Strategizing International Tax Best Practices – by Keith Brockman

Tax Counsel: Proactive Risk Management

May 11, 2013

As governments and tax authorities are increasing their focus on transfer pricing issues, aggressive audit approaches and appeal techniques, multinationals should also ensure their integration with internal and external counsel is aligned.  This alignment should be in place prior to having to submit a reactionary response that is time constrained, complex and material in amount.  The following considerations are provided to promote discussion of this important topic among your teams and senior management.

  • What is the reporting structure for tax and legal?
  • Are dedicated tax counsel on the tax and/or legal team?
  • Does tax meet quarterly with internal/external counsel for status updates?
  • Have you quantified the benefit for justification of full-time internal tax counsel?
  • Where should internal tax counsel be located, contrasted with the tax team structure?
  • Should tax counsel have a full-time presence in aggressive jurisdictions for which appeals and trials are significant?
  • Who interviews tax counsel candidates?
  • Do you have a documented audit defense process that outlines when tax counsel are engaged?
  • How does tax counsel interact with the relevant advisors in appeal proceedings?
  • Who monitors the interaction of tax counsel, internal tax, business personnel and external advisors?
  • Does tax counsel review draft audit responses for transfer pricing issues and/or significant local taxes?
  • Who chooses local tax counsel for worldwide audits and tax proceedings?
  • Do you meet with local internal/external counsel when you visit the Business Units?
  • Should tax counsel be included in some, or all, meetings with tax authorities?  If so, should this start from the first meeting or when it becomes evident that tax counsel is required for current and future negotiations?
  • Who should negotiate issues and outline alternative options on an ongoing basis?
  • Does tax have a 360 feedback mechanism with internal and external counsel that is openly shared?
  • Does tax counsel participate in regular tax team meetings?

The above points highlight some ideas for consideration and discussions with senior management.  I look forward to your ideas and Best Practices for tax and legal collaboration.

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Tax Risk Management

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Tax Newsletters: Proactive Tax Risk Awareness

May 8, 2013

Communication of emerging tax risks targeted at increasing awareness of Best Practices via a regional/global tax newsletter provides a timely and efficient vehicle for valuable discussions.  Examples of some benefits include:

  • Increased focus and awareness on important aspects of a Global Tax Policy and / or Tax Risk Policy.
  • Resource for regional / corporate tax team contact information inviting questions re: potential tax risks.
  • Communication vehicle for introducing emerging strategic tax risks, especially in developing markets.
  • Highlights lessons learned in forming new Best Practices.
  • Introduction of new Tax Team members around the world.
  • Provides updates on tax related benefits derived from collaboration on plant expansions, R&D credits, Patent Box and Innovation synergies achieving lower local effective tax rates, etc.
  • Forum for tax diligence procedures of new accounting policies.
  • Reference for upcoming tax training courses, webinars and related reference materials.
  • Tax topic focus, describing potential risks in non-technical language, such as PE – what it is, how to recognize it, its adverse impact on cash taxes, ETR, accounting / operational complexities, etc.
  • ETR overview, why it’s important.
  • Increased tax return disclosures and self-assessment determinations; local and global significance.
  • Country and Regional developments.
  • Tool for heightened awareness among Tax Team members, inviting newsletter contributions and ideas.

I invite your ideas.

 

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Tax Risk Management

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Tax Leadership Center of Excellence: Be a Mentor

May 5, 2013

The tax function is unique, as it necessitates collaboration with all functions and levels within an organization.  Additionally, it should be viewed as a talent source for current and potential leaders, knowledge, creativity, planning expertise, governance and Best Practices.  However, individuals not connected to the tax function are often unaware of these valuable attributes that form a valuable resource for others to learn from.  Providing mentor opportunities provide the following benefits for Best Practices in Tax Leadership:

  • Forming additional alliances throughout the organization to achieve a win-win relationship.  
  • Providing a valuable asset for recruiting talent.
  • Increasing awareness of tax risks and roles locally, regionally and globally.
  • Forming a catalyst for Mentor Programs within other functions.
  • Teaching the art of conducting collaborative meetings and achieving buy-in for cross-functional programs.
  • Developing a strong foundation for future leadership roles.
  • Learning the importance of, and distinguishing, legal entity and operating structures.
  • Proactive and interactive leadership training for Tax Team members.
  • Recognition as a Leadership Center of Excellence.
  • Expansion of tax and risk awareness into non-financial functions of the company.

Providing a Tax Leadership Mentor Program will yield a multitude of benefits while increasing awareness and perception of Tax as a highly valued Center of Excellence for current and future leaders.  Partner with Talent Management and Organizational Development to make it happen!

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Leadership

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A new role: Head of tax controversy

May 3, 2013

http://tmagazine.ey.com/insights/the-rise-new-role-head-tax-controversy/

This informative article focuses on the growing importance of tax challenges, with a focused role on tax risk and controversy.

Exchange of tax information among tax authorities, joint audits, reputational risk, tax governance, increased focus by the Board of Directors, importance of intellectual property, royalties, service fees, intercompany financing techniques and transfer pricing complexities are reasons why this role is expected to become more common in multinationals.  The following ideas are provided for thought and comment:

  • Does your company have a Tax Risk Officer / Head of tax controversy?  If not, has this idea been discussed with the CFO, CEO and Board of Directors?
  • How are the tax, treasury and legal functions integrated in a global approach to tax risk and controversy?
  • Are resources in place to facilitate a “joint audit” across several jurisdictions?
  • Are tools such as CAP in the US, horizontal monitoring in Netherlands, etc. being used to provide certainty and timeliness?
  • Are APA’s being used as a tool; who is functioning as the champion for this initiative?
  • Tax amnesty awareness; are you aware of these initiatives on a global basis?
  • Who coordinates legal counsel, internal and external, on audits, appeals and court proceedings?
  • Do you have a process for consideration of tax counsel at certain stages of an audit?
  • What training is provided to finance and other functions to increase awareness of tax risk areas?
  • New transfer pricing legislation; who is responsible for reviewing risks and transfer pricing governance / documentation.

The above thoughts may inspire conversations re: this role to match the increased focus by tax authorities and governments.

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Tax Risk Management

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OECD Draft Handbook on Transfer Pricing Risk: Public information

May 1, 2013

Click to access Draft-Handbook-TP-Risk-Assessment-ENG.pdf

OECD published this draft handbook on April 30, with comments due by Sept. 13.  I highly recommend reviewing the entire handbook.  Section 4.5 of the Handbook outlines the use of publicly available information for identifying overall risk assessment.  We are all aware of this information, although I will share some thoughts on being proactive in forming Best Practices around this topic.

Company website:

  • Does tax review the web content on a regular basis to ensure there are no innocent misstatements to defend.
  • As the web content is updated for marketing, sales and other relevant information, does tax receive a copy of the updates prior to releasing them to the public.
  • Are any of the statements on your website in conflict with your stated transfer pricing or other tax methodologies.
  • Does the website contain information on legal presence in each country; if so, what is the alignment process with tax.

Statutory financial information:

  • Many countries provide this information to the public; are these financials reviewed to ensure consistency with transfer pricing methodologies either internally or an external advisor. 
  • Additional disclosures increase every year; how familiar are you with new disclosures on a global basis.  Is there a process that can be implemented to identify tax sensitive information.
  • An individual with tax training should review this information prior to finalization to ensure there are no PE, transfer pricing or other tax risk areas addressed.

Coordination of Publicly Available Information:

  • Is there a central index listing all publicly available company information on a global basis.
  • Is this a process for which someone can be a champion to ensure timely updates.
  • If tax disclosures are prepared for public use, are the disclosures of taxes paid by country, etc. consistent with the statutory financial information that is available.  Should there be a process to rationalize, or explain, any discrepancies.
  • Are press releases reviewed by tax to ensure consistency of tax methodologies and minimization of potential tax risks.
  • Is issuance of publicly available information centralized or decentralized, depending on the content.
  • If comments are issued on this draft, who ensures the content is internally consistent since it will be on the OECD website.

 

 

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OECD / UN, Transfer Pricing

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UN link to source of relevant information

April 27, 2013

http://www.un.org/esa/ffd/tax/
This site is a valuable resource of information, including the following topics and links to relevant documents:

  • Strengthening UN role in international tax cooperation
  • UN Model Convention
  • Transfer Pricing (including Practical Manual for Developing Countries)
  • Exchange of information on tax matters
  • Manual for the Negotiation of Bilateral Tax Treaties
  • Capacity Building

I invite you, and members of your team, to fully explore the site and use as a basis for international tax training and reference.

This link is also added to my new “Recommended Links” page for future reference.

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OECD / UN, Transfer Pricing

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European Council May Agenda: Energy; Tax Evasion/Avoidance/Fraud

April 26, 2013

http://www.european-council.europa.eu/the-president.aspx

In a speech by European Council President Herman Van Rompuy, he mentioned energy and taxes as two issues that will be discussed at the meeting in May.  Interestingly, the press release states: “The other issue I put on the May agenda for European leaders is tax evasion and avoidance.  There we have to seize the current political momentum, especially on improving exchange of information between our countries.  Tax fraud is exactly the kind of issue where it is first and foremost for Member States to act, but where they cannot effectively do so on their own.”

  • The phrases “tax evasion,” “avoidance” and “tax fraud” all seem be used interchangeably with no distinction in application or meaning.  This seems to be a growing trend in public communications, leading to potentially wrong conclusions and inappropriate actions.  Ensure the relevant phrases, supplemented by intent, are used to convey the message.
  • Ensure one or more members of Tax are keeping aware of these meetings and trends.
  • Inform senior management regularly of current trends, as perceived by the European Council and Member States.

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Transfer Pricing

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Global Mobility & International Tax: Alignment for Best Practices

April 24, 2013

Attached for reference is an informative Global Mobility presentation, inclusive of tax risk components.

Apart from Permanent Establishment (PE) risk, among others, I want to focus on the integration of International Tax and Global Mobility, with the following thoughts:

  • Are the International Tax and Global Mobility functions aligned to address tax risks and opportunities?  Are there regular meetings, information sharing and discussions of strategies, risks and opportunities?
  • Are PE and related tax risks explained and discussed with Global Mobility in recurring training programs?
  • Are International Tax personnel familiar with legal vs. economic employer concepts and other related mobility risks?
  •  Should there be dotted line and/or direct reporting structures?
  • Are there red flags/alerts upon assignments/transfers of Regional/Global Sales personnel to ensure PE is not created?
  • Are the legal entities to which personnel are assigned in existence?
  • Should someone with international tax expertise be placed on the Global Mobility Team to minimize potential risks?
  • How is Global Mobility aware of new trends, risks and opportunities, especially re: international tax?
  • Is Secondment and utilization of Double Tax Treaty benefits aligned?
  • How are assignments to new markets executed?  Is International Tax involved in the beginning prior to execution?
  • Are there specific contacts in Legal, International Tax and Global Mobility to communicate potential issues?
  • Are there cross-functional training programs to highlight new issues, discuss risk gaps and Best Practices?

I welcome your ideas.

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Tax Risk Management

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OECD: Countering tax avoidance, evasion & aggressive tax planning

April 22, 2013

http://www.oecd.org/ctp/aggressive/atp.htm

As you may know, the OECD has an Aggressive Tax Planning (ATP) Steering Group, whose objectives include:

  • Identify current trends
  • Share experiences
  • Focus on timely information sharing in understanding new schemes
  • Provide information enabling countries to adapt their tax risk management strategies

Additionally, the work of the ATP Steering Group is supported by the OECD Aggressive Tax Planning Directory.  The ATP Directory is an online resource for governments to depict types of schemes discovered and fact patterns thereto, and details of their detection.

  • While “tax avoidance” and “tax planning” are frequently used terms, in direct contrast to “tax evasion,” it would be worthwhile to review Global Tax Policies and Tax Risk Management Strategies and verify if additional clarification is needed due to today’s tax environment.
  • Centralization of information by OECD: is your company also centralizing its issues, tax risks and strategies for synergy?
  • Are current trends being analyzed to adjust “tax planning” strategies and relevant tax risks?
  •  Are you ready to explain the difference between tax planning, aggressive tax planning, tax avoidance and tax evasion?

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OECD / UN, Tax Risk Management

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CEO survey: Tax strategy and corporate reputation

April 17, 2013

PwC has published their 16th Annual Global CEO Survey: Tax strategy and corporate reputation: a business issue.

http://www.pwc.com/taxceosurvey

In addition to interesting observations in the survey, the following ideas are presented for consideration:

  • Have you had a discussion with your CEO about tax risks & strategies, including reputational risk?  S/he could also share with you their perceptions and information exchanged with their peers.
  • The upcoming G8 meeting will be discussing tax avoidance: do you plan to update your CFO & senior management?
  • Are Board of Director presentations planned for strategic and reputational tax risk?  (Don’t wait for them to ask)
  • Do you have a Tax Planning Policy?  If so, has it been discussed with the Board?
  • Is senior management aligned internally, and with the Board, on a position for tax transparency?
  • Is global tax planning a CEO priority, as focus on this topic is increasing among governments?
  • How are you avoiding tax strategy surprises?

I look forward to your comments.

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Tax Risk Management

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PE Risks: Best Practices for Awareness & Planning

April 14, 2013

Permanent Establishment (PE) risk is receiving increased visibility around the world, in established countries and emerging markets.  Therefore, have you increased your focus to strategize Best Practices to minimize this risk?  The following ideas are presented for consideration:

  • Coordination of employee transfers/assignments to understand new roles and responsibilities, legal entities, etc.
  • PE global training to increase awareness, collaborating with the Human Resource function.
  • Review tax treaties for all business changes to understand PE triggers and exceptions.
  • Utilizing special purpose entities to centralize, or isolate, potential risks.
  • Developing a Do’s and Don’ts list to discuss with the business; attach to Job Descriptions, as applicable.
  • Formal PE technical training, at least annually, for all employees having international tax responsibilities.
  • If consideration of PE risk is coordinated by external advisors, develop a collaboration plan to review regularly.
  • “Presence” test PE safe harbor, dependent on treaty: Who is counting the days and coordinating related steps of a project?
  • “Preparatory & Auxiliary” PE treaty exception: review Form vs. Substance on a recurring basis.
  • Develop PE expertise and clarify roles of internal staff and external advisors.
  • Proactive vs. reactive PE determinations, understand when a proactive PE determination may be beneficial.
  • Follow PE trends of aggressive jurisdictions with scenario planning.
  • Collaborate with the business to understand upcoming strategies that may introduce new PE risks.
  • Review “Branch” activities annually to determine if they exceed allowable actions in the respective countries.
  • Establish a collaborative process for entry into new countries to ensure tax coordination and risk identification.
  • Ensure a communication protocol is established for response to PE allegations that are made public.
  • Following current events for OECD and UN model conventions, as well as related commentaries
  • Identification, with mitigating controls, in tax risk  and ERM framework

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PE

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Information exchange, good governance & Best Practices

April 10, 2013

Click to access c_2012_8805_en.pdf

European Commission Recommendation of 6/12/2012 regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters.

The European Commission focuses on automatic exchange of information to be widely applied, per attached reference.  Section B.1, Access to Information, provides: Competent authorities of the third country concerned have the power to obtain and provide information that is the subject of a request under an agreement on exchange of information, from any person within their territorial jurisdiction who is in possession or control of such information.

Best Practice points to consider:

  • Globally consistent process of providing tax information to all tax authorities
  • Coordination of local Business/Regional & Corp. HQ for all transfer pricing responses to tax authorities
  • Educating Business Units re: Ways of Working by tax authorities for a better understanding of global risks
  • Ensuring local Business Units are aware of general transfer pricing methodologies utilized
  • Continual awareness of Business Finance Leaders of transfer pricing risks and exchange of information

 

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Transfer Pricing

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Pre-Audit Best Practice strategies

April 5, 2013

Some examples of Best Practice strategies to strategize for audits, before they begin.

  • Audit defense file for significant transactions and potential risks
  • Transfer pricing documentation; contemporaneous, available within the audit request period, without significant penalties
  • Inter-company Agreements: signed, readily available; does substance of transactions match the form
  •  Tax reserves on statutory financials: review, know how to respond to auditor’s queries
  • Loan agreements, review for arms-length documentation, rationalize different loans with different interest rates
  • Audit notice/telephone call: is there a global communication process for prompt notification and pre-audit planning
  • Change of finance personnel, ensure a seamless transition for audit defense files and documentation
  • Identify the first point of contact for an audit “raid”
  • Who will meet with auditors regularly, company personnel/outside advisors
  • Company information, organization charts, etc.; identify what should and should not be provided
  • Information for other entities/years not under audit; be prepared to react to such queries quickly and consistently
  • Consistency of global methodologies, ensure there is a governance process as tax authorities do exchange information
  • Amnesty provisions; how are you made aware of them, process for review if applicable
  • Annual review of pre-audit Best Practice strategies for awareness and governance

Hope this is helpful, I look forward to your valuable ideas.

 

 

Category:

Audits

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Global risk, a new era: 2011-12 EY survey

April 3, 2013

Great read with interesting ideas; enjoy!

EY 2011-2012_Tax_risk_and_controversy_survey

 

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Tax Risk Management

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S. Africa TP Interpretation Note: Treasury/Tax Alignment

March 31, 2013

SARS Draft Interpretation Note, issued March 22, 2013, describes in Section 7 “Risk Assessment and Selection of Cases for Audit,” concepts for determination of thin capitalization thresholds and an arms-length rate of interest on inbound loans.  The Note is attached for reference.  From a Best Practices approach, I have the following queries:

  • How are Treasury & Tax functions aligned to maximize opportunities for this type of development?
  • How are you timely notified of such developments (i.e. local Business, external advisors, Tax Notes Int’l., etc)
  • Does your company have a stated process re: providing public comment for such guidance?
  •  From a RACI Model perspective, are roles aligned to address this Note?
  • Who determines if proactive debt/equity planning scenarios are reviewed, and relevant timelines?
  • How are the proposed transfer pricing analyses integrated into the transfer pricing documentation framework?

I welcome your input.

83031_LAPDLPrepDraft201310DraftINDeterminationTaxableIncomeInternationalTransactionsThinCapitalisation[1]

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Transfer Pricing

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