Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘BEPS Actions’

China – Tax risks re: outbound payments

The State Administration of Taxation (SAT) has focused its risk determinations for outbound payments.  Supplementing this focus, the State Tax Bureau of Zhejiang Province (Zhejiang STB) recently issued its Guideline for Administration of Tax Risks on Outbound Payments to Overseas Related Parties.

PwC’s Business Advisory provides details of this new focus on tax risk:

Click to access 635731620115472907_chinatax_news_jul2015_33.pdf

Key observations:

  • Incentivized by BEPS Acton Plans, and local tax practices
  • Six tests for profit shifting/base erosion:
    • Authenticity
    • Necessity
    • Benefit
    • Value creation
    • Duplication
    • Remuneration
  • Required relevant information  during record-filing for outbound payments

The timeliness of providing contemporaneous transfer pricing documentation, subjective tests for assessment of benefit / value for intercompany services, varying interpretations of internal guidance and lengthy appeal processes are becoming more common, evidenced by this recent focus by China and followed in many other jurisdictions.

The additional focus has introduced additional uncertainty, as well as less consistency, in jurisdictions around the world.  However, the concept of simultaneous corresponding adjustments are generally not addressed in such initiatives, thereby increasing the level of double taxation for MNE’s.

A Best Practice approach will require additional resources focused upon such efforts, as the probability of double taxation increases exponentially.

 

Category:

Tax Risk Management, Transfer Pricing

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Reputation Risk: Insights

A recent Accounting Today article cites the uneasiness of corporate tax leaders re: reputation risk.

Excerpts from the article:

  • The company’s tax policy and principles are being enhanced with greater detail for clarity and transparency
  • Communication of tax strategies to the Board is becoming a primary focus
  • Tax controversy alignment with the Board is being communicated more frequently
  • Increased objective to develop more co-operative working relationships with tax authorities
  • Tax risk is an integral part of decision-making

A link to the article is attached for reference:

http://www.accountingtoday.com/blogs/debits-credits/news/corporate-tax-pros-concerned-about-reputations-74589-1.html

As BEPS Actions are currently being transformed into final Guidelines, the subject of reputation risk would be a worthy topic of focus in the interim to be prepared for an uncertain, complex and disparate trend in the world of international tax.

Category:

Tax Risk Management

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BEPS Timing: Mismatch

The Dec. 2016 completion date for BEPS Action 15, Multilateral Instrument (refer to 11 Feb. post) and the completion of the remaining 15 Actions by the end of 2015 is a clear mismatch between issuance of guidelines and an efficient process for implementation.

The multilateral instrument is not projected to be available until the end of 2016, with subsequent enactment by countries in 2017, 2018 or later years.  As a result, countries will need infinite patience to wait for final guidelines, and the corresponding multilateral instrument, without enacting unilateral legislation that may be non-conforming and subject to different interpretations.  Therefore, the result will be increased complexity with more diversity in transfer pricing practices, different interpretations of the arm’s length principle and additional risks of double taxation.

As the pace of BEPS enactment and increased interest by all parties accelerates, it is hopeful that countries will be coordinated in this game of patience to address a new era of transfer pricing interpretation and documentation.  MNE’s should therefore prepare for maximum flexibility to anticipate this divergence.

Category:

OECD / UN

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