014-09-01.pdf

Key observations:

TP documentation to be organized in alignment with the OECD master file and local entity reporting methodology.
TP documentation not applicable for routine services with a 5% safe harbour mark-up
Inadequate TP documentation will lose the support of IRAS in MAP discussions to resolve double taxation.
Annex A provides additional requests for group information that may be the source of requested comments, including:
- Worldwide organization chart
- Group’s business models and strategies
- Profit drivers, including a list of legal ownership for intangibles
- Supply chain activities and functions
- Business relationships among all related parties
- Group’s transfer pricing policies for all types of transactions between related parties
- Consolidated group financial statements

Singapore is a jurisdiction (and there may be many more) that is reviewing the OECD’s Action Plan country-by-country reporting template and forthcoming comments as a base upon which to expand TP reporting.

Multinationals will need to capture every country’s additional legislative requirements arising from the OECD’s Action Plan. The additional complexity, cost and time will place a further constraint upon the ability to provide information perceived to be directly relevant for every jurisdiction around the world. Additionally, the threat of lack of support for the MAP process via a determination of inadequate TP documentation (if legislated into law) will increase the risk of double taxation and TP appeals worldwide.

All interested parties should take time to submit comments prior to the 24 September deadline.

Category:

Tax Risk Management

Tagged with:

Global tax policy in 2014: EY publication

Ernst & Young (EY) has published a very informative study, based on a survey of 830 executives in 25 markets. The second section of the publication includes analyses of tax outlooks for 38 countries, including BEPS actions. The 38 countries highlighted in the publication include:

Australia / Austria / Belgium / Canada / Chile / China / Czech Republic / Denmark / Finland / France / Germany / Greece / Hong Kong / Hungary / India / Ireland / Italy / Jordan / Korea / Lithuania / Luxembourg / Malaysia / Mexico / Netherlands / New Zealand / Norway / Panama / Poland / Russia / Singapore / Slovakia / South Africa / Spain / Sweden / Switzerland / United Kingdom / United States / Venezuela

A link to the publication is included for reference:

Click to access EY-the-outlook-for-global-tax-policy-in-2014.pdf

The publication includes an introductory section highlighting tax rates and a 2014 tax policy outlook. The outlook includes the following sections:

How countries are adjusting their corporate tax base in 2014
Incentives
Withholding taxes
Transfer pricing changes
Interest / Business expense deductibility
Changes to tax treatment of losses
Changes to CFC rules / thin capitalization

The second section analyzes 38 separate countries, addressing the following topics:

Tax rates
2014 tax policy outlook:
- Key drivers of tax policy changes
- Fiscal consolidation / stimulus
- Tax policy outlook for 2014, including political landscape, current tax policy and administrative leaders, key tax policy changes in 2013, country position on OECD BEPS Action Plan, pending tax proposals and consultations opened / closed.

This publication is especially valuable in country outlooks, including the OECD BEPS Action Plan proposals, and should be consulted to develop continued awareness of current and future trends in international taxation.

Category:

Tax Risk Management

Tagged with:

Ireland Code of Practice: Audit Best Practices

Irish Tax and Customs has published a comprehensive report of Best Practices to be followed by the tax authorities and taxpayers in audit inquiries. The report includes definitions, types of audits conducted, bases of risk assessment and analytics used by the tax authorities. The following excerpt provides a brief overview of the content, which is referenced at the link provided.

1.1 Purpose of this Code of Practice
The purpose of this Code of Practice is to set out a clear, fair and equitable set of guidelines to be followed by Revenue, taxpayers and tax practitioners, in the carrying out of all Revenue Compliance Interventions, having regard to best practice and legislation.

The provisions of this Code of Practice are not to be used unnecessarily to delay or obstruct the due process of the application of tax legislation by Revenue carrying out duties on behalf of the State. Taxpayers or tax practitioners acting on their behalf cannot abuse the rights recognised in this Code of Practice to avoid or delay payment of tax, interest or penalties which are correctly owed. The Code of Practice does not restrict the taxpayer’s statutory rights.

This Code of Practice will be reviewed on an on-going basis and may be modified to reflect changes in legislation and emerging practices.
1.2 Taxes and Duties Covered by this Code of Practice
This Code of Practice applies to Income Tax, Corporation Tax, Capital Gains Tax, Local Property Tax, Exit Taxes, VAT, Capital Acquisitions Tax, Excise Duties and Licences, Carbon Taxes, Vehicle Registration Tax, Stamp Duties, Customs Duties, Universal Social Charge, Income Levy, Domicile Levy, PRSI (both employers and employees), Health Contributions, Environmental Levy, Training Levy and includes all forms of withholding (e.g. RCT, PSWT, DWT) that apply to any of these taxes, interest in respect of such taxes and penalties.

http://www.revenue.ie/en/practitioner/ebrief/2014/no-682014.html

The publication is informative and an invaluable reference for any type of audit inquiry that is conducted.

Category:

Tax Risk Management

Tagged with:

Secondary TP adjustments: Legislation for S. Africa 2015

S. Africa has introduced a change in its legislation for 2015 addressing “secondary adjustments.” The legislation aims to revert to a “deemed dividend” concept of classification from the current “constructive loan” methodology. A link explaining the legislation, in addition to the OECD definition of a “secondary adjustment” is provided for reference:

http://www.kpmg.com/ZA/en/IssuesAndInsights/ArticlesPublications/Tax-and-Legal-Publications/Pages/Additional-changes-made-to-transfer-pricing-legislation.aspx

Prior to final settlement of any audit, the effect of a “secondary adjustment” as well as a “corresponding adjustment” in another jurisdiction should be known to preserve appeal rights for that audit while avoiding double taxation. This knowledge should be comprehended and utilized as an effective audit tool by internal tax and legal colleagues, in addition to external advisors ( who may not have multinational audit defense experience).

Category:

Tax Risk Management

Tagged with:

Asia Corporate Treasury risks: Tax & Treasury collaboration

PwC has published the inaugural Asia Corporate Treasury Survey 2014, based on responses from 117 organisations across 7 countries in Asia. The Report includes risk management approaches, treasury structures and various other treasury topics that revealed significant opportunities for Asian treasury centres to deliver strategic business benefits. The Report highlights the necessity of tax and treasury collaboration in developing Best Practices due to the mutuality of objectives and complementary issues for which one function should not operate independent from the other. A link to the Report is included for reference:

http://www.pwc.com/en_GX/gx/audit-services/corporate-treasury-solutions/assets/pwc-building-the-case-for-asia-corporate-treasury-fa.pdf

The Contents include the following topics:

Deployment of treasury staff
Core treasury activities in Asia
Treasury function in Asia
Key financial risks
Risk approach
Hedge accounting
Bank relationships
Type of debt used
Funding management strategies
Investment of excess cash
Key cash management activities in Asia
Cash centralisation
Treasury technology
Future changes to think about

The Report provides valuable insight into the rapidly growing Asian region and the complexities encountered in addressing Best Practice methodologies,

Every organization should periodically review the structure of tax and treasury due to their interwoven functions, as well as compare the risk drivers for each function.

Relevant Best Practice questions include the following examples:

Are the tax risk framework and treasury risk framework integrated processes, or are such frameworks developed independently?
Does tax and treasury share updates re: new debt instruments, OECD BEPS action plan, hybrid instruments, triggering foreign exchange risk proactively, etc.?
Are training workshops / opportunities provided for the integrated functions, leading to a Best in Class methodology for both treasury and tax processes?
What is the future vision for tax and treasury?
Is the transfer pricing documentation for loans, pooling structures, etc., consistent with current treasury practices globally?
What is the withholding tax certification process from a tax and treasury perspective?

The Report, and Best Practice observations, are valuable topics for internal discussion and benchmarking the combined processes with peer organizations.

Category:

Tax Risk Management

Tagged with:

Tax Policy: Interaction of the Main Players & MNE’s

The executive summary of a paper entitled “The Structures and Mandates of Eight International and Regional Organizations That Work on Tax” was published earlier this year by the International Tax and Investment Center (ITIC) with the Vienna University of Economics and Business. The link to the article is referenced herein:

http://www.iticnet.org/file/document/watch/4008

The executive summary provides valuable insights into tax structures and mandates of various organizations, including the IMF, World Bank and the UN. The two primary sections are entitled “Who are the Main Players in the International Tax Arena” and “How can Business Interact with Different Groupings?”

The first section includes a description of the breadth of activities for the organizations, including those of the UN that include transfer pricing, exchange of information, cross border VAT issues, taxes in climate change, financial transaction taxes, tax on foreign direct investment, and natural resource taxation. The second section is very interesting reading, providing insights into how Multinationals (MNE’s) can proactively interact with the various tax policy making bodies.

The topics of tax policy, and interaction between the MNE’s and the relevant organizations, have evolved into very significant issues in today’s changing tax environment. Roles in a MNE, and the necessity to proactively interact with such organizations has now become a necessity that will derive mutual benefits and win-win relationships.

Category:

Tax Risk Management

Tagged with:

Tax Policy statement: A foundation of the Tax Risk Framework

EY has put forth a compelling article addressing the necessity of a company tax policy, stating it is not an option to delay action and hope the debate over transparency and what represents a fair share of tax will stop. The article is referenced by the following link:

http://taxinsights.ey.com/archive/archive-articles/the-future-of-tax.aspx

Key excerpts:

So how can companies adapt to this new landscape and best address the different concerns of these very engaged stakeholders? It starts with formally and carefully defining a company’s tax policy, which gives effective guidance from the board to the group tax function on what the company’s responsibilities and required behaviors are worldwide.

This policy needs to take account of the often conflicting interests of various constituencies, such as tax authorities, investors, employees, the media and the general public. In the future, a business model must adjust to recognize that, while commercial decisions must continue to take account of tax analysis, such analysis itself needs to include wider business risks.

A company’s tax policy will also help in determining how transparent a company wishes to be with stakeholders about its tax affairs. Companies are concerned that stakeholders could misinterpret the complex nature of their tax affairs.

Any effective tax policy needs to strike a balance between clearly communicating the risk appetite and approach of the company, while also managing all costs, including opportunity costs caused by its tax approach and its consequences regarding reputation and the risk of controversy.

Best Practice: One of the foundations, and a good starting point for the Tax Risk Framework, is a tax policy. The policy should be drafted with the knowledge that it is a valuable tool which the tax authorities may request to better understand, and assess, the company’s global tax risk.

Category:

Tax Risk Management

Tagged with:

Tax risk & controversy: EY highlights

Ernst & Young (EY) have published their 10th issue of T Magazine, highlighting the topics of tax risk and controversy. The link is attached for reference:

Click to access tmagazine10-2012-low.pdf

Key Highlights:

GAAR, Burden of proof: Taxpayer, Tax authority or Shared; summary of 24 countries.
Sustained government pressure on tax compliance means tax risk is now an issue for corporate boards, not just tax directors.
Clarity is now the key attribute in any message about tax that companies convey to the outside world.
As emerging markets become more confident and sophisticated, they are challenging commonly applied international tax standards.
The OECD’s “Tax Inspectors Without Borders” program (details in a prior post of 9 June 2013) seeks to match demand from countries wanting assistance with complex international tax audits with the supply of international tax experts.
Companies need to improve local knowledge of risk rating processes in each Asian country, including key focus areas and potential audit triggers.
Organizations need to show a willingness to engage with policymakers and administrators to improve policy proactively.
Tax authorities are increasingly adopting the OECD’s concept of the “economic employer” to determine tax liabilities, rather than a treaty residence rule.
Creating a PE is the biggest tax risk companies face from sending employees on business or assignments overseas.
An increasing number of companies have appointed a head of tax controversy to manage tax risk and its implications.
Companies must be prepared to become more transparent.

Tax risk and transparency are the new challenges to be met by multinationals. The T Magazine is a valuable resource in understanding today’s risks, and the manner in which these issues will transform current standards into leading Best Practices, tax risk policies and processes.

Category:

Tax Risk Management

Tagged with:

EU Policy Paper: Beneficial Ownership transparency

The EU Policy Paper, issued by Transparency International, is entitled :”Fighting Money Laundering in the EU: From Secret Ownership to Public Registries.” The stated objective is to provide company ownership information freely available as a shared objective in the public interest. The Policy Paper is referenced herein:

Click to access TI-EU-Policy-Paper-Beneficial-Ownership.pdf

The primary objective of this initiative, as stated in the Policy Paper, is: “To keep a level playing field and maximize their benefit, public registries must be made public in all EU Member States as well as internationally.” The ultimate Beneficial Owner is to provide detailed information. This recommendation is pursuant to a review of the 3rd EU Anti-Money Laundering Directive, forming a basis for the 4th EU Directive.

As a Best Practice, this initiative should be monitored from a tax policy perspective in alignment with the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan steps, as well as similar trends meant to uncover complex and non-transparent ownership schemes. It is noted that the EU Policy Paper is meant to extend the transparency reporting internationally, not only for EU Member States.

Category:

Tax Risk Management

Tagged with:

Global & Regional tax trends: World Bank / PwC study

PwC and the World Bank have published a study on tax trends from 2004-2012 in 189 economies. The Paying Taxes study, part of the World Bank Doing Business project, looks at tax systems from the business tax perspective, including direct and indirect taxes, employment taxes, mandatory contributions, property taxes, environmental taxes, and others. A link is provided for reference.

Click to access pwc-paying-taxes-2014.pdf

The study is valuable in analyzing trends, and also is helpful in depicting the different types of taxes that multinationals are paying in different regions around the world. The disparity in countries and regions becomes immediately apparent. This information also provides context for corporate sustainability reports reflecting global tax transparency for direct and indirect taxes in addition to economic contributions.

Category:

Tax Risk Management

Tagged with:

Tax Dispute Resolutions: Best Practices / Update

KPMG provides a timely and relevant update of tax dispute resolution issues, coupled with Best Practice ideas. The publication can be accessed from this link:

Click to access tdr-quarterly-magazine-winter-2013.pdf

A summary is provided for quick reference:

US: New IDR process: Required (new) IDR process for all large-case exams: IDR Collaboration (carrot) & delinquency notice/summons procedures (stick)
Risk from whistleblowers: Current climate and Best Practices, including avoidance of retaliation, ethics hotline, procedural awareness, tax dept. procedures, and what to do if you suspect whistle blowing
IRS practices, various items of interest
Global tax disputes, including a focus on UK GAAR (also refer to a prior blog post)

This publication provides insight into today’s tax challenges and risks, to be mitigated by Best Practice ideas that should be an integral part of all multinationals tax framework.

It will be interesting to note developments into the new procedure by IRS as demonstrated by the agents performing the exam, as the summons procedure process is mandatory and has no exceptions. Additional time should be spent understanding the issue raised by IRS, as well as collaborating on the draft inquiry, to benefit from undue data collection and audit inefficiencies.

Additionally, the whistleblower comments should be used to test, modifying as necessary, current internal governance procedures. Such procedures should be reviewed, tested, and modified on an annual / recurring basis.

Category:

Tax Risk Management

Tagged with:

France Finance Bill 2014 & Employer tax

The 2014 Finance Bill was published 30 December 2013, containing the following measures as summarized in the KPMG link herein.

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Pages/france-transfer-pricing-provisions-enacted-finance-bill-2014.aspx

Limitation for related party interest, if lender is not equal to a minimum of 25% of corporate income tax under French law
Requirement to provide “analytical accounts” to the French tax authorities during a tax audit if certain thresholds are exceeded
Requirement to provide “consolidated accounts” to the French tax authorities during a tax audit
Repeal of a provision staying tax collection when a French taxpayer files a MAP case

Note the above provisions are in addition to a new employer tax of a 50 per cent levy on the portion of wages above 1 million euros in 2013 and 2014. Including social contributions, the rate will effectively remain about 75 per cent, though the tax will be capped at 5 per cent of a company’s turnover.

These significant provisions should be reviewed and monitored closely by MNEs with French operations, or contemplating entering the French market. Future tax measures should also be expected in France in an effort to improve their GDP and economic growth.

Category:

Tax Risk Management

Tagged with:

Holding Regimes: 2013

Loyens & Loeff provides their annual concise and practical holding company update of holding company regimes for 2013.

Click to access Holding_Regimes_2013.pdf

Several topics are covered for each of the following countries

Belgium
Cyprus
Hong Kong
Hungary
Ireland
Luxembourg
Malta
Netherlands
Singapore
Spain
Switzerland
United Kingdom

Tax on capital contributions
Corporate income taxes
Withholding taxes
Capital gains taxes
Anti-abuse provisions / CFC rules
Income tax treaties as of 1/1/2013

This publication is a timely and valuable update, especially with respect to non-European countries and the topics of anti-abuse provisions and CFC rules.

Best Practices should include an annual review of the global legal entity structure, especially with upcoming OECD guidelines, re: general anti-avoidance rules (GAAR), anti-abuse provisions and CFC rules.

Category:

Tax Risk Management

Tagged with:

Dutch Holding companies: Substance requirements / information exchange

Holding companies in the Netherlands that conduct finance and leasing operations must meet substance requirements as of 1/1/2014, with confirmation provided in the annual income tax return. To the extent that one, or more, of the requirements are not fulfilled, such information is required to be disclosed, with such disclosures spontaneously provided to the relevant treaty partner who can use it to review tax treaty benefits. A Tax Flash from Loyens & Loeff provides a summary of these requirements, as well as an interesting comparison of the substance requirements to those relevant for an APA of a group financing company.

http://www.loyensloeff.com/nl-NL/News/Publications/Flashes/Pages/TaxFlash22October2013.aspx

A taxpayer must meet all of the following substance requirements:

50% or more of decision-making board members reside in the Netherlands, and have the relevant professional knowledge to perform their duties
Qualified employees are in place to implement and register transactions
Management decisions are taken in the Netherlands
(Authority for) main bank accounts is retained in the Netherlands
Books are kept in the Netherlands
Business address is in the Netherlands
The taxpayer is not a dual resident with another country
Risks are evident for financing, licensing or leasing activities
An appropriate equity is maintained with regard to the functions performed

Beneficial ownership rules are subject to additional review and attention by OECD and global tax authorities, and Netherlands is using this prescriptive approach to ensure that substance is maintained and exchange of information provisions are in place to identity taxpayers not meeting such requirements. All multinationals should monitor this topic, while also ensuring that Dutch holding companies meet the relevant substance requirements

Category:

Tax Risk Management

Tagged with:

R&D/Patent, Innovation Box global summary

PwC Global R&D Incentives Group has published a valuable global summary of R&D incentives, including the Innovation and Patent Box.

Click to access pwc-global-r-and-d-incentives-brochure-may-2013.pdf

The summary provides the status of the R&D Credit, R&D Super Deduction, Patent and Innovation box for the following countries:

This valuable summary provides an up-to-date status of the R&D, Patent/Innovation Box to develop Best Practices in pursuing these valuable opportunities.

Category:

Tax Risk Management

Tagged with: