Strategizing International Tax Best Practices – by Keith Brockman

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.

 

http://www.oecd.org/tax/exchange-of-tax-information/model-mandatory-disclosure-rules-for-crs-avoidance-arrangements-and-opaque-offshore-structures.pdf

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.  

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_9_March_2018/$FILE/2018G_01364-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%209%20March%202018.pdf

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.

http://www.ey.com/Publication/vwLUAssets/Italian_Budget_Law_introduces_mandatory_E-invoicing/$FILE/2018G_01269-181Gbl_Indirect_Italian%20Budget%20Law%20introduces%20mandatory%20E-invoicing.pdf

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.  

 

http://www.ey.com/Publication/vwLUAssets/Belgian_Constitutional_Court_annuls_Fairness_Tax_-_limits_recovery_of_unduly_paid_tax/$FILE/2018G_01226-181Gbl_Belgian%20Constitutional%20Court%20annuls%20Fairness%20tax.pdf

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

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

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

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