Strategizing International Tax Best Practices – by Keith Brockman

EU: CbC marches on

May 28, 2016

EY’s Global Tax Alert, attached for reference, provides details on the continuing momentum of the country-by-country (CbC) reporting rules in the EU. These rules will certainly be applied by some EU countries in 2016, thus US and other non-EU based multinationals should start to seriously consider options for separate and/or surrogate entity filings in EU and other jurisdictions for the 2016 tax year.

Note, it is likely the continuing transparency momentum will continue and likely to obligate multinationals to more disclosures going forward. Thus, it is imperative the key stakeholders are aligned currently and ongoing.

Global Tax Alert | 25 May 2016
ECOFIN formally adopts directive on country-by-country reporting in the EU
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On 25 May 2016, the Economic and Financial Affairs Council of the European Union (ECOFIN) which is made up of the Finance Ministers of all European Union (EU) Member States unanimously voted in favor of the amendments to the EU directive on exchange of information (the Directive). The revision, that will implement the recommendations of Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 on country-by-country reporting, is one of the elements of the European Commission’s Anti-Tax Avoidance package from January 2016.2 According to the ECOFIN, “the principal aim of the directive is to prevent multinationals from exploiting the technicalities of the tax system, or mismatches between different tax systems, in order to reduce of avoid their tax liabilities.”

The Directive requires multinationals to report information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees on a country-by-country basis. This information must be reported for fiscal years starting on or after 1 January 2016, to the tax authorities of the Member State where the group’s ultimate parent entity (UPE) is tax resident. If the UPE is not resident in the EU, the report would have to be filed through a surrogate parent (EU or non-EU based) or the EU based subsidiaries. The Directive would give Member States the option to either require secondary filing for fiscal years starting on or after 1 January 2016 or to defer that obligation to financial years starting on or after 1 January 2017.

The Member States adopted the amendments without discussion, following the agreement reached at the previous ECOFIN meeting held on 8 March 2016. Thus, the details of the Directive remained virtually unchanged to what had previously been reported.3

Next steps
The Directive will require EU Member States to implement a country-by-country reporting obligation in their national legislation in line with the requirements of the Directive within 12 months from the date of its entry into force.

The first reports will have to be filed within 12 months from the end of the fiscal year to which they relate. Member States will have to exchange them within 3 months thereafter, except for the reports relating to fiscal years starting on or after 1 January 2016 where the term would be 18 months after the end of the fiscal year. The European Commission will adopt the necessary practical arrangements for upgrading the existing common platform for automatic exchange in the EU to fit the needs of the new requirements.

Endnotes

1. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

2. See EY Global Tax Alert, European Commission releases anti-tax avoidance package designed to provide uniform implementation of BEPS measures and minimum standards across Member States, dated 28 January 2016.

3. See EY Global Tax Alert, EU Council publishes updated Draft Directive on implementation of country-by-country reporting, dated 23 March 2016.

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OECD

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Denmark’s TP documentation: OECD+

May 22, 2016

Denmark has new transfer pricing documentation rules in place, effective for tax year 2016, while country-by-country (CbC) reporting for non-Danish HQ companies is delayed until tax year 2017.

The local transfer pricing file is to include a copy of intercompany arrangements and details of IP re: “DEMPE” functions including the Development, Enhancement, Maintenance, Protection and Exploitation attributes.

The additional details extend beyond the OECD Guidelines and will lead to further complexity re: the ability to efficiently provide globally consistent transfer pricing documentation around the world. This may be followed by other countries as they follow the particular leader at the team, and thus EY”s Alert should be reviewed by interested tax practitioners.

Click to access 2016G_01098-161Gbl_TP_DK%20issues%20stricter%20requirements%20for%20TP%20documentation.pdf

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OECD, Transfer Pricing

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Austria’s CbC / TP rules

May 19, 2016

The Austrian Ministry of Finance has published its new country-by-country (CbC) and transfer pricing (TP) draft legislative rules, detailed in the referenced EY Global Tax Alert.

The Multilateral Competent Authority Agreement on the Exchange of Country by Country Reports is now included in Austrian domestic law. Moreover, the legal requirements stipulated in the European Directive regarding mandatory automatic exchange of information in the field of taxation (2011/16/EU) is now national law.

The CbC and TP documentation are effective for the 2016 taxable year. TP documentation can be requested by the tax authorities within 30 days after filing the corporate income tax return. CBC information is required, dependent on the size of the organisation, and is subject to significant penalties for late filing/inaccurate information. Information on surrogate entity filing is also within the draft guidance.

Notification of the CbC filer is required by the end of this year, as in several other countries, requiring all US based multinationals to monitor the EU pending legislation and consider alternatives for filing if the US Final Regulations do not obligate CbC filing for the 2016 tax year.

The BEPS/CbC/transparency impetus is still growing, with no signs of slowing down. Demands for additional transparency are mounting, while the complexity of reporting, and filing, the respective reports is significantly increasing.

Click to access 2016G_01054-161Gbl_TP_Austria%20publishes%20draft%20Transfer%20Pricing%20Documentation%20Law.pdf

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OECD

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UK interest consultation

May 15, 2016

The UK government has updated its October 2015 interest expense consultation paper as of 12 May 2016, and is seeking comments by 4 August, 2016.  The paper outlines the intent of OECD’s BEPS interest guidelines and provides questions for further consideration of limitations re: interest expense going forward.

The UK previously legislated hybrid mismatch arrangements that will be effective 1/1/2017, and the new rules are not expected to be effective until April 2017.  In the interim, taxpayers will not have certainty re: current arrangements and new rules going forward.

Although following the footsteps of the OECD, UK is not afraid to take an aggressive stance as evidenced by its Diverted Profits Tax legislation, intention to adopt BEPS Actions 8-10 re: transfer pricing at an early stage and inserting risk rules in its Manual with a UK tax strategy governance.  This paper is intended to be a future roadmap for UK tax, thus it should be read by all interested parties.

A reference to the paper is provided for reference, and a summary of the questions.

https://www.gov.uk/government/consultations/tax-deductibility-of-corporate-interest-expense/tax-deductibility-of-corporate-interest-expense-consultation

  1. What are your views on when a general interest restriction should be introduced in the UK?
  2. Should an interest restriction only apply to multinational groups or should it also be applied to domestic groups and stand-alone companies?
  3. Are there any other amounts which should be included or excluded in the definition of interest?
  4. How could the rules identify the foreign exchange gains and losses to be included?
  5. If the rules operate at the UK sub-group level, how should any restriction be allocated to individual companies?
  6. Are there items which should be excluded from both the definition of interest and from “tax EBITDA”, as referred to in the section on a fixed ratio rule?
  7. What do you consider would be an appropriate percentage for a fixed ratio rule within the proposed corridor of 10% to 30% bearing in mind the recommended linkages to some of the optional rules described below?
  8. What are your views on including in any new rules an option for businesses to use a group ratio rule in addition to a fixed ratio rule?
  9. What form of de minimis threshold would be most effective at minimising the compliance burden without introducing discrimination or undermining the effectiveness of any rules?
  10. What level should the de minimis threshold be set at, balancing fairness, BEPS risks and compliance burdens?
  11. Should SMEs as defined by the EU criteria be exempted from the rules, in addition or as an alternative to a de minimis threshold?
  12. What is the best way of ensuring that the rules remain effective and proportionate even when earnings are volatile?
  13. In what situations would businesses choose to use the PBP exclusion? How would this differ if no group ratio rule was implemented?
  14. Do you have any suggestions regarding the design of a PBP exclusion, taking account of the OECD recommendations?
  15. Do you have any views on the specific risks that might sensibly be dealt with through targeted rules?
  16. Do you have any suggestions as to how to address BEPS issues involving interest raised by the banking and insurance sectors?
  17. What are the types of arrangement for which transitional rules would be particularly necessary to prevent any rules having unfair or unintended consequences, and what scope would these rules need to be effective?
  18. To what extent do you believe that the new general interest restriction rule should replace existing rules?

 

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OECD, Transfer Pricing

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BEPS update; no slowing down

May 10, 2016

The drive for additional transparency, among efforts by countries to implement anti-avoidance rules that trump tax treaties, continues with the latest round of BEPS updates, as EY’s Global Tax Alert provides added insight:

Click to access 2016G_00921-161Gbl_The%20Latest%20on%20BEPS%20–%209%20May%202016.pdf

Highlights:

  •  Australian Tax Office (ATO) release of 4 tax alerts for issues of concern, a Diverted Profits Tax (DPT) is to be implemented, hybrid mismatch arrangements will be addressed in legislation, and the effective date for the new/revised OECD’s arms-length principle standards will move forward to 1 July, 2016.
  • Ecuador: the most recently version, as of 1/1 of a taxpayer’s year, of the OECD’s Guidelines will be used as transfer pricing reference absent domestic rules.
  • Hungary: A “modified nexus” IP approach will come into force.
  • Netherlands: The innovation box rules will be amended to comply with OECD’s Action 5 guidelines.
  • New Zealand: Domestic anti-avoidance rules will trump double treaty arrangements.
  • Taiwan: CFC rules will be promulgated.  
  • Turkey: An “electronic place of business” draft legislation would empower taxation.
  • Ukraine: A working group is forming anti-BEPS measures for consideration.
  • US: Treasury is trying to extricate itself from its 1-year lag in obligatory country-by-country (CbC) reporting, although global acceptance is not expected.

The impact of BEPS is still accelerating, although the efforts by countries to avoid treaty provisions will provoke additional disputes and double taxation.  Accordingly, the veil of anti-BEPS legislative efforts overshadows mutual transparency and collecting a fair share of tax while avoiding double taxation.  Thus, all multinationals should be extra vigilant in the new era of international tax for additional documentation and support for significant transactions with low-tax countries.

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OECD / UN

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Australia’s Diverted Profits Tax salvo

May 8, 2016

The Australian Tax Office (ATO) has recently released a consultation paper re: implementation of a Diverted Profits Tax (DPT); comments are due by 17 June 2016.  Although Australia has taken a long look at the DPT in concert with UK’s quickly enacted provisions, it took a breather while the OECD urged restraint on a far-reaching “tax” that may go beyond the intent of the OECD’s Guidelines.  A link to the paper is provided for reference:

http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/Consultations/2016/Implementing%20a%20diverted%20profits%20tax/Key%20Documents/PDF/Diverted-profits-tax_discussion-paper.ashx

The focus of the paper is summarized in the first sentence: “The Government is strongly committed to ensuring that multinationals pay their fair share of tax in Australia.”

Highlights of the proposal:

  • 40% penalty tax (non-deductible) rate, not offset by another jurisdiction’s tax (30% tax rate if an amended tax return is filed)
  • Subjective determination (i.e. reasonable to conclude)
  • Will not operate on a self-assessment basis
  • Pay first, discuss later philosophy, copying UK’s direction (12-month review period and a right to appeal)
  • Effective for years commencing on or after 1 July, 2017
  • Flow chart appendix
  • Efective for transactions that have an effective tax mismatch test (objective test) and insufficient economic substance (subjective test)
  • Draft guidance will be developed in consultation with stakeholders.

All interested parties should review this consultation paper, and provide comments to the ATO for potential changes.  It is interesting to see that transactions failing the effective mismatch test will be left exclusively with subjective determinations for possible assessments by the ATO without the benefit of dual transparency.  Additionally, the philosophy of assess now and discuss later will not be a mechanism to effectively provide more trust by taxpayers as UK, Australia and other jurisdictions are creating unilateral laws to capture taxes payable on income in other jurisdictions, potentially without the right to access treaties, claim an offset in the other jurisdictions and have access to the full process of appeals prior to payment.  As a result, the incidence of double taxation will increase.

It is hopeful the ATO will consider the comments received, and include changes to the current proposal to enhance transparency and mutuality by all parties.

 

 

 

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Tax Risk Management

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BEPS update

April 30, 2016

EY’s Global Tax Alert provides the latest BEPS developments for the OECD, EU, Israel, Netherlands, Portugal, South Africa, Sweden, Switzerland, Uruguay and Chile.  Brief extracts are provided, with Best Practice comments, with the Tax Alert provided for reference:

Click to access 2016G_00742-161Gbl_The%20Latest%20on%20BEPS%20–%2025%20April%202016.pdf

OECD:

  • Bermuda signed the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (CbC MCAA), becoming the 33rd signatory of this instrument.
  • On 19 April 2016, the OECD released a communiqué announcing that together with the International Monetary Fund (IMF), the United Nations and the World Bank (collectively referred to as the “International Organizations”) have joined efforts to boost global cooperation in tax matters. The joint initiative, named “Platform for Collaboration on Tax” or simply “the Platform,” aims to produce concrete joint outputs and deliverables under an agreed work plan, strengthen dynamic interactions between standard setting, capacity building and technical assistance, and share information on activities more systematically.

The Platform will work on:

Developing appropriate tools for developing countries
Supporting developing countries to participate in the implementation of BEPS
Building effective tax systems and building awareness
Providing a venue for information sharing

The first of the toolkits addresses tax incentives and was issued in November 2015. The remaining seven toolkits will address the indirect transfer of assets (September 2016), transfer pricing comparability (October 2016), transfer pricing documentation (October 2016), tax treaty negotiation capacity (December 2016), base eroding payments (June 2017), supply chain management (March 2018), and BEPS risk assessment (March 2018).

The proposed amendments to the Accounting Directive would require large multinational companies operating in the European Union to draw up and publically disclose reports on income tax information, including a breakdown of profits, revenues, taxes and employees.  Note, this is an Accounting Directive that provides another legislative approach to implement transparency measures in addition to proposed EU Directives and/or separate country guidelines.  This is also another layer of complexity in reporting by multinational organizations, for which other countries may also adopt as part of statutory reporting that is public information.  This report will also dictate a Q&A proactive approach by organisations to address perceived gaps and comments by the public.  Such reporting, when finalized, should also be summarized to the Board of Directors as an alignment of their responsibilities.

Israel:

The concept of “significant digital presence” has been communicated in a circular to broaden the tax net for internet activities applicable for corporate income tax and VAT purposes.  Other countries have been, and will continue, embracing this subjective area of tax for additional revenue, albeit with subjectivity and avenues for additional disputes.

Portugal & South Africa:
Draft legislation adopting country-by-country (CbC) reporting has been published.  To the extent any US-based multinational thinks additional time is provided due to the potential 1-year lag for US CbC reporting, such legislation demanding obligatory reporting in the parent jurisdiction should reassess future internal reporting timelines and processes.

Switzerland:

A consultation process and draft legislation of CbC reporting for the 2018 tax year has commenced, with voluntary reporting for the 2016 and 2017 tax years.

Chile-Uruguay:

Chile and Uruguay signed a Double Tax Treaty that embodies several BEPS concepts, such as permanent establishment (PE) and hybrid mismatch arrangements.  Note, the new BEPS incentivized treaties are currently legislated in several countries, although the related BEPS guidelines may still not be finalized.  Accordingly, it is relevant to cross-check countries with significant transactions with the signature of new treaties.

 

 

 

 

 

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OECD

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Tax strategies: UK transparency

April 24, 2016

The public transparency of a company’s tax strategies is nearing reality with the advancement of recent updates to the UK’s Finance Bill.

The UK is continuing its leadership objectives in adopting BEPS initiatives, as shown in this latest initiative.

EY’s Global Tax Alert is provided for reference:

Click to access 2016G_00446-161Gbl_UK%20amends%20mandatory%20requirement%20for%20businesses%20to%20publish%20tax%20strategy.pdf

The legislation stipulates that the published tax strategy must cover in relevant, up-to-date detail regarding the:

• Approach of the UK group to risk management and governance arrangements in relation to UK taxation

•Attitude of the group to tax planning (so far as affecting UK taxation)

•Level of risk in relation to UK taxation that the group is prepared to accept

• Approach toward dealings with HMRC

The process of developing the public UK tax strategy should be aligned with the global policy and tax risk framework, especially as other countries look to follow the UK’s lead.  Transparency is the key driver that continues to drive post-BEPS legislation, with no apparent slowdown envisaged.  

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Tax Risk Management

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Risk disclosures: Best Practices

March 27, 2016

The EY’s linked report summarizes 2015 disclosures in Sept. 2015 annual reports; most importantly the “acid test” summary, copied herein, provides an interesting perspective for addressing risks and a framework for the Board to consider.

Click to access EY-Rising-to-the-Challenge.pdf

Our ‘acid test’

As we conducted this review, we found that reading risk and viability disclosures in isolation was difficult. The importance of reviewing key related and relevant narrative disclosures e.g., business model and strategy, was brought to the fore. In our September 2015 report, ‘Reflections on the past, direction for the future’, we included an ‘acid test’ — a set of key questions that preparers or reviewers should be able to answer clearly having drafted the narrative within their ARAs.

We include our acid test here again to help preparers and reviewers put all disclosures in context.  We believe that investors too should view the new disclosures with these same questions in mind.

 

Risk management and internal control disclosures:

  • ►  How are the principal risks mitigated and controlled by the company’s systems of internal controls and risk management?
  • ►  How does the board monitor material controls on an ongoing basis to gain assurance that principal risks are being effectively managed and to take corrective action if they are not?
  • ►  What did the board’s review of the effectiveness of these systems encompass?
  • ►  Has the board identified significant failings or weaknesses?
  • ►  What was the basis for determining what  is ‘significant’?
  • ►  Is it clear what actions have been or will be taken to address significant failings or weaknesses?

Viability statement:

  • ►  Over what time frame has the board considered the viability of the company and why?
  • ►  What process did the board use to assess viability?
  • ►  Does the board understand which,if any, severe but plausible risks (or combination of risks) would threaten the viability of the company?
  • ►  What assurance did the board obtain over relevant elements (e.g., stress testing)?
  • ►  What assumptions did the board use in reaching their conclusion?

Business model:

  • ►  How does the company make its money?
  • ►  What are the key inputs, processes and outputs in the value chain, and how are the company’s key assets (including its physical assets, IP, people, technology, etc.) engaged in the value chain?

Strategy:

  • ►  What is the company’s competitive  advantage?
  • ►  How does the business model help deliver and sustain this over time?

Key Performance Indicators (KPI’s)

  • ► What are the key metrics the board uses to measure progress against its strategic objectives?

    ► How has the company performed against these metrics and how are these linked to the remuneration of key executives?

Governance:

  • ►  What did the board and its committees actually do in the year to govern the company?
  • ►  What, if any, changes were made to governance arrangements during the year and why?
  • ►  What areas for improvement were identified from the board evaluation and what progress was made against actions from the previous evaluation?
  • ►  How is board composition and succession planning being managed, giving due regard to skills, experience and diversity?
  • ►  How did the board seek to understand the views of shareholders during the year and what, if any, action was taken as a result of feedback?

Risk transparency and Board accountability for risks are increasing exponentially in the post-BEPS era, while tax authorities are simultaneously drafting risk-based legislation.  The report is worthwhile reading and should provide an impetus for new Best Practices.

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Tax Risk Management

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SARS service disclosures – Risk review

March 21, 2016

The South African Revenue Service (SARS) has reported a new inbound service disclosure requirement due in mid-April 2016.  Penalties are applicable for late filing.

It is expected that SARS will use the information collated to assess the risk of tax exposures resulting from permanent establishments, transfer pricing, VAT, employees’ tax and potential exchange control violations.

EY’s Global Tax Alert is provided for reference.

Click to access 2016G_CM6317_ZA%20new%20reportable%20argmt%20requires%20urgent%20action%20in%20relation%20to%20inbound%20svs.pdf

Best Practice thoughts for local disclosures:

  • How does HQ/Regional Tax identify local tax (primarily BEPS related) disclosures that require information possibly not known by the local entity?
  • What type of governance/control process exists to ensure important filings are not missed?
  • Are external advisor(s) being relied upon to inform a MNE of all such disclosures?
  • Is a master calendar available for such filings?
  • Who is responsible for identifying new disclosures?
  • Is there a single point of tax contact for such filings?
  • Are internet sites relied on partially/exclusively for updates?

This new disclosure brings Best Practice ideas into action, as such filings are easy to miss if not identified timely.  

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Tax Risk Management

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OECD’s new MAP Peer Reviews: will it work?

March 17, 2016

As the MAP process is acknowledged to be inefficient, ineffective and time-consuming, the OECD will establish a peer review process to monitor performance of countries’ in resolving Mutual Agreement Procedure (MAP) cases.  The reviews should be ready in 2017.

Paascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, has stated: “I don’t know how successful the (BEPS) project will be in the long term, but what is for sure is that we have fed the political beast – the G-20 leaders and finance ministers – and they still have a lot of appetite.  They are asking us for more.  They need some more blood.”

The OECD’s Working Party 1 and the Forum on Tax Administration have started the peer review process under BEPS Action 14.  Reviews will consist of checking number of cases, time needed to resolve, etc.

OECD believes this is a game-changer due to new accountability.  However, without full transparency into what countries are doing, or not doing, how effective will the new peer review process be?  The level of transparency should be commensurate with the transparency demanded from multinationals.  It is hopeful this process will be a revolution for MAP, although many practitioners will be adopting a wait-and-see attitude.  

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OECD

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ECOFIN’s draft directive re: CbC

March 10, 2016

The EU Economic and Financial Affairs Council (ECOFIN) has drafted a directive, subject to European Parliament’s opinion, for EU consistency of country-by-country (CbC) reporting.

The proposed EU legal instrument provides for:

  • 2016 CbC reporting to the Member State where it is resident
  • Optional provision for non-EU parent companies; 2016 reporting is optional via its EU subsidiaries and such “secondary reporting” will be mandatory for the 2017 tax year.   
  • Automatic exchange of CbC reports between EU Member States

http://www.consilium.europa.eu/en/press/press-releases/2016/03/08-corporate-tax-avoidance/

This surprising draft directive will alleviate some concerns by US headquartered MNE’s (as 2016 CbC reports will probably not be required), although only within the EU.  To the extent non-EU Member States have CbC reporting obligations for the 2016 tax year, a Surrogate Entity or local filing may still be required for US MNE’s.

The EU is still recognized as a leader in pushing forward BEPS Action items, and this directive would provide much-needed consistency among Member States for CbC reporting.  This development is important to monitor going forward, as well as observing other non-EU countries for a follow-the-leader approach.

 

 

 

 

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OECD

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OECD: Inclusive / transparent objectives

March 7, 2016

The OECD’s Task Force on Tax and Development met in Paris, France, on 1 March 2016, to discuss the new inclusive framework proposed by the OECD for the global implementation of the BEPS project and to support developing countries on their domestic resource mobilisation efforts. Over 180 participants attended.

Co-Chaired by South Africa and the Netherlands, the Task Force is a multi-stakeholder advisory group set up to help to improve the enabling environment for developing countries to collect taxes fairly and effectively.

Recognition and participation in the Tax Inspectors Without Borders partnership was also an agenda item, including present (and future) toolkits for developing countries as a practical resource to implement BEPS Actions.

Participants also highlighted the need for the documentation toolkit to provide clear guidance on how the Country-by-Country Report should be used for risk assessment purposes.

The Task Force will endeavor to take the following steps, commencing with the first meeting in Kyoto Japan, 30 June- 1 July 2016.

  • Support the development of 7 further toolkits to translate the BEPS deliverables into user friendly guidance for developing countries by 2018.
  • Starting now, fully endorse the ATAF/EC/OECD/WBG transfer pricing capacity building support to address the full range of BEPS challenges in developing countries.
  • Support the Tax Inspectors Without Borders programme project to increase the number of TIWB deployment programmes to 20 by the end of 2017 and 30 by the end of 2018.

A copy of the press release is provided for reference:

Click to access co-chairs-statement-task-force-tax-development-march-2016.pdf

Best Practices – To address mutual transparency, OECD and the member countries should be willing to share the contents, and objectives, of the various toolkits under preparation to better understand the risk process and actions by tax administrations around the world. 

 

 

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OECD

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Vietnam’s risk strategy outlined

March 5, 2016

Effective as of 4 February 2016, Vietnam’s circular outlines how it determines levels of tax risk for a taxpayer, thereby having a direct impact upon the likelihood of an audit.

  • Tax risk methodologies will apply for all levels of tax administration activities.
  • Internal and external sources of risk will be evaluated.
  • Six different levels of risk will be used to rate taxpayers.
  • A low compliance rating can result from accumulated losses exceeding 50% of equity, or its VAT amounts are above the average of similar sector based companies.

A detailed summary of the new rules commences on page 15 of the referenced Deloitte’s World Tax Advisor.

Click to access dtt-tax-worldtaxadvisor-160226.pdf

A tax risk framework policy is essential for every MNE, as additional countries employ a risk-based approach to compliance and audits.  The country-by-country reports to be provided via the OECD’s BEPS Action 13 guidelines will also become a risk tool used by many countries around the world.

Accordingly, all tax departments should be thinking of the post-BEPS world with risk-focused lenses that will yield insights previously not envisioned.

 

 

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Tax Risk Management

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OECD’s MAP: Timeline & Best Practices

March 1, 2016

As the OECD renews its efforts to improve the process of dispute resolution, many practitioners, tax authorities and advisors have concluded that the current Mutual Agreement Procedure (MAP) process is slow, inefficient and not effective in resolving tax disputes and avoiding double taxation.

However, it is worthwhile to start with a suggested timeline and Best Practices from OECD’s Manual on Effective Mutual Agreement Procedures (MEMAP) published in 2007.  Annex 1 and 2 provide a suggested timeline and 25 Best Practices (summarized below) that are each discussed in MEMAP.  

To the extent these Best Practices and recommendations have not been implemented by countries around the world, one questions what will be the difference this time around?  It seems that the OECD has tried to provide remedies, although many countries do not view these recommendations as a priority or transparency objective to resolve disputes effectively.  

While the effectiveness of dispute resolution mechanisms continue, it would be prudent to  provide the tax authorities, including competent authorities, this Manual as a reinforcement of Best Practices and timelines that should be proactively followed. 

A link to the Manual is provided for reference:

Click to access 38061910.pdf

Appendix 2: Best Practices:

  1. Resolving and publishing issues of interpretation or application
  2. Robust use of Article 25(3) power to relieve double taxation
  3. Principled approach to resolution of cases
  4. Transparency and simplicity of procedures for accessing and using the MAP
  5. Providing complete, accurate, and timely information to the competent authorities
  6. Allowing electronic submissions
  7. Allowing early resolution of cases
  8. Earlier notification of a potential case
  9. Liberal interpretation of time limits and advising of treaty rights
  10. Avoiding exclusion from MAP relief due to late adjustments or late notification
  11. Consideration of MAP assistance for cases described as “tax avoidance”
  12. Countries eliminate or minimize “exceptions” to MAP
  13. Taxpayer presentations to competent authorities
  14. Cooperation and transparency
  15. Face-to-face meetings between competent authorities
  16. Bilateral process improvements
  17. Decision summaries
  18. Recommendation for MAP cases beyond two years
  19. Avoid blocking MAP access via audit settlements or unilateral APAs
  20. Interest relief
  21. Suspension of collections during MAP
  22. Readily available access to a competent authority
  23. Independence and resources of a competent authority
  24. Performance indicators for the competent authority function and staff
  25. Implementing and promoting ACAP and bilateral APA programs

 

 

 

 

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OECD

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