Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘country by country reporting’

Canada’s BEPS initiative, with Treaty Shopping: 2014 Federal Budget

Details of Canada’s initiative to develop its own Base Erosion and Profit Shifting (BEPS) action plan are outlined in its 2014 Federal Budget, with a link to KPMG’s comments on the Budget referenced herein.

Click to access tnfc1408.pdf

Highlights of the tax initiatives include proposals to expand existing anti-avoidance rules for thin capitalization, and a back-to-back loan provision.  Additionally, the Budget has requested comments, by June 2014, to the following questions for a framework to develop its own BEPS Action Plan:

  • What are the impacts of international tax planning by multinationals on other participants in the Canadian economy?
  • Which of the international corporate income and sales tax issues identified in the OECD BEPS Action Plan should be considered the highest priorities for examination and potential action by the government?
  • Are there other corporate income tax or sales tax issues related to improving international tax integrity that should be of concern to the government?
  • What considerations should guide the government in determining the appropriate approach to take in responding to the issues identified?
  • Would concerns about maintaining Canada’s competitive tax system are alleviated by coordinated multilateral implementation of base protection measures?
  • What actions should  the government take to ensure the effective collection of sales tax on e-commerce sales to Canadian residents by foreign vendors?

The Budget also addressed the treaty shopping consultation paper released in August 2013, which TEI provided comments thereto (refer to 14 January 2014 post).  The government’s position is that  a domestic law re: treaty shopping is preferable to a treaty-based approach.  This proposed rule would be included in Canada’s Income Tax Convention Interpretation Act, thus applicable to all of Canada’s treaties.  Comments on this position are to be submitted within 60 days.  General provisions of this rule are summarized for reference, with a separate link provided for KPMG’s Submission on Canada’s Consultation on Treaty Shopping in December 2013 :

Click to access kpmg-submission-to-treaty-shopping-consultation.pdf

  • The domestic treaty-shopping rule is a “general purpose” provision, versus a “limitation on benefits” approach.
  • A tax treaty benefit is denied for relevant treaty income if it is reasonable to conclude that one of the main purposes for undertaking a transaction, or a transaction that is part of a series of transactions or events, that results in the benefit was for the person to obtain such benefit.
  • It relies on the conduit presumption for tax treaty benefits, absent proof to the contrary.  Safe harbour presumptions are provided for this test.

With the OECD working aggressively to finish the BEPS Action Plan items timely, including the recent draft of a Country-by-Country Reporting template for comment, it is hoped that new international principles and documentation standards being developed are not adopted earlier, and unilaterally, by countries each changing such rules based on its sole interpretation and discretion, which later are effected into local legislation.

Most importantly, multinationals and other interested parties should monitor BEPS related provisions in countries proposing separate legislation, in addition to that proposed by the OECD.  To the extent the OECD’s principles differ from separate country legislation, international tax challenges will significantly increase, with additional likelihood of double taxation.

Category:

Transfer Pricing

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OECD Discussion Draft: TP Documentation & Country-by-Country Reporting

OECD has just published their Discussion Draft on Transfer Pricing Documentation and Country-by-Country reporting, with comments due by 23 February.  A reference to the Draft is hereby provided:

Click to access discussion-draft-transfer-pricing-documentation.pdf

The Discussion Draft raises many questions and scenarios open to comment, with a very limited time frame in which to remit such comments.  All multinationals and interested parties should prioritize a review of this document and consider submitting comments, as it will be a cornerstone for additional reporting and documentation in the near future.

Category:

Transfer Pricing

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Tax transparency & Country reporting: PwC briefing

The timely and comprehensive PwC update is insightful into the various aspects of the transparency and country-by-country reporting initiatives.  Selected topics include:

  • Extractive Industries Transparency Initiative (EITI)
  • Dodd-Frank Wall Street Reform and Consumer Protection Act
  • EU Directives on Accounting and Transparency
  • EU Capital Requirements Directive (CRD IV)
  • Appendices re: country-by-country reporting information requirements, EITI reporting framework, EU Accounting and Transparency Directive requirements, and EU Capital Requirements Directive IV.

Click to access pwc_tax_transparency_and-country_by_country_reporting.pdf

This guide is a valuable overview of the multiple initiatives re: transparency and country-by-country reporting.  Tax executives should use this guide in developing a conceptual tax framework for providing summary/detailed data, developing a relevant methodology for capturing such information and providing supplemental information that may be beneficial.

 

Category:

Tax Risk Management

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OECD Memorandum on TP Documentation & Country-by-Country Reporting

The OECD has provided a discussion memorandum in advance of its 12-13 November public consultation on the Revised Discussion Draft on Transfer Pricing Aspects of Intangibles and the White Paper on Transfer Pricing Documentation.  The memorandum presents questions for discussion in addressing implementation issues of a country-by-country reporting template.  A summary of the memorandum is provided, with a link for reference:

Click to access memorandum-transfer-pricing-documentation-and-country-by-country-reporting.pdf

The memorandum outlines two questions, with alternatives provided for each:

What information should be required?

A. The most critical item will be a report of income earned in a country, with the following approaches outlined.

  • Net income before tax for each legal entity
  • Taxable income per tax returns
  • Accounting segment reporting rules
  • Internal consolidating income statements
  • Other

B. Taxes paid by country

  • Cash or accrual basis
  • National vs. local income taxes
  • Non-income taxes

C. Measures of economic activity

  • Revenues by customer location
  • Tangible assets by location
  • Employees / payroll
  • Research expenditures by company/country
  • Marketing expenditures by company /country
  • Location of intangibles by country
  • Location of senior management (e.g. 25-50 most highly compensated employees of group)
  • Other

An interesting comment is also provided for insight: “A key question is whether such reporting will provide any meaningful guidance for risk assessment purposes about the location of real economic activity.”  It is noted that the emphasis seems to focus on economic activity, with little mention of transfer pricing functions, assets, or risks.

What mechanisms should be developed for reporting or sharing country-by-country data?

  • Template completed by parent company and shared  via treaty exchange of information mechanisms
  • Exclusion of information to countries where adequate provisions do not exist to protect confidentiality
  • Template inclusion in global master file to every country in which there is an affiliate subject to tax
  • Other

These developments provide valuable insight into the future trend of transfer pricing documentation that will provide numerous challenges for every multinational.

 

 

 

 

Category:

OECD / UN

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