The concepts of Common Corporate Tax Base (CCTB) and Common Consolidated Corporate Tax Base (CCCTB) once again emerge as a perceived solution to tax the Member States via a “digital presence” and commonality in computing tax liabilities of the EU Member States.
These proposals have emerged in prior years, now with a digital presence emphasis, although such measures have required a unanimous vote which is difficult to achieve. However, this trend is always worth watching as the public perception may help to sway those countries that strive to protect their sovereignty over taxation.
The Council of the European Union (ECOFIN) has published its list of uncooperative tax jurisdictions, numbering 17:
American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates
The listing criteria are focused on three main categories: tax transparency, fair taxation and implementation of anti-BEPS measures.
There are potential counter-measures that could be employed by other jurisdictions, and there is the possibility of other countries aligning such countries on a comparable list. This list will be reviewed annually, thereby expanding or diminishing accordingly.
EY’s Global Tax Alert provides historical context for development of this list.
The UK EU exit bill has been introduced in Parliament, paving the way for suggested interpretations of:
- Existing EU law
- Loss of EU Directives
- New customs regime
- Transitional EU VAT case law
- Social security contributions/benefits
- Corporation tax impact of UK vs. EU law/Directives
- Employee mobility
- Employment law
This document portrays a glimpse into the thoughts behind the complex and myriad evolutions that will take place with the Brexit negotiations. Tax, supply chains, individual changes, VAT, etc. and related unknown implications are still to be discovered; the EY Global Tax Alert provides a primer into the brave new world of a country exiting the EU. Note, this is also a valuable reference for other countries considering this option.
On May 29. 2017 the EU Council adopted the Anti-Tax Avoidance Directive (ATAD), to be effective by 1/1/2020 between EU and the rest of world for hybrid mismatch arrangements. This Directive is known as ATAD-2 and follows the intent of BEPS Action 2, hybrid mismatch arrangements.
ATAD 2 expands the scope to address hybrid permanent establishment (PE) mismatches, hybrid transfers, imported mismatches, reverse hybrid mismatches and dual resident mismatches.
EY’s Global Tax Alert provides additional details; all hybrid mismatch arrangements will be of limited use going forward to the extent they are included in these new rules.
Members of the European Parliament (MEPs) have put forth additional recommended disclosures and requirements for the Accounting Directive of public Country-by-Country (CbC) reporting, prior to enactment of the original proposal.
The Accounting Directive allows a simple majority for passage, and involves additional complexities and cost as the OECD model is now just a starting point for new information.
The Parliament would also like to extend the proposal to include the following information in company reports:
- The geographical location of the activities
- The number of employees employed on a full-time equivalent basis
- The value of assets and annual cost of maintaining those assets
- Sales and purchases
- The value of investments broken down by tax jurisdiction
- The amount of the net turnover, including a distinction between the turnover made with related parties and the turnover made with unrelated parties
- Stated capital
- Tangible assets other than cash or cash equivalents
- Public subsidies received
- The list of subsidiaries operating in each tax jurisdiction both inside and outside the EU and data for those subsidiaries corresponding to the data requirements on the parent undertaking
- All payments made to governments on an annual basis as defined in the Directive, including production entitlements, income taxes, royalties and dividends
- The report shall not only be published on the website of the company in at least one of the official languages of the EU, but the undertaking shall also file the report in a public registry managed by the Commission
EY’s Global Tax Alert, referenced herein, provides the relevant details, although it appears the CbC report is not being construed as one tool for total transfer pricing assessment, but a public tool to determine one’s fair share of tax irrespective of the legal laws and limitations in each country.
An alternative approach would be to design a standard (transfer pricing) audit template for the tax authorities that would include some, or all, of the above factors to the extent deemed important to assess a company’s tax liability in that relevant jurisdiction. However, this non-public and Best Practice audit tool is not the focus in this post-BEPS world, to date.
The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.
OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.
Belgium: New innovation deduction covering patent and other IP rights.
EU: Proposal for hybrid mismatch rules with non-EU countries
Norway: Adoption and regulations for CbC reporting
UK: Interest limitation rules, among other provisions
US: CbC Form 8975 released
From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.