Strategizing International Tax Best Practices – by Keith Brockman

EU & BEPS: Next steps

February 29, 2016

The EU, now recognized as the accelerator of BEPS for its Member States, have issued a roadmap of priorities and objectives for the near future.  A link to Deloitte’s World Tax Advisor is provided, and the attached article therein.

I have highlighted certain parts of the roadmap worth watching:

  • Country-by-Country reporting (will there be a consistent EU standard?)
  • Hybrid mismatch arrangements
  • Code of Conduct activities, including alignment of transfer pricing outcomes with value creation, an extension of BEPS Actions 8-10.  (Note Sweden and UK are already using such Actions re: clarification of existing transfer pricing policy)
  • Payments from an EU to non-EU country
  • The EU Arbitration Convention is mentioned, although it’s practical effect on mitigating dispute resolution is limited

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

European Union:
Dutch presidency issues EU-BEPS roadmap

The Netherlands, which currently holds the presidency of the council of the EU, issued an ambitious EU-BEPS “roadmap” on 19 February 2016 that sets out plans to move forward with previous EU proposals, as well as future efforts on areas relating to the OECD’s base erosion and profit shifting (BEPS) project. The roadmap includes the following:

  • Possibly including a minimum effective taxation clause in the EU interest and royalties directive, and also possibly including or referring to the OECD “modified nexus approach” (however, no mention is made of the previous proposals to reduce the shareholding requirement in the directive from 25% to 10%, add legal entities to the annex or remove the “direct” holding requirement);
  • Reaching consensus on the anti-avoidance directive proposed by the European Commission on 28 January 2016 (for prior coverage, see World Tax Advisor, 12February 2016);URL: http://newsletters.usdbriefs.com/2016/Tax/WTA/160212_1.html
  • Reaching agreement on the European Commission’s proposal to introduce the OECD BEPS minimum standard for country-by-country reporting in the EU;
  • Initiating discussions for reforming the EU Code of Conduct group (specifically, the group’s governance, transparency and working methods), followed by discussions on a revision to the mandate in relation to the concept that profits are subject, as appropriate, to an effective level of tax within the EU;
  • Reaching agreement on guidance and explanatory notes on hybrid permanent establishment mismatches in situations involving third countries;
  • Continuing to monitor the legislative process necessary to revise existing patent box regimes; and
  • Monitoring and exchanging views on the BEPS developments relating to tax treaties concluded by EU member states, the OECD multilateral instrument to modify tax treaties and the European Commission’s recent recommendations on the implementation of measures to combat tax treaty abuse. 

     

     

    The Code of Conduct group will start work on the following:

  • Preparing EU guidance on aligning transfer pricing outcomes with value creation, in accordance with BEPS actions 8-10;
  • Identifying potential issues that arise when payments are made from the EU to a non- EU country;
  • Assessing the opportunity for developing EU guidance for implementing the conclusions on BEPS action 12 (the disclosure of aggressive tax planning), notably, with a view to facilitating the exchange of information between tax authorities; and
  • Developing guidelines on the conditions and rules for the issuance of tax rulings by EU member states.Additionally, the High Level Working Party on Taxation may discuss the current situation regarding the EU arbitration convention that allows the settlement of transfer pricing disputes.

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OECD

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OECD: Welcome to BEPS

February 25, 2016

The OECD has introduced a new inclusive framework inviting all interested countries to address international tax rules ongoing.  All interested parties will be able to participate as BEPS Associates via the OECD’s Committee on Fiscal Affairs (CFA), thereby have equal participation as the OECD and G20 members including review and monitoring of BEPS implementation.

Indicative of the posture going forward, OECD Secretary-General Angel Gurria stated “It is another strong signal that behaviour which was considered both legal and normal in the past will no longer be accepted.”

This OECD proposal will require endorsement by the G20 at the meeting in Shanghai on 26-27 February, with the first meeting of the inclusive framework members in Kyoto, Japan on 30 June and 1 July 2016.

Links to the OECD press release and summary document are provided for reference.

http://www.oecd.org/tax/all-interested-countries-and-jurisdictions-to-be-invited-to-join-global-efforts-led-by-the-oecd-and-g20-to-close-international-tax-loopholes.htm

Click to access flyer-implementing-the-beps-package-building-an-inclusive-framework.pdf

This new framework would mark another major milestone in the BEPS story; with hopes that global coordination and consistency will be enhanced vs. numerous voices protecting their fiscal growth, thereby adding additional complexity and unilateral actions around the world.

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EU dispute resolution: time for your voice to be heard

February 21, 2016

The European Commission has recently released a public consultation on improving double taxation dispute resolution mechanisms, with comments accepted through 10 May 2016.  It is a process / Best Practices approach to enact future efficiencies.  A summary story and consultation links are provided for reference:

http://ec.europa.eu/taxation_customs/common/consultations/tax/double_tax_dispute_en.htm

Click to access survey_consult_doc_double_tax_en.pdf

Highlights:

  • Double or multiple taxation by EU Member States is recognized as a barrier to operate freely across borders.
  • A legislative proposal is expected by the end of 2016, following the comment period.
  • The Mutual Agreement Process (MAP) currently is not bound to reach a solution.
  • The EU Arbitration Convention (re: transfer pricing cases and permanent establishment profit attribution) is acknowledged as a current process, but limited in scope.
  • The last such public consultation (2010) resulted in an arbitration provision, although it has not been mandated in double tax conventions.
  • Stakeholders’ views are requested on the relevance of removing double taxation, EU objectives and proposed solutions.

This document is pivotal in establishing practical and efficient EU dispute resolution mechanisms ongoing, and all interested parties should submit thoughtful input.

The proposal, as noted, would only be effective between EU Member States, not between one Member State and another non-EU jurisdiction or between non-EU jurisdictions.  The EU has been a strong proponent in leading global best practices in the post-BEPS environment.  Therefore, global consistency of the EU approach is also encouraged, especially by countries having no such dispute mechanism.  

Additionally, other  countries’ need to rethink sovereignty arguments in trying to evade / negate the effect that such transparent measures would have on their ability to address local tax practices.  

 

 

 

 

 

 

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EU Anti-Tax Avoidance Package: PPT

February 17, 2016

The EU Anti-Tax Avoidance Package included a Commission recommendation on the implementation of measures against tax treaty abuse.  Specifically, this statement was issued to address artificial avoidance of permanent establishment status as stated in BEPS Action 7 Action Plan.

Re: tax treaties of Member States that include a “principal purpose test” (PPT) based general anti-avoidance rule, the following modification is encouraged to be inserted:

“Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income or capita l if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that it reflects a genuine economic activity or that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.”

This subjective phrase, that applies notwithstanding other provisions of the Convention, has already been used in new treaties and will proliferate as new treaties are drafted by a Member State, not necessarily with another Member State.  Thereby, it is important to draft supporting documentation that will provide support for transactions against which it is aimed.  This phrase will elicit additional appeals and court cases as to its meaning and / or intent for which non-consistent answers will be provided.

Questions that may be asked re: this statement:

  • Who is concluding on the reasonableness?  What facts are used for such determination?
  • Which facts and circumstances are relevant?
  • What are all of the principal purposes of the arrangement or transaction?
  • How is a benefit measured, directly or indirectly?
  • What is a genuine, vs. non-genuine, economic activity?
  • How do you determine if such arrangement is in accordance with the object and purpose of the “relevant provisions” of the Convention?

The phrase is purposefully vague, and thereby subject to inconsistent interpretation.

It is hopeful that tax administrations will use this statement wisely to address egregious transactions rather than ordinary business transactions for which the clear intent was not an evasion of tax.  This subjectivity will be important to monitor going forward to further understand subjective enforcement interpretations around the world.  

 

 

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TP BEPS soft law: UK / Sweden

February 14, 2016

The UK tax authority, HM Revenue & Customs (HMRC), will refer to the OECD base erosion and profit shifting (BEPS) report on BEPS Actions 8-10 in transfer pricing audits.  Maura Parsons, HMRC deputy director and head of transfer pricing, has stated that HMRC will look to the 2015 BEPS reports in addition to the current OECD guidelines (although British law explicitly refers to the 2010 version on the transfer pricing guidelines).

Additionally, Sweden has taken a similar position and adopted the final OECD report in audits.

This line of reasoning is primarily based upon the premise / supposition that the new OECD guidelines are merely a clarification of existing rules, not requiring new legislation.  

In addition to the inherent uncertainty of the new rules, UK, Sweden and other countries that will adopt this position introduce additional challenges into understanding the current law, requirements and grounds upon which appeals / court cases will be based.  This is a new trend that promises to expand quickly into other countries, undermining the intent of transparency and consistency worldwide.  

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Tax Strategies: The new norm

February 11, 2016

As a Tax Policy is recognized as a basic tool for the foundations of a Tax Risk Framework, documented tax strategies are becoming the new norm.

The UK had previously published requests for comments re: publishing a UK tax strategy by UK and non-UK multinationals (MNEs), followed by the EU Anti Tax Avoidance Package with a communique on the subject.

Highlights of EU Communication to the European Parliament:

  • A coordinated EU external strategy on tax good governance is essential for Member States’ to tackle tax avoidance, ensure effective taxation and create a stable business environment.
  • In 2012, the Commission issued a Recommendation encouraging Member States to use transparency, information exchange and fair tax competition to assess third countries’ tax regimes and to possibly apply common counter-measures.  However, this attempt is now recognized as a failed measure.
  • Annex 1 of the Communication sets forth new good governance criteria, which it invites the Council to endorse, as well as provide a basis for all EU external policies on tax matters and promotion of good governance.
  • Annex 2 provide elements forming the basis for negotiating future tax good governance clauses that are recommended for endorsement.
  • A tax good governance standard responds to the EU’s future development commitments and prevents international tax weaknesses that create opportunities for base erosion and profit shifting.
  • The EU seeks to lead by example re: tax good governance.
  • A pan-EU list to identify outliers of tax transparency and tax good governance will be an interim solution until a common EU system is developed. “Once a jurisdiction has been added to the EU list, all Member States should apply common counter-measures against it.”  The defensive measures should be a top-up to other EU Directives, including withholding taxes and non-deductibility of costs for company transactions.

The Communication and Annexes are required reading, as it sets the tone for ensuing battles between the EU Member States’ and other jurisdictions.  Unilateral actions by other countries will probably closely follow, as each country seeks to assert their rights while avoiding the possibility to lose a piece of the tax pie for which everyone is seeking.

It is becoming very clear that MNEs will face a documentation and tax risk framework action to document country/regional/global strategies that will form an element of the post-BEPS transparency world that many are seeking.  

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EU Tax Avoidance Package: Automatic exchange of CbC reports

February 9, 2016

The EU Tax Avoidance Package contains a proposed amended EU Directive that would include CbC reporting as an automatic element of exchange of information between Member States.

Highlights:

  • The proposal expands the current Automatic Exchange of Information (AEOI) requirements in the EU.
  • The country-by-country (CbC) reporting would be encased in a legal instrument that would ensure certainty for companies within the EU.
  • “There is an urgent current demand for coordinated action in the EU on this matter of international political priority.”
  • On the basis of information in the CbC report, the mandatory CbC exchange would be accessible to those Member States in which “one or more entities of the MNE Group are either resident for tax purposes, or are subject to tax with respect to the business carried out through a permanent establishment of an MNE Group.”
  • Member States shall prescribe penalties in line with this proposal.
  • Member States shall adopt and publish, by 31 Dec. 2016, legislative provisions to comply with this Directive , and shall apply those provisions from 1/1/2017.

The proposal also addresses reporting by Surrogate Entities, although restricted to EU Member States.

This proposal pushes the EU initiative of being the global leader in post-BEPS implementation and providing direction for the rest of the world.  Accordingly, the proposal may be precedent setting for other jurisdictions and mandatory reading to understand CbC expectations and perceptions.

 

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EU Anti-Tax Avoidance Directive: Primer

February 3, 2016

The Anti Tax Avoidance Directive includes six anti-abuse measures to address tax avoidance: interest deductibility, exit taxes, a switch-over clause, general anti-abuse rule (GAAR), controlled foreign company (CFC) rules and a hybrid mismatch framework.  The Directive prescribes a minimum protection for Member States’ corporate tax systems.

A summary of the anti-abuse measures is provided, based upon the European Commission’s presumption and related summary of actions to address such abuses.

Interest

Presumption: Corporate taxpayers incur interest in high-tax jurisdictions, with income reported in low/nil tax jurisdictions, thereby shifting profits.

Summary: Net (of interest income) interest expense is limited to a 10-30% EBITDA basis.

Exit taxes

Presumption: Tax residence is moved solely to benefit from a low-tax jurisdiction.

Summary: Tax on transferring assets cross-border to capture unrealized profits.

Switch-over clause

Presumption: Low-taxed income is moved within the EU to shift profits.

Summary: Foreign income is subject to a tax, with foreign tax credits, vs. an exemption.

General Anti-Abuse Rule (GAAR)

Presumption: Tax planning schemes are abusive.

Summary: Backstop defense rule for “abusive tax arrangements.”

Controlled foreign company (CFC) rules

Presumption: Income is passive and is shifted to low-tax jurisdictions.

Summary: Reattributes income to a parent company that is taxed at a higher rate.

Hybrid mismatch framework:

Presumption: Double deduction situations due to legal mismatches are being sought.

Summary: Legal characteristics of payment country carries over to recipient country.

 

The detailed rules, which require a unanimity of approval by the Member States, are complex and far-reaching.  The breadth of the rules captures the perceived presumptions stated for each measure, notwithstanding the fact that such measures may also produce economically disadvantageous tax situations (i.e. paying interest from a low-tax to a high-tax jurisdiction), and the possibility of a Member State to legislate rules that move beyond the minimum threshold set forth.

These rules are also being legislated unilaterally outside of the EU Market, such that there may be very broad anti-abuse themes globally with each country having deviations from a general rule that will provide complexity and areas of disagreement for many years.

 

 

 

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OECD endorses European Commission’s Anti-Tax Avoidance Package

January 31, 2016

OECD’s press release highlights their endorsement of the recently announced Anti-Tax Avoidance Package proposal.

“OECD Secretary-General Angel Gurría welcomed the Commission’s proposal, which he said marks an important milestone towards the development of a comprehensive, coherent and co-ordinated approach against corporate tax avoidance in Europe.”

http://www.oecd.org/tax/oecd-secretary-general-angel-gurria-welcomes-european-commission-corporate-tax-avoidance-proposals.htm

This acknowledgment puts additional pressure on the EU Member States for unilateral adoption, as a Member State will not want to be seen as an outlier to transparency and the tax avoidance political landscape.  Thereby, the possibility of unilateral adoption is (highly) likely.  

Placing additional context behind the BEPS statement, the press release provided the following statement: “The OECD conservatively estimates revenue losses from BEPS at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues.”

 

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CbC Surrogate: A reporting trap!

OECD’s BEPS Action 13 provides for a Surrogate Entity substitution concept if the headquarter jurisdiction of a multinational does not provide for country-by-country (CbC) reporting for the 2016 tax year.  The concept is ideal, if a CbC reporting country considers this Surrogate Entity concept in its legislation.

A review of CbC legislative actions by different countries reveals that such legislation will be inconsistent and will require the multinational to file separate CbC reports in various countries, irrespective of its choice of appointing a surrogate country that has an extensive tax treaty network with exchange of information provisions.  

For example, the legislative language of Spain does not provide for the Surrogate Entity concept, thereby requiring a Finnish (and possibly U.S., dependent on Final Regulations) based multinational to file the 2016 Spanish CbC report in Euros.  One of the Spanish tax authority representatives recently expressed an opinion that no advance rulings/arrangements will be acceptable for CbC Surrogate Entity filing: The law is the law.

Several issues for consideration by a multinational thinking of a Surrogate include:

  • Every country’s CbC adopted legislation will require review to determine if a Surrogate filing is acceptable.
  • For countries that will require a local filing, adoption of such country’s CbC rules will be required re: content, timing, reporting currency, etc.
  • Upon conclusion of the dynamic review, the CbC template may require adaptation for  local filings of countries that have OECD + CbC legislation, adding details beyond those prescribed in BEPS Action 13.   
  • Most countries have penalties (fines/civil/criminal) applicable for failure to file a CbC report.

The definition of a Surrogate Entity, in addition to BEPS Action 13, are included for reference.

Click to access beps-action-13-country-by-country-reporting-implementation-package.pdf

The term “Surrogate Parent Entity” means one Constituent Entity of the MNE Group that has been appointed by such MNE Group, as a sole substitute for the Ultimate Parent Entity, to file the country-by-country report in that Constituent Entity’s jurisdiction of tax residence, on behalf of such MNE Group, when one or more of the conditions set out in subsection (ii) of paragraph 2 of Article 2 applies.

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OECD / UN, Tax Risk Management

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European Commission: Full speed ahead

The European Commission has clearly announced it’s intent to be the global leader in advancing OECD’s BEPS initiatives, with some proposals exceeding the scope / intent of the OECD.

Copies of the following documents are provided for reference, with subsequent posts addressing highlights of significant initiatives.  It is important to distinguish the documents between Proposals for a Council Directive, Communications, Studies and Recommendations.  

  1. Anti Tax Avoidance Package
  2. Proposal for a Council Directive re: tax avoidance practices
  3. Proposal for a Council Directive re: automatic exchange of information
  4. Annex to automatic exchange of information proposal
  5. Communication on an External Strategy for Effective Taxation
  6. Annexes to the external strategy communication
  7. Communication re: Tax Avoidance Package
  8. Study on Structures of Aggressive Tax Planning & Indicators
  9. Recommendation on implementation of measures against tax treaty abuse

The documents are required reading for all international tax practitioners, as they highlight the complex post-BEPS world and the trend indicators for the near future.  We can assume that some of these developments will proceed for action very quickly, thereby imputing a doctrine that “time is of the essence.”

http://ec.europa.eu/taxation_customs/taxation/company_tax/anti_tax_avoidance/index_en.htm

http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=COM:2016:26:FIN&from=EN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

Click to access swd_2016_6_en.pdf

Click to access taxation_paper_61.pdf

Click to access c_2016_271_en.pdf

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OECD / UN

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OECD Multilateral pact is signed

January 28, 2016

Thirty-one countries have signed the OECD’s multilateral competent authority agreement (MCAA) for the automatic exchange of country-by-country (CbC) reports, excluding the U.S.

The signatory countries are:

  1. Australia
  2. Austria
  3. Belgium
  4. Chile
  5. Costa Rica
  6. Czech Republic
  7. Denmark
  8. Estonia
  9. Finland
  10. France
  11. Germany
  12. Greece
  13. Ireland
  14. Italy
  15. Japan
  16. Liechtenstein
  17. Luxembourg
  18. Malaysia
  19. Mexico
  20. Netherlands
  21. Nigeria
  22. Norway
  23. Poland
  24. Portugal
  25. Slovak Republic
  26. Slovenia
  27. South Africa
  28. Spain
  29. Sweden
  30. Switzerland
  31. UK

The position of the US, noticeably absent from the list,  is to enter into bilateral agreements with appropriate countries that have safeguards and governance in place, as well as countries that have an income tax treaty or tax information exchange agreement in effect.

OECD BEPS Action 13 provided models for the recommended CbC reporting options; a multilateral agreement, a double tax convention model and a model based on a tax information exchange agreement.

It will be critical to monitor the development of the CbC exchange process, in addition to timing mismatches and the necessity to identify a surrogate country, with additional complexities to consider.

 

 

 

 

 

 

 

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Finland: CbC Surrogate search

January 24, 2016

Finland has proposed its new country-by-country (CbC) reporting requirements, having an effective date of 1/1/2017, as further summarized in EY’s Global Tax Alert provided for reference.  Other countries have legislated CbC 2016 effective dates, thus a Finland multinational that does business in other countries requiring a 2016 effective date CbC report will be looking to adopt a surrogate country for its 2016 tax year.

This delay in effective date, while the intention may have been to help Finnish headquartered multinationals, presents significant complexities for their 2016 CbC reporting requirements.  However it does the provide the Finnish / US tax authorities another year to ensure reporting processes are in place to review, and exchange, CbC information.

This legislation mirrors the US proposed regulations (i.e. Final Regulations yet to be issued), which delays the effective date past 2016.

This complexity, although anticipated by the OECD’s BEPS Actions in identifying a surrogate mechanism, understates the practical uncertainties that loom ahead.  For example, some issues are called into question:

  • Will the choice of a surrogate country lock in their CbC requirements, as would be the case if its present headquarter jurisdiction adopted CbC for 2016?  Or could other countries that have add-on CbC requirements, such as Mexico’s intercompany transactional detail, claim/assert that their local requirements could apply in a surrogate situation since the headquarter jurisdiction is not subject to the CbC automatic exchange of information?
  •  The search for a surrogate country will entail the review of treaty exchange mechanisms to reduce additional CbC filings, and complexities, in other countries.
  • The identification of a surrogate will require review of CbC legislation by every country to ensure that a surrogate’s reporting / information exchange satisfies the literal reading of statutory requirements.  This comprehensive review, that may not have been required by a US or Finnish multinational due to extensive exchange of information legislation, will need to be read in the broadest sense to avoid penalties.
  • The identification of a surrogate has not been expressly anticipated by other countries that have proposed CbC legislation, apart from addressing the non-applicability of automatic exchange of information requirements for CbC reporting.

Post BEPS complexity increases with delayed reporting years for CbC reporting.  It may take some time to fully understand all the nuances and complexities of surrogate reporting to ensure potential CbC disclosures are timely met and penalties avoided.

With these complexities becoming reality, countries should clarify CbC reporting in their respective jurisdiction by CbC surrogates.  

 

Click to access 2016G_CM6162_TP_Finnish%20Government%20submits%20CbC%20reporting%20proposal.pdf

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Global BEPS update

January 20, 2016

EY’s Global Tax Alert summarizes recent BEPS developments around the world:

Click to access 2016G_CM6166_The%20Latest%20on%20BEPS%20-%2018%20January%202016.pdf

Highlights:

  • Australia’s client experience roadmap re: its multinational anti-avoidance law (MAAL)
  • Belgium’s adverse State Aid ruling by the European Commission re: its excess profit tax rulings, which is expected to be appealed
  • Chile’s new sworn statement / tax disclosures (highlighted in a recent post)
  • Finland’s draft proposal for country-by-country (CbC) reporting and transfer pricing documentation in a Master / Local file context
  • Greece’s circular identifying preferential tax regimes
  • Korea’s draft decree for transfer pricing documentation
  • Luxembourg’s IP amendments and adoption of the EU Parent-Subsidiary Directive’s proposals
  • Netherland’s CbC and transfer pricing documentation requirements
  • Norway’s new rules for interest limitations, participation exemption regime inapplicable for hybrid instruments, and CbC reporting requirements
  • Panama to announce its decision, in March, for adoption of the OECD BEPS recommendations

The trend for recent BEPS updates reflects an expansion of definitive actions into unilateral measures, decisions whether / when to adopt OECD’s BEPS recommendations, new disclosures, subjective anti-avoidance rules with inherent complexity, and each country’s expression of intent re: BEPS Actions coupled with local add-on documentation requirements.

Monitoring of the global developments in the post-BEPS era has introduced new challenges, requiring additional resources and thought processes for documenting transfer pricing methodologies and the business aspect of significant transactions.

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OECD / UN

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Poland’s GAAR: “Artificial”

January 18, 2016

The comment period, that ends 20 January, will be followed by an introduction of a general anti-avoidance rule (GAAR) that is broad and subjective in nature.

The Proposal defines tax avoidance as an act (or series of acts) applied in order to receive a tax benefit, which in certain circumstances defeats the object and purpose of the tax act, provided the way of conduct in the particular case was artificial. The determination of an artificial arrangement is further elaborated on via examples, including unjustified split of an operation, involvement of intermediary entities without substance, and a measure of economic vs. tax risk, among others.

This measure should be followed closely, as it can be applied very broadly, inconsistently and subject to the tax administration’s view of what is considered “artificial.”  It also is focused on the use of holding companies without substance.  EY’s Global Tax Alert provides further details on this development.

Click to access 2016G_CM6150_Polish%20Gov%20publishes%20draft%20amendments%20to%20Tax%20Code%20including%20new%20GAAR%20provision.pdf

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Tax Risk Management

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