Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘anti-abuse rule’

OECD Tax Inspectors Without Borders (TIWB): Update

The OECD’s TIWB program’s trial phase ended in December, 2014, with a launch scheduled in 2015, subsequent to a review process.  (Refer to the 9 June, 2013 post).

The TIWB’s objective is to enable sharing of tax audit knowledge and skills with tax administrators in developing countries through a targeted, real-time “learning by doing” approach.  The program encompasses transfer pricing, thin capitalization, APA’s, anti-avoidance rules, pre-audit risk / case selection, and VAT, although customs is excluded. Links to the program summary and the Toolkit (published in Nov. 2014) are included for reference:

http://www.oecd.org/tax/taxinspectors.htm

Click to access tax-inspectors-without-borders-toolkit.pdf

The Toolkit details the role of a TIWB Secretariat as a Facilitator, and roles and responsibilities of the parties to this shared arrangement.  Eligible individuals must meet a 5-year minimum audit experience requirement, and they can be currently working or recently retired.  Most importantly, the Toolkit addresses legal liability considerations and confidentiality restrictions during, and after, their assistance. T

his initiative should be monitored closely, as there do not seem to be prescribed transparency rules for the company under audit.  Therefore, a question for the opening audit could be an inquiry as to the tax administration’s expectations for outside expert assistance from TIWB.  Additionally, an expert with limited experience, coupled with the lack of familiarity with subjective jurisdictional rules for GAAR assessments, for example, may place additional burdens on an expert and the host country in assessing inherently complex rules.

This initiative has a strong likelihood for implementation that further reinforces the OECD’s intent to provide additional guidance for developing countries as complex BEPS Actions are implemented on a domestic level.  Accordingly, it is imperative to review the Toolkit for current familiarity with this program and follow its developments in the near future.

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OECD / UN

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EU Parent-Sub Directive: Anti-abuse proposal

A anti-abuse rule has been proposed by the EU Economic and Financial Affairs Council for inclusion in the EU Parent-Subsidiary Directive (PSD), following implementation of hybrid mismatch rules as summarized in my post of 24 June 2014.  The proposal would be required to legislated into law by 31 December 2015, in addition to the earlier hybrid loan rules.

A copy of the communique is attached for reference:

http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2016435%202014%20INIT

Key observations:
Annex I contains the following language (highlights added for emphasis) for the proposed anti-abuse rule:

Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. 3. For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. 4. This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.”

Annex II provides further reference stating that EU Member States  will endeavor to inform each other, and additionally that an anti-abuse provision will be considered in future work addressing the EU Interest and Royalties Directive 2003/49/EC.

This proposal should be closely followed, as it will directly affect transactions between EU Member States.  Additionally, this initiative will be followed by other countries in drafting domestic and/or treaty anti-abuse/anti-avoidance rules, possibly resulting in a multi-pronged approach of anti-avoidance / anti-abuse rules in Directives, treaties and domestic legislation.

The subjectivity of this rule will increase complexity, reduce clarity and certainty while being subject to further appeals contesting implementation and/or interpretation of the guidelines, including the “main purpose” test.

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OECD / UN

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Parent Sub Directive: EU Anti abuse proposals

European Commission tackles tax avoidance: tightening key EU corporate tax legislation

http://europa.eu/rapid/press-release_AGENDA-13-40_en.htm

On 25 November, the European Commission will adopt a proposal to amend the Parent Subsidiary Directive (2011/96/EU) in order to close off opportunities for corporate tax avoidance. The Parent Subsidiary Directive was originally conceived to prevent the double taxation of same-group companies based in different Member States. However, loopholes in the Directive have been exploited by some companies to avoid paying any taxes at all. The proposal aims to close these loopholes. First, it will introduce a common anti-abuse rule into the Directive. This will allow Member States to ignore artificial arrangements used for tax avoidance purposes and to tax on the basis of real economic substance. Second, it will ensure that the Directive is tightened up so that specific tax planning arrangements are no longer eligible for the tax exemptions provided under the Directive.

The background:

The issue of corporate tax avoidance is very high in the political agenda of many EU and non-EU countries, and the need for action to combat it has been highlighted at recent G20 and G8 meetings.

One of the key problems to be addressed is that of double non-taxation i.e. where loopholes in national tax systems are exploited by companies to pay no tax at all. Double non-taxation deprives Member States of significant revenues and creates unfair competition between businesses in the Single Market. Tackling this problem requires urgent and coordinated action at EU level.

On 6 December 2012 the Commission presented an Action Plan for a more effective EU response to tax evasion and avoidance. This action set out a comprehensive set of measures, to help Member States protect their tax bases and recapture billions of euros legitimately due (IP/12/1325). The revision of the Parent Subsidiary Directive is one of the measures announced in the action plan.

The event:

Algirdas Šemeta, the European Commissioner for Taxation, Customs, Anti-Fraud, Statistics and Audit will present the proposal at the midday briefing in the Commission’s press room. Press materials will be available on the day.

  1.  Available on EbS

The sources:

Information on fight against tax fraud and evasion:

http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm

Information on Commissioner Šemeta:

http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm

This important proposal should be monitored by all multinationals re: potential impacts upon current or future planning and relevant documentation.

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OECD / UN

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