Strategizing International Tax Best Practices – by Keith Brockman

Intangibles: OECD’s discussion draft

May 28, 2017

OECD has issued its latest discussion draft on hard-to-value intangibles; comments are due by June 30, 2017.

OECD’s press release states:  The Final Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”) mandated the development of guidance on the implementation of the approach to pricing hard-to-value intangibles (“HTVI”) contained in Section D.4 of Chapter VI of the Transfer Pricing Guidelines.
This discussion draft, which does not yet represent a consensus position of the Committee on Fiscal Affairs or its subsidiary bodies, presents the principles that should underline the implementation of the approach to HTVI, provides examples illustrating the application of this approach, and addresses the interaction between the approach to HTVI and the mutual agreement procedure under an applicable treaty.

As intangibles are one of the most contested issues in transfer pricing, also fact specific with subjectivity, this discussion draft merits a review by all international tax practitioners to view the current thinking by the OECD, as well as a chance to provide comments in reaction.

EY’s Global Tax Alert and the Discussion Draft references are provided:

Click to access 2017G_03394-171Gbl_OECD%20releases%20implementation%20guidance%20on%20hard-to-value%20intangibles.pdf

Click to access BEPS-implementation-guidance-on-hard-to-value-intangibles-discussion-draft.pdf

Category:

OECD

Leave a comment

Tagged with:

Double Tax disputes: Draft EU Directive

May 24, 2017

The Council of the European Union has proposed a draft EU Directive, to be in effect by June 30 2019, that would resolve double taxation disputes between Member States.  A summary of the Draft Directive is provided, as well as referenced herein.

This proposal is based upon the foundation of the Union Arbitration Convention (90/436/EEC) re: cross-border tax disputes.

Key points:

  • 3 years, from first notification, to file a complaint by the taxpayer
  • Each competent authority (CA) acknowledges receipt within 2 months
  • Additional 3 months by CA’s to request additional information, by which the taxpayer has 3 months to provide
  • Approx. 6 months later, CA’s decide to accept or reject the complaint; or a CA can decide to resolve unilaterally by which the Directive is terminated
  • Taxpayer may appeal per national rules a rejection of the complaint
  • CA’s try to resolve issue within 2 years, which may be extended by 1 year
  • Upon taxpayer’s request, an Advisory Commission shall be established where the complaint is rejected by not all of the relevant CA’s, or a failure by CA’s to reach agreement.  This request can be denied by a Member State on a case by case basis where a question of dispute does not involve double taxation.
  • Advisory Commission = Chair, 1-2 representatives of each CA, and 1-2 independent persons by each CA
  • Advisory Commission to adopt a decisions within 6 months
  • CA’s may, alternatively, set up an Alternative Dispute Resolution Commission instead of the Advisory Commission; this commission has freedom of techniques to settle
  • Professional secrecy standards are prescribed
  • Advisory or Alternative Commission opines in 3-6 months
  • CA’s shall agree within 6 months of the opinion on how to resolve the complaint; they can decide on a decision that deviates from the opinion or be bound by the opinion
  • Final decision does not constitute a precedent
  •  (Redacted) decision is published and maintained in an online central repository
  • Evaluation of process by June 30, 2024 and issue a report

As the key point summary infers, there are many provisions in the Draft Directive, requiring a proactive effort by the taxpayer and relevant CA’s.  The Directive can be reviewed via the attached link:

http://data.consilium.europa.eu/doc/document/ST-9420-2017-INIT/en/pdf

Category:

Audits, Tax Risk Management, Transfer Pricing

Leave a comment

Tagged with:

Belgian’s fairness tax = Unfair

May 21, 2017

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.

Click to access 2017G_03275-171Gbl_Belgian%20fairness%20tax%20ruled%20incompatible%20with%20EU%20law%20by%20CJEU.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

Financing risk roadmap: ATO

May 18, 2017

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.  

Click to access 2017G_03234-171Gbl_TP_AU%20TOs%20compliance%20approach%20for%20cross-border%20related%20party%20financing%20arrangements.pdf

Category:

Tax Risk Management, Transfer Pricing

Leave a comment

Tagged with:

India’s APA results

May 15, 2017

India has released its APA annual report, providing valuable insight into recently filed APAs and the process.

  • Intragroup services by the Indian applicants have been the most covered international transactions in the bilateral APAs.
  • The transaction net margin method has been used in 70% of the unilateral cases and 90% of the bilateral cases.
  • India has concluded unilateral APAs in 29 months and bilateral APAs in 39 months.

As India is recognized as very creative and aggressive in its transfer pricing practices, this report should be reviewed to test whether an APA should be filed, as well as in other countries for additional certainty.

EY’s Global Tax Alert provides additional details, included for reference.

Click to access 2017G_03043-171Gbl_TP_India%20issues%20APA%20annual%20report.pdf

 

Category:

Transfer Pricing

Leave a comment

Tagged with:

US tax developments

April 28, 2017

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.

Click to access 2017G_01993-171Gbl_US%20President%20Trumps%20tax%20plan%20calls%20for%2015%20percent%20business%20rate%20-%20territorial%20tax%20system.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

UN: TP Manual for Developing Countries

April 16, 2017

The UN has published the second edition (First edition in 2013) of a transfer pricing manual for developing countries.

The world has changed considerably since 2013, notably affected by BEPS and the OECD’s  actions, including collaborating with developing countries.  However, the UN notes developing countries may not have the sophistication as other developed countries, and this manual provides valuable insight into the trends in this area.

The transfer pricing practices of Mexico, China and Brazil are also summarized in this edition.

The TP Manual is a “must read” for international tax practitioners to fully understand today’s complex dynamics that do not lead to global consistency or simplification.

Click to access UN-2017-Manual-TP.pdf

 

Category:

OECD / UN

Leave a comment

Tagged with:

Australia’s DPT: License to tax

April 4, 2017

EY’s Global Tax Alert provides details on Australia’s new Diverted Profits Tax (DPT), effective in 2018 for calendar year taxpayers.

  • Penalty up to 40% can be assessed
  • Interaction with transfer pricing documentation and country-by-country (CbC) risk assessment
  • Diverted profits taxed at less than 24% are vulnerable
  • Proactive review of one’s documentation and risk assessment is recommended

Australia has patterned their DPT after the UK implemented a similar scheme, although posing some different characteristics.

As countries are reaching out to tax profits that are subject to a lower rate of tax elsewhere, this is providing a license to tax that cannot be ignored by multinationals with Australian operations.

Click to access 2017G_01485-171Gbl_Australia%20passes%20Diverted%20Profits%20Tax%20and%20Penalties%20law.pdf

Category:

Transfer Pricing

1 Comment

Tagged with:

VAT: GCC/UAE/India’s new rules

March 26, 2017

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.

Click to access 2017G_01345-171Gbl_Indirect_UAE%20MoF%20presents%20key%20information%20in%20relation%20to%20proposed%20VAT%20regime.pdf

Category:

Tax Risk Management

1 Comment

Tagged with:

US int’l developments: CbC exchange

March 19, 2017

EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.

US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.

Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security.  With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security.  However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data?  This should be a forethought, rather than an afterthought, to the process.

Click to access 2017G_01247-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20March%202017.pdf

Category:

OECD / UN

Leave a comment

Tagged with:

PE & Global Mobility partner

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.  

 

 

Category:

Tax Risk Management

Leave a comment

Tagged with:

GCC VAT: A reality

March 1, 2017

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.

Click to access 2017G_00900-171Gbl_Indirect_Preparation%20for%20GCC%20VAT%20by%201%20Jan%202018%20requires%20immediate%20action.pdf

Category:

Tax Risk Management

1 Comment

Tagged with:

EU: Broader CbC public disclosures envisioned

February 23, 2017

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:

  • The geographical location of the activities
  • The number of employees employed on a full-time equivalent basis
  • The value of assets and annual cost of maintaining those assets
  • Sales and purchases
  • The value of investments broken down by tax jurisdiction
  • The amount of the net turnover, including a distinction between the turnover made with related parties and the turnover made with unrelated parties
  • Stated capital
  • Tangible assets other than cash or cash equivalents
  • Public subsidies received
  • The list of subsidiaries operating in each tax jurisdiction both inside and outside the EU and data for those subsidiaries corresponding to the data requirements on the parent undertaking
  • All payments made to governments on an annual basis as defined in the Directive, including production entitlements, income taxes, royalties and dividends
  • The report shall not only be published on the website of the company in at least one of the official languages of the EU, but the undertaking shall also file the report in a public registry managed by the Commission

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.  

Click to access 2017G_00761-171Gbl_EU%20Parliament%20members%20submit%20amendments%20to%20public%20CbCR%20proposal.pdf

Category:

Tax Risk Management, Transfer Pricing

Leave a comment

Tagged with:

Beneficial ownership: Italy’s top court’s significant findings

February 16, 2017

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.

http://www.ey.com/Publication/vwLUAssets/Italian_Supreme_Court_issues_important_guidance_on_beneficial_ownership_conditions_for_pure_holding_companies/$FILE/2017G_00686-171Gbl_Italian%20SC%20issues%20guidance%20on%20beneficial%20ownership%20conditions%20for%20pure%20holding%20companies.pdf

Category:

Tax Risk Management

Leave a comment

Tagged with:

US Accounting Standards

January 25, 2017

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

Category:

Tax Risk Management

Leave a comment

Tagged with: