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.
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.
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.
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.
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.