Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘European Commission’

EC: Tax Policies in the EU

The European Commission has published a 2018 survey of tax policies.

The “Tax Policies in the EU survey” examines how Member States’ tax systems help to promote investment and employment, how they are working to reduce tax fraud, evasion and avoidance, and how tax systems help to address income inequalities and ensure social fairness.

It substantiates the priorities outlined in the Annual Growth Survey  in the area of taxation and presents in a clear and accessible fashion the most recent reforms in Member States and the main indicators used by the European Commission to analyse tax policies in the context of the European Semester . It also presents reform options to improve efficiency and fairness in tax systems.

New elements of this year’s edition include a summary of important business taxation reforms in third countries, an analysis on taxation as an environmental policy instrument, a focus on the implications of new forms of work for labour taxation, an analysis of the influence of the overall tax mix on progressivity, and an overview of recent EU tax initiatives.

Tables starting at page 111 include EU Member State summaries, including sections re: employer social security contributions, corporate / other income taxes, VAT, environmental related taxes, transaction taxes and other taxes.  The summaries also refer to the actual bill that was enacted for further reference. 

This publication is a valuable summary of tax policies, trends, and tax reforms in 2018.

Click to access tax_policies_survey_2018.pdf

EU exporter: New definition

The European Commission has recently amended the definition of “exporter” for EU purposes.  The new definition allows greater flexibility, although still postulates that non-EU established companies may not act as an EU exporter.

Article 1(19) of the UCC DA now requires a company that wants to act as an “exporter,” to be a person established in the EU customs territory and:

  • Has the power to determine that the goods are to be brought outside the customs territory of the Union

     

    or

  • Is a party to the contract under which goods are to be taken out of that customs territory

In summary, the EU supply chains should be reviewed re: whom is acting as an exporter, as well as how the new rule may simplify such actions.

EY’s Global Tax Alert provides additional details for this important change:

 

Click to access 2018G_010770-18Gbl_Indirect_EC%20amends%20definition%20of%20exporter%20in%20the%20EU.pdf

US developments: US Tax Act

EY’s referenced Global Tax Alert shares Treasury’s position on pending updates, as well as the European Commission (EC) questionnaire being developed for the FDII incentive of the US Tax Act.

The GILTI provision of the Tax Act is admittedly very complex, even more so by the legislation that it is to be computed on a shareholder legal ownership chain basis, vs. consolidated group basis as the transition tax.  This may produce non-intuitive results, and Treasury should provide an update in 4-6 weeks on this point.  However, for purposes of calculating the annual effective tax rate for the first quarter, a taxpayer may need to be ready for calculation on a shareholder and group basis for timely preparation and reporting.

As expected, the European Commission is preparing questionnaires to multinationals to gauge the impact of the FDII.  This particular provision was envisioned as being a driver of opposing international views and analyses.  This provision is important to monitor going forward, as well as not putting reorganization structures in place that cannot be reversed if this provision would be repealed.

Finally, the deemed repatriation transition tax is not expected to change significantly.  However, there is not universal certainty about the ability to deduct pro-rata foreign taxes on a November 2 calculation, vs. Dec. 31, for a foreign corporation.

Click to access 2018G_01028-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2023%20Feb%202018.pdf

EU: VAT proposals

The European Commission (EC) has proposed a new set of rules that is meant to introduce efficiencies into long-standing current practices.

The new principles include:

  • One Stop Shop
  • Destination principle, with VAT on goods collected by the selling State and transferred to the State of destination
  • Charging VAT on cross-border trade
  • “Certified Taxable Person” certification allowing simpler EU principles to apply
  • Quick fixes, including storing goods in another Member State

The EY Global Tax Alert is included for reference, which thereby includes links to the related proposals.

This proposal is significant for all businesses trading in the EU, and its principles should be reviewed to enable proactive planning.

Click to access 2017G_05695-171Gbl_Indirect_EC%20proposes%20far-reaching%20reform%20of%20EU%20VAT%20system.pdf

Intermediary transparency: EU’s wish list

The European Commission has proposed a new Directive calling for additional transparency into cross-border arrangements.  Initially, this proposal has the liability for such reporting borne by the advisor, however it may apparently be also transferred to the taxpayer.  The effective date would be 1//1/2019 with recurring reporting by the EU Member States on a quarterly basis thereafter.

In a common theme when the “transparency’ envelope is opened, the relevant basket of potential transactions is widened from the most aggressive to ordinary tax-planning transactions.  Hopefully, if the Directive is adopted, the Member States will use discretion and ask questions about such transactions prior to drawing intuitive conclusions  and assessing taxpayers before having all facts and transactional history for consideration.

The potential transactions include arrangements:

  • To which a confidentiality clause is attached
  • Where the fee is fixed by reference to the amount of the tax advantage derived or whether a tax advantage is actually derived
  • That involve standardized documentation which does not need to be tailored for implementation
  • Which use losses to reduce tax liability
  • Which convert income into capital or other categories of revenue which are taxed at a lower level
  • Which include circular transactions resulting in the round-tripping of funds
  • Which include deductible cross-border payments which are, for a list of reasons, not fully taxable where received (e.g., recipient is not resident anywhere, zero or low tax rate, full or partial tax exemption, preferential tax regime, hybrid mismatch)
  • Where the same asset is subject to depreciation in more than one jurisdiction
  • Where more than one taxpayer can claim relief from double taxation in respect of the same item of income in different jurisdictions
  • Where there is a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved
  • Which circumvent EU legislation or arrangements on the automatic exchange of information (e.g., by using jurisdictions outside exchange of information arrangements, or types of income or entities not subject to exchange of information)
  • Which do not conform to the “arms’ length principle” or to OECD transfer pricing guidelines
  • Which fall within the scope of the automatic exchange of information on advance cross-border rulings but which are not reported or exchanged

The proposal will be submitted to the European Parliament for consideration; this additional layer of transparent information will also be viewed by other countries as potential tools to uncover similar arrangements.  Several “arrangements” are also highly subjective, leading to additional transfer pricing disputes and increased double taxation.

EY’s Global Tax Alert provides additional details for this important proposal:

http://www.ey.com/gl/en/services/tax/international-tax/alert–european-commission-proposes-new-transparency-rules-for-intermediaries

EU’s Dispute Resolution: Follow the leader

The European Commission issued a significantly important proposal for a Double Taxation Dispute Resolution; it hopes to remain a leader in this ever-changing international tax arena with a mandate for binding arbitration, as applicable, as one of the leading initiatives.  This proposal would require a unanimous adoption by all EU Member States (although UK’s vote may be considered to be of less significance as time moves on, it still counts).

Other proposals of the three-prong package include a renewed focus on the Common Consolidated Corporate Tax Base (CCCTB) and hybrid mismatches with third countries.  The last initiative is interesting, as the EU now seeks to expand its reach with those countries outside the EU.

Although each proposal is significant as a stand-alone initiative, the Dispute Resolution would provide the most benefit at a critical time for a win-win relationship going forward.

EY’s Global Tax Alert provides further details on this initiative for reference.

Click to access 2016G_03538-161Gbl_EC%20announces%20proposal%20on%20double%20taxation%20dispute%20resolution%20mechanisms%20in%20the%20EU.pdf

TEI: European Commission’s VAT Expert Group (re)appointment

As a long-standing advocate of Tax Executive Institute’s (TEI’s) expertise and peer networking for all executive tax members of multinationals, their reappointment as a member of the VAT Expert Group is a sound testament to their advice for the international tax community.

Additionally, TEI’s training programs, and opportunities to be a guest speaker, should be taken advantage of if one has the opportunity.

TEI Appointed as Member to the European Commission’s VAT Expert Group
TEI Staff

On September 30, 2016, the European Commission reappointed TEI as a member of the VAT Expert Group for a three-year term. The VAT Expert Group was established in 2012 for the purpose of “advis[ing] the Commission on the preparation of legislative acts and other policy initiatives in the field of VAT” and “provid[ing] insight concerning the practical implementation of legislative acts and other EU policy initiatives in the field of VAT.” The VAT Expert Group’s next meeting will take place on October 17, 2016 in Brussels.

TEI has participated as a member of the VAT Expert Group since its inception. Allard van Nes will continue to continue to serve as TEI’s primary representative and Lorry G. Limbourg will serve as Mr. van Nes’ alternate. TEI wishes to thank Lynne Clare for her work as the alternate representative during TEI’s prior terms.

EU State Aid: Long term uncertainty

With the recent decision re: Ireland state aid by the European Commission, the litigious stage now commences by Ireland, as the order has been provided to collect the state aid, with interest, from the multinational.

As the relevant rulings were not brought forward for approval upon their commencement by Ireland from the European Commission, the Commission now has the right to consider if such rulings are state aid.

This determination will not probably be final for several years as it progresses through the courts, however it does indicate a further trend of uncertainty re: transfer pricing rulings granted by EU Member States.  Coupled with the intent of BEPS, the legal aspects of transfer pricing may start to sway towards a perceived “intention” for fairness and non-discrimination, with a “fair tax” flag being waved ever more rigorously.

This uncertainty will provide further chaos with new international tax perspectives being displayed in the public domain.

The EY Global Tax Alert is provided for reference.

Click to access 2016G_02659-161Gbl_European%20Commission%20finds%20Ireland%20granted%20illegal%20State%20aid%20and%20orders%20recovery.pdf

EU: CbC marches on

EY’s Global Tax Alert, attached for reference, provides details on the continuing momentum of the country-by-country (CbC) reporting rules in the EU. These rules will certainly be applied by some EU countries in 2016, thus US and other non-EU based multinationals should start to seriously consider options for separate and/or surrogate entity filings in EU and other jurisdictions for the 2016 tax year.

Note, it is likely the continuing transparency momentum will continue and likely to obligate multinationals to more disclosures going forward. Thus, it is imperative the key stakeholders are aligned currently and ongoing.

Global Tax Alert | 25 May 2016
ECOFIN formally adopts directive on country-by-country reporting in the EU
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On 25 May 2016, the Economic and Financial Affairs Council of the European Union (ECOFIN) which is made up of the Finance Ministers of all European Union (EU) Member States unanimously voted in favor of the amendments to the EU directive on exchange of information (the Directive). The revision, that will implement the recommendations of Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 on country-by-country reporting, is one of the elements of the European Commission’s Anti-Tax Avoidance package from January 2016.2 According to the ECOFIN, “the principal aim of the directive is to prevent multinationals from exploiting the technicalities of the tax system, or mismatches between different tax systems, in order to reduce of avoid their tax liabilities.”

The Directive requires multinationals to report information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees on a country-by-country basis. This information must be reported for fiscal years starting on or after 1 January 2016, to the tax authorities of the Member State where the group’s ultimate parent entity (UPE) is tax resident. If the UPE is not resident in the EU, the report would have to be filed through a surrogate parent (EU or non-EU based) or the EU based subsidiaries. The Directive would give Member States the option to either require secondary filing for fiscal years starting on or after 1 January 2016 or to defer that obligation to financial years starting on or after 1 January 2017.

The Member States adopted the amendments without discussion, following the agreement reached at the previous ECOFIN meeting held on 8 March 2016. Thus, the details of the Directive remained virtually unchanged to what had previously been reported.3

Next steps
The Directive will require EU Member States to implement a country-by-country reporting obligation in their national legislation in line with the requirements of the Directive within 12 months from the date of its entry into force.

The first reports will have to be filed within 12 months from the end of the fiscal year to which they relate. Member States will have to exchange them within 3 months thereafter, except for the reports relating to fiscal years starting on or after 1 January 2016 where the term would be 18 months after the end of the fiscal year. The European Commission will adopt the necessary practical arrangements for upgrading the existing common platform for automatic exchange in the EU to fit the needs of the new requirements.

Endnotes

1. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

2. See EY Global Tax Alert, European Commission releases anti-tax avoidance package designed to provide uniform implementation of BEPS measures and minimum standards across Member States, dated 28 January 2016.

3. See EY Global Tax Alert, EU Council publishes updated Draft Directive on implementation of country-by-country reporting, dated 23 March 2016.

EU Anti-Tax Avoidance Directive: Primer

The Anti Tax Avoidance Directive includes six anti-abuse measures to address tax avoidance: interest deductibility, exit taxes, a switch-over clause, general anti-abuse rule (GAAR), controlled foreign company (CFC) rules and a hybrid mismatch framework.  The Directive prescribes a minimum protection for Member States’ corporate tax systems.

A summary of the anti-abuse measures is provided, based upon the European Commission’s presumption and related summary of actions to address such abuses.

Interest

Presumption: Corporate taxpayers incur interest in high-tax jurisdictions, with income reported in low/nil tax jurisdictions, thereby shifting profits.

Summary: Net (of interest income) interest expense is limited to a 10-30% EBITDA basis.

Exit taxes

Presumption: Tax residence is moved solely to benefit from a low-tax jurisdiction.

Summary: Tax on transferring assets cross-border to capture unrealized profits.

Switch-over clause

Presumption: Low-taxed income is moved within the EU to shift profits.

Summary: Foreign income is subject to a tax, with foreign tax credits, vs. an exemption.

General Anti-Abuse Rule (GAAR)

Presumption: Tax planning schemes are abusive.

Summary: Backstop defense rule for “abusive tax arrangements.”

Controlled foreign company (CFC) rules

Presumption: Income is passive and is shifted to low-tax jurisdictions.

Summary: Reattributes income to a parent company that is taxed at a higher rate.

Hybrid mismatch framework:

Presumption: Double deduction situations due to legal mismatches are being sought.

Summary: Legal characteristics of payment country carries over to recipient country.

 

The detailed rules, which require a unanimity of approval by the Member States, are complex and far-reaching.  The breadth of the rules captures the perceived presumptions stated for each measure, notwithstanding the fact that such measures may also produce economically disadvantageous tax situations (i.e. paying interest from a low-tax to a high-tax jurisdiction), and the possibility of a Member State to legislate rules that move beyond the minimum threshold set forth.

These rules are also being legislated unilaterally outside of the EU Market, such that there may be very broad anti-abuse themes globally with each country having deviations from a general rule that will provide complexity and areas of disagreement for many years.

 

 

 

European Commission: Full speed ahead

The European Commission has clearly announced it’s intent to be the global leader in advancing OECD’s BEPS initiatives, with some proposals exceeding the scope / intent of the OECD.

Copies of the following documents are provided for reference, with subsequent posts addressing highlights of significant initiatives.  It is important to distinguish the documents between Proposals for a Council Directive, Communications, Studies and Recommendations.  

  1. Anti Tax Avoidance Package
  2. Proposal for a Council Directive re: tax avoidance practices
  3. Proposal for a Council Directive re: automatic exchange of information
  4. Annex to automatic exchange of information proposal
  5. Communication on an External Strategy for Effective Taxation
  6. Annexes to the external strategy communication
  7. Communication re: Tax Avoidance Package
  8. Study on Structures of Aggressive Tax Planning & Indicators
  9. Recommendation on implementation of measures against tax treaty abuse

The documents are required reading for all international tax practitioners, as they highlight the complex post-BEPS world and the trend indicators for the near future.  We can assume that some of these developments will proceed for action very quickly, thereby imputing a doctrine that “time is of the essence.”

http://ec.europa.eu/taxation_customs/taxation/company_tax/anti_tax_avoidance/index_en.htm

http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=COM:2016:26:FIN&from=EN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

Click to access swd_2016_6_en.pdf

Click to access taxation_paper_61.pdf

Click to access c_2016_271_en.pdf

TFEU: Tool for EU Directives

The European Commission (EC) and European Parliament (EP), including the TAXE Committee on Rulings established by the EP, have recently endorsed many provisions that would normally require the unanimity of approval by the Member States.  Knowing this has not resulted in success with prior initiatives, a renewed focus may be taking place re: Article 116 of the Treaty on the Functioning of the European Union (TFEU) which empowers the EC/EP to issue a Directive accordingly.

Article 116 TFEU:

Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member Sates  is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.

If such consultation does not result in an agreement eliminating the distortion in question, the EP and the EC, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives.  Any other appropriate measures provided for in the Treaties may be adopted.

 

The TFEU is the same legal mechanism used to address State Aid, and may also be the choice of implementation to establish Directives for one or more of the following initiatives:

  • EU Common Corporate Tax Base (CCTB)
  • Country-by-Country (CbC) reporting, public disclosure
  • Tax rulings, (redacted) public disclosure
  • Permanent Establishment (PE) definition
  • Anti-BEPS Directive, transforming OECD “soft law” into an EU legislative framework
  • Interest & Royalty Directive requiring confirmation of EU tax being paid elsewhere
  • EU Dispute Resolution approach

Everyone should monitor the EC, EP and TAXE for continuing developments, as they may form the basis for new global standards to enact the intent of BEPS initiatives.

EU Tax Transparency Package-update/delay

EY’s Global Tax Alert highlights recent developments re: the previously announced Tax Transparency Package initiatives of the EU.  Key observations, and a copy of the Alert, are provided for reference:

Key Observations:

  • Definition of “tax rulings” is too broad for effective implementation by the Member States
  • The 10-year time period for rulings seems excessive and burdensome
  • 1/1/2016 implementation deadline to be extended to 12 months from entry into force of the amending Directive
  • OECD Action items should be considered for relevant integration / coordination
  • European Commission would also receive a copy of the rulings, with a central directory to be developed

EU Council Presidency issues report detailing open questions on proposal for automatic exchange of advance cross-border tax rulings and Advance Pricing Arrangements
Executive summary
On 8 June 2015, the Presidency of the EU Council (Latvia) sent a report (The Report) to the Permanent Representatives Committee and the European Council. The Report sets out the current state, as well as a number of open issues and questions, in regard to the 18 March 2015 proposal for a Council Directive amending Directive 2011/16/EU regarding the mandatory automatic exchange of tax information.

That proposal, focusing on the exchange of advance cross-border tax rulings (ATRs) and Advance Pricing Arrangements (APAs), constitutes a key element of the Tax Transparency Package1 issued on the same date. The Tax Transparency Package further contained a proposal to repeal the Savings Directive as well as a Commission communication outlining a number of other initiatives to advance tax transparency.

Detailed discussion
Under the Tax Transparency Package proposal, Member States will be required to automatically exchange information on their ATRs and APAs, with the Commission proposing a strict timeline whereby every three months all Member States would be obliged to report to all other Member States and the Commission on the rulings they have issued during that period.

This report, sent via a secure email system, would contain a pre-defined, standard set of information. The recipient Member States would also have the right to request more detailed information on any of the documented rulings, where the information is relevant to the administration of the tax laws of the Member State. Each year, Member States would have to provide statistics to the Commission on the volume of information exchange on tax rulings.

In addition to this quarterly exchange of information, the proposal also refers to a retroactive application of ten years, whereby the above obligation is extended to rulings issued during the ten years prior to the date on which the proposed Directive takes effect, where such rulings are still valid on the date of entry into force of the Directive.

The instrument under which all such exchange would occur is Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation (DAC).

Open questions and issues detailed in the Report
The Report details that four meetings of the Working Party on Tax Questions have taken place (31 March, 30 April, 21 May and 9 June 2015) since the Tax Transparency Package was published, with the proposals being discussed in detail at each meeting. The Report further sets out a number of open issues and questions raised at those meetings. In the Report, the Presidency asks the Council to discuss these questions, in order to move the proposals forward, and to help the incoming Presidency to draft a compromise text for the DAC that could eventually be tabled for the political agreement of the Council in the autumn of 2015.

Scope and timing of exchange of information
In regard to the scope of definitions of ATRs and APAs, the Report noted that the definitions proposed by the Commission are too broad for a number of Member States. While the objective of the Tax Transparency Package is to cover as wide a scope of ATRs and APAs as possible, some Member States raised concerns that too much room for interpretation (by introducing a distinction between binding and non-binding rulings, for example) would create uncertainty. The Presidency therefore deemed it appropriate, to narrow the scope to ATRs and APAs which are issued to specific taxpayers or groups of taxpayers, with the effect of exempting from automatic exchange the commentaries of tax laws of a general nature.

In terms of the proposal to require the exchange of ten years of ATRs and APAs, the report notes that many Member States believe that this requirement goes beyond what is reasonably required for reasonable tax transparency purposes, as well as creating an overly voluminous administrative burden. The report makes no reference to what time period may be more acceptable to those Member States.

On the starting date of the exchange of new rulings, many Member States argue that at least 12 months would be required to transpose any new rules into national legislation. Therefore, the Presidency deemed it appropriate to bind the starting date of mandatory exchange of information (which was originally set to be 1 January 2016) with the transposition deadline, which would be 12 months from entry into force of the new amending Directive.

Taking OECD work into account

The Report states that a number of Member States have expressed that further work on a Presidency compromise should take into account work conducted at the Organisation for Economic Co-operation and Development (OECD) level, specifically within Action 5 of the Base Erosion and Profit Shifting (BEPS) project and at the Forum on Harmful Tax Practices (FHTP). Action 5 of the BEPS Action Plan calls for a framework for compulsory spontaneous information exchange on rulings to member and associate countries’ preferential regimes, with a view to starting to apply the framework following the FHTP’s Autumn 2015 meeting. The Report further notes that the OECD work currently seems to cover a narrower scope of ATRs and APAs than proposed by the Commission’s proposals. This, in turn, leads the Presidency to aim at an agreement within the EU of a higher standard, in order not to undermine the objectives of the Commission proposal. In that regard, the Report notes that the standard form developed by the FHTP for rulings exchanged could also potentially be used for the automatic exchange of information within the EU, as well as providing inspiration around the potential ”retroactivity” date used.

Exemption of bilateral and multilateral APAs with third countries
The Report notes that while all Member States support that APAs should fall under the scope of mandatory automatic exchange of information, a number of delegations believe it is important in certain cases to exclude from the proposed Directive the information exchanged with third countries, where such an APA was agreed to before the entry into force of the revised DAC.

Specifically, the Report notes that:

However, a number of delegations believe it is important, for reasons of legal certainty and under a set of very strict conditions, to exclude from the proposed Directive the information exchanged with third countries when agreeing to bilateral or multilateral APAs with third countries, which have been agreed to before the entry into force of this Directive, under existing international treaties, where those treaties foresee stricter confidentiality standards than would be provided for in Directive 2011/16/EC, once this legislative proposal on automatic exchange of ATRs and APAs has been adopted.

Role of the Commission in the new mechanism
The Report closes with a series of main features with regard to the Commission’s central role in the new rulings exchange mechanism. These include:

The initial information on the ATRs and APAs being communicated not only to other Member States, but also to the Commission
That the Commission would have to develop a central directory, where the information exchanged would be stored and the Commission would have access to all data
That the Commission would, by way of the “comitology”2 procedure, develop a standard form and all other measures and practical arrangements that are required for the first stage of the automatic exchange of information.
Implications
The series of open issues and questions raised at the four successive meetings of the European Commission’s Working Party on Tax Questions reflects the sensitive nature of the issue of tax rulings in Europe. With much debate and discussion due in the coming months in advance of a compromise text for the DAC, the business community should make all efforts to closely monitor developments.

Endnotes
1. See EY Global Tax Alert, European Commission presents a package of tax transparency measures, dated 19 March 2015.

2. Comitology is the process by which EU law is modified or adjusted and takes place within Comitology Committees chaired by the European Commission.

EYG no. CM5538

This is an important development, as the European Commissions’s aggressive timetable and efforts to tackle tax abuse are ameliorated by practical and relevant concerns of practicality and usefulness.  

European Commission’s new Action Plan

My prior post of 30 May 2015 revealed that the European Commission would be developing a new Action Plan, the contents of which are hereby revealed.

The objectives of the new Action Plan are:

  1. Re-establish the link between taxation and where economic activity takes place
  2. Ensuring that Member States can correctly value corporate activity in their jurisdiction
  3. Creating a competitive and growth-friendly EU tax environment
  4. Protecting the Single Market and securing a strong EU approach to external corporate tax issues, including BEPS measures, to deal with non-cooperative tax jurisdictions and to increase tax transparency

The new Action Plan is provided for reference:

Click to access com_2015_302_en.pdf

5 Key Action Areas:

  1. Mandatory Common Consolidated Corporate Tax Base (CCCTB), with the consolidation component included as a second step.
  2. Taxation of profits where they are generated (“However, it is clear that the current transfer pricing system no longer works effectively in the modern economy.”)
  3. Enhance the EU’s tax environment via cross-border loss offset and improving double taxation dispute resolution mechanisms.
  4. Increased tax transparency via an EU-wide list of third country non-cooperative tax jurisdictions and assessing whether additional disclosure obligations of certain tax information should be introduced.
  5. Providing EU Coordination Tools to improve Member States’ tax audit coordination and reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance.

The European Commission’s Action Plan clearly reveals a large step away from the traditional arm’s-length transfer pricing principle and toward an economic activity based source of taxation.  This clear divergence, with the OECD and established legislation in most countries, sets the stage for a new evolution in transfer pricing and a hybrid of different approaches by various jurisdictions in the next several years.

Accordingly, the Action Plan is required reading to appreciate short and long-term objectives of the European Commission to unify the Member States.

Tax reputation / transparency survey: 2014-15

EY’s publication discussing tax reputation readiness and transparency provides suggestions for increasing readiness with good processes, robust documentation/audit trail and class-leading data management.  The publication is very timely, noting the recent European Parliament’s unanimous vote for public reporting of country-by-country (CbC) and beneficial ownership information.

Click to access ey-managing-tax-transparency-and-reputation-risk.pdf

Key points:

  • More than 60% of companies believe that engaging with the media is a “no-win” situation.
  • Excellent timeline/events of transparency initiatives commencing from 2003 until present, and future, state.
  • 65% of respondents have developed a more structured approach to managing their public tax profile in the previous 2 years.
  • 94% of respondents expect increased growth in global disclosure and transparency initiatives.
  • “Business can do more and be more proactive to prepare for new reporting obligations and, as one proposed step, either proactively or defensively,  Whatever choices a business makes, developing and sustaining the ability to source accurate data, in the right format and in a timely manner will be a critical factor for all large businesses in the years ahead.”
  • Multiple transparency initiatives are succinctly depicted in a table on page 9.
  • Transparency will be the new normal.
  • Quality information requires quality data.
  • Transparency readiness is a significant and underestimated need of companies.
  • Transparency readiness assessment questions are posed for consideration.
  • Detecting risk anomalies in the data is an important consideration; thoughtful questions are posed for review.
  • Companies that can quickly and clearly explain their tax transactions and strategies are best positioned to manage reputation risks.
  • Six proactive actions to consider:
    • Actively monitor the changing landscape
    • Assess readiness, and desire, to respond
    • Enhance communication with internal and external stakeholders
    • Develop steps to prepare the total tax picture
    • Decide with whom the company wishes to communicate
    • Embed reputation risk thinking into core business strategy

This survey provides an excellent approach and proactive roadmap in addressing the challenges, readiness and complex actions required to develop transparency readiness and engage reputation risk proactively.  Accordingly, this should be required reading for all MNE’s as a primer and self test mechanism to address the new era of international tax transparency and potential angles of attack for reputation risk.

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