Strategizing International Tax Best Practices – by Keith Brockman

African Free Trade Agreement

April 8, 2018

44 of 55 countries have signed the African Free Trade Agreement, in an effort to promote efficient trade in the region.

With a combined gross domestic product of about
US$2.5 trillion and 1.2 billion people, Africa currently trades more with continents or countries outside of Africa than with fellow African countries.

The next step in the process of implementing the Continental FTA will be for the signatories to ratify the agreement and then implement the provisions of the agreement. Critical areas to consider include rules of origin to qualify for preferential taxes on imports from member countries as well as agreements of which physical barriers to trade are eliminated gradually.

The ultimate aim of the African Union is to become a political federation with one currency and one president across the whole continent.

EY’s Global Tax Alert provides additional details on this exciting development.

 

Click to access 2018G_02020-181Gbl_44%20African%20countries%20sign%20Continental%20Free%20Trade%20Area%20agreement.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

OECD: PE guidance

March 28, 2018

The OECD has published additional guidance on attributing profits to a Permanent Establishment (PE).

The main takeaway from the guidance is the excerpts as follows: The proposed analysis of the examples included in the Report is governed by the authorized OECD approach (AOA) contained in the 2010 version of Article 7. However, the Report is not intended to extend the application of the AOA to countries that have not adopted that approach in their treaties or domestic legislation. 

Approx. 13 treaties have this provision, although countries may try to adopt such guidance notwithstanding their legal incapacity to enforce such mechanism.

EY’s Global Tax Alert highlights this significant development, as PE will almost certainly lead to double taxation assuming that Competent Authority will not be filed for or given.

Click to access 2018G_01843-181Gbl_OECD%20guidance%20on%20attribution%20of%20profits%20to%20PE%20under%20BEPS%20Action%207.pdf

Category:

OECD

Leave a comment

Tagged with:

TEI”s comments: accounting for BEAT/GILTI/FDII

March 23, 2018

The Tax Executives Institute, Inc. (TEI) previously issued excellent comments regarding divergent views of the Big 4 accounting firms for US GAAP tax accounting issues for the new US Tax Act aspects.

These views are still divergent today as we approach the end of March, and further issues continue to develop that impact the cash tax and tax reporting aspects for the US Tax Act.  Accordingly, the same facts may provide a different repatriation tax liability and tax accounting for different multinational companies, certainly a difficult variable for comparison by tax experts and, most importantly, by investors.

As these positions may continue to diverge, position papers and discussions with the audit firm, Audit Committee of the Board of Directors and the company should be scheduled to ensure there are no surprises as earning release dates are emerging.  

Click to access TEI%20Letter%20re%20ASC%20740%20treatment%20of%20BEAT%20and%20GILTI.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

US news: Phase 2 tax bill?

March 19, 2018

The latest US / OECD developments are detailed in the referenced EY Global Tax Alert, highlighting  a potential second tax bill (apart from technical corrections), status on the “Blue Book: by the Congressional Joint Committee on Taxation, Q&A IRS release re: Section 965 including how to pay the first estimate and report on the US federal income tax return, anti-corporate inversion regulations, and OECD’s Interim Report of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), titled “Tax Challenges Arising from Digitalisation.”  Additionally, OECD released the third batch of peer reports – Certainly an exciting and challenging time!

There are still many areas of debate and room for reasonable interpretation on major aspects of the US Tax Act, especially as the 2018 provisions of BEAT, FDII and GILTI are not encased within the one-year measurement period of SAB 118.  For companies subject to Q1 reporting, these uncertainties should be aligned with the auditor to avoid last-minute debates for material items.   

Click to access 2018G_01558-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2016%20March%202018.pdf

Category:

OECD, Tax Risk Management

Leave a comment

Tagged with:

UK: MAP guidance

March 13, 2018

Her Majesty’s Revenue and Customs (HMRC), the UK tax authority, has published revised guidance on the Mutual Agreement Procedure (MAP) in its International Manual (INTM).  DLA Piper’s detailed publication is referenced herein.

The revised guidance, together with the supplementary Statement of Practice, provides detailed information on the following:

  • Eligibility for MAP
  • Access to MAP
  • Submitting a MAP request
  • Time limits
  • Protective MAP requests
  • MAP and domestic relief
  • Mutual agreement
  • Methods of relief and
  • Arbitration

Multinationals ought to consider more proactive use of the improved MAP, taken together with similar developments in other countries around the BEPS minimum standards, as a viable compliance risk management tool. Although double taxation is often a precondition in transfer pricing cases that end up in MAP, it is important to note that all issues concerning taxation not in accordance with tax treaties are eligible for MAP.

https://www.dlapiper.com/en/uk/insights/publications/2018/03/the-uk-releases-new-guidance-on-mutual-agreement-procedures/

 

Category:

OECD, Tax Risk Management

Leave a comment

Tagged with:

OECD: Model CRS disclosures

March 12, 2018

The Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures contained in the referenced report were approved by the Committee of Fiscal Affairs (CFA) on 8 March 2018.  These represent Best Practices.

15 July 2014 the OECD published the Standard for Automatic Exchange of Financial Account Information in Tax Matters, also known as the Common Reporting Standard or CRS. Since then 102 jurisdictions have committed to its implementation in time to commence exchanges in 2017 or 2018.

The report includes CRS disclosure rules and related penalty requirements.

One of the most discussed aspects of the new report is the following:

  • Rule 2.7: Disclosure of Arrangements entered into after 29 October 2014 and

    before the effective date of these rules

    1. (a)  A Promoter shall disclose a CRS Avoidance Arrangement within 180 days of the effective date of these rules where:
      1. (i)  that Arrangement was implemented on or after 29 October 2014 but before the effective date of these rules; and
      2. (ii)  that person was a Promoter in respect of that Arrangement;

      irrespective of whether that person provides Relevant Services in respect of that Arrangement after the effective date.

Most importantly, “jurisdictions implementing these model rules would need to take into account domestic specificities in their own CRS Legislation and the interaction of these model rules with existing anti-avoidance rules.”

The hallmark for a CRS Avoidance Arrangement captures any Arrangement where it is reasonable to conclude that it has been designed to circumvent, or has been marketed as or has the effect of circumventing CRS Legislation.

To the extent such rules may be applicable, this new report should be reviewed in its entirety to understand potential disclosure requirements in a timely manner.

 

Click to access model-mandatory-disclosure-rules-for-crs-avoidance-arrangements-and-opaque-offshore-structures.pdf

Category:

OECD

Leave a comment

Tagged with:

US developments: Will FDII survive?

March 10, 2018

EY’s Global Tax Alert summarizes recent US developments, including (expected) pushback by the EU from the Tax Act’s FDII legislation.  The pushback is based upon WTO rules and OECD’s Article 24 on non-discrimination.

One elemental argument against the Foreign Derived Intangible Income (FDII) legislation is that it violates the World Trade Organization (WTO) rules.

“The tax press is reporting that the EU has requested that the Organisation for Economic Co-operation and Development (OECD) Forum on Harmful Tax Practices conduct a “fast track” review of certain of the TCJA’s provisions. The request reportedly came after a meeting of EU Finance Ministers in which the Ministers discussed how to react to the tax reform law and whether to take action in the WTO.  According to the report, a recent EU document states that the new base erosion and anti-abuse tax may contravene the OECD Model Tax Convention’s Article 24 on non-discrimination.”

To the extent that the FDII is found to violate the WTO rules, the timing for this benefit is a short-term (i.e. 3-5 years) period.  Accordingly, relevant restructuring may avail this benefit in the next few years with a long-term strategy based on its revocation.  

Click to access 2018G_01364-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%209%20March%202018.pdf

Category:

OECD, Tax Risk Management

Leave a comment

Tagged with:

Italy; electronic invoicing

March 7, 2018

The wave of electronic invoicing has arrived for Italy, with B2B transactions commencing in 2019.

As EY’s Global Tax Alert details, companies should begin to assess procedures for normal accounts payable/receivable transactions, etc.

This is the wave of the future, so ERP systems should be reviewed (or external vendors sought) to perform this function timely.

Click to access 2018G_01269-181Gbl_Indirect_Italian%20Budget%20Law%20introduces%20mandatory%20E-invoicing.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

Belgian Fairness Tax lesson: Appeal early

March 6, 2018

The EY Global Alert link highlights the fact that the former Belgian Fairness Tax was determined to violate:

  • Principle of legality
  • Article 4, Parent-Subsidiary Directive
  • Constitutional principles of equality and non-discrimination

Despite these multiple violations of law, the principle of equality was limited to assessments commencing in 2019, with limited exception.

Most importantly, the lesson learned from this not-uncommon example is: Appeal early to preserve your legal rights; as courts may not preserve such rights in their final decision.  

 

Click to access 2018G_01226-181Gbl_Belgian%20Constitutional%20Court%20annuls%20Fairness%20tax.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

European Holdco’s: Summary

March 1, 2018

Deloitte’s link, updated in January 2018, provides a useful reference for attributes of EU holding companies from different countries.

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-holdco-matrix-europe.pdf?nc=1

Category:

Tax Risk Management

Leave a comment

Tagged with:

EU: CCTB / CCCTB (It’s back!)

February 28, 2018

The concepts of Common Corporate Tax Base (CCTB) and Common Consolidated Corporate Tax Base (CCCTB) once again emerge as a perceived solution to tax the Member States via a “digital presence” and commonality in computing tax liabilities of the EU Member States.

These proposals have emerged in prior years, now with a digital presence emphasis, although such measures have required a unanimous vote which is difficult to achieve.  However, this trend is always worth watching as the public perception may help to sway those countries that strive to protect their sovereignty over taxation.

http://www.europarl.europa.eu/news/en/press-room/20180219IPR98113/new-eu-corporate-tax-plan-embracing-digital-presence-approved-in-committee

Category:

Tax Risk Management

Leave a comment

Tagged with:

EU Taxe 3 probe: Paradise Lost

The EU Parliament will open an inquiry, Taxe 3, into financial crime, tax evasion and tax avoidance as a follow-up to the unfinished work released from the Paradise Papers.  A special committee of 45 MEPs will spend a year on this project, with a primary focus on VAT fraud via offshore tax havens.

This development continues the trend to identify potential abuses, albeit via legal sovereign laws and/or intentional illegal tax evasion.

Thus, the reputational risk of all multinationals is still at the forefront of today’s news.  This development should be monitored for transparency and spill-over effects.  

https://www.theguardian.com/news/2018/feb/08/paradise-papers-eu-parliament-votes-launch-tax-inquiry

Category:

Tax Risk Management

Leave a comment

Tagged with:

US developments: US Tax Act

February 25, 2018

EY’s referenced Global Tax Alert shares Treasury’s position on pending updates, as well as the European Commission (EC) questionnaire being developed for the FDII incentive of the US Tax Act.

The GILTI provision of the Tax Act is admittedly very complex, even more so by the legislation that it is to be computed on a shareholder legal ownership chain basis, vs. consolidated group basis as the transition tax.  This may produce non-intuitive results, and Treasury should provide an update in 4-6 weeks on this point.  However, for purposes of calculating the annual effective tax rate for the first quarter, a taxpayer may need to be ready for calculation on a shareholder and group basis for timely preparation and reporting.

As expected, the European Commission is preparing questionnaires to multinationals to gauge the impact of the FDII.  This particular provision was envisioned as being a driver of opposing international views and analyses.  This provision is important to monitor going forward, as well as not putting reorganization structures in place that cannot be reversed if this provision would be repealed.

Finally, the deemed repatriation transition tax is not expected to change significantly.  However, there is not universal certainty about the ability to deduct pro-rata foreign taxes on a November 2 calculation, vs. Dec. 31, for a foreign corporation.

Click to access 2018G_01028-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2023%20Feb%202018.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

UK DPT: Round 2 review

February 23, 2018

HMRC is now reviewing diverted profit tax cases in round 2: citing the following EY’s link referenced herein:

There are already 100+ DPT cases ongoing and hundreds more “Large” and “Mid-Sized” cases will now be reviewed and enquiries launched in the next 12 to 18 months. Market intelligence suggests a particular focus on Mid-Sized cases, and on sectors including life sciences, oil and gas, and mining and metals. HMRC is also investigating a number of captive insurance arrangements within large groups.

As a reminder, DPT is aimed at groups that use what HMRC sees as contrived arrangements to circumvent rules on permanent establishment (PE) and transfer pricing. DPT is intended to address two broad situations:

  • A UK company (or UK PE of a foreign company) uses entities or transactions that lack economic substance to exploit tax mismatches to reduce effective taxation to below 80% of rate otherwise payable in the UK.
  • A person carries on activity in the UK in connection with the supply of goods, services or other property by a foreign company and that activity is designed to ensure that the foreign company does not create a PE in the UK.

 

Note, the UK DPT is not arguable on a tax treaty basis, and it is based on the concept of pay now, to be resolved later.  It was also enacted as a deterrent for taxpayers to start paying regular tax, vs. no tax, as a DPT was seen as an avenue to avoid the additional tax and controversy.  Thus, it is prudent to review any potential instances of DPT.  

Click to access 2018G_00778-181Gbl_UK%20TA%20begins%20second%20round%20of%20enquiries%20on%20Diverted%20Profits%20Tax.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

GILTI: Shareholder test

February 19, 2018

The global intangible low-taxed income (GILTI) provision in the US Tax Cuts and Jobs Act (Tax Act) was legislated based on the principal of each relevant US, or relevant, shareholder.  This contrasts with the US consolidated group approach for the Sec. 965 repatriation tax, thus will/should both be consistent?

Currently, a planning review of the US/relevant shareholders may be dictated based on the types of controlled foreign corporation (CFCs) in that particular shareholder chain.  However, there has been acknowledgment of this mismatch for ownership tests, and a possibility that the GILTI provisions may also conform to a US consolidated group approach.

Pending further guidance, it may be prudent to calculate the GILTI effect on both approaches and take advantage of the 1-year SEC measurement period for public companies for more definitive rules.  However, US public MNE’s should review the potential guidance to be issued for Q1, with clarity as to whether a reasonable amount will be calculated as part of the Annual ETR process, or omitted therefrom.

Based on the complexity of this provision, additional challenges are present if the current shareholder chain approach is not changed.  Notwithstanding this aspect, there are many complexities involved with this calculation to derive a reasonable amount or a number which is ultimately final and certain.

Category:

Tax Risk Management

Leave a comment

Tagged with: