Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘European Commission’

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.

Category:

Tax Risk Management

Tagged with:

European Parliament 24-0 vote for public disclosure: CbC & Beneficial Ownership

The European Parliament recently voted unanimously for public disclosure rules to fight tax evasion, tax avoidance and establishing fair, well-balanced, efficient and transparent tax systems.  A copy of the press release is provided for reference:

http://www.europarl.europa.eu/news/en/news-room/content/20150601IPR61336/html/Development-MEPs-call-for-action-to-target-tax-evasion-in-developing-countries

Summary:

  • All countries to adopt country-by-country (CbC) reporting, with all information available to the public
  • Beneficial ownership information to be made publicly available
  • Call for coordination to combat tax evasion and avoidance by the European Investment Bank, European Bank for Reconstruction and Development and EU financial institutions.
  • Request to the Commission for an ambitious action plan, without delay

The outcry for public reporting, currently underway by the OECD, European Parliament and European Commission is increasing exponentially within Europe.  Other countries will obviously follow the EU approach, with perceptions of complicated international tax rules increasing disparity between application of the transfer pricing arm’s length principle.

The CbC reporting, and beneficial ownership detail, should be expected to be in the public domain if this trend continues.  Currently, it is a sign of an incoming tsunami that cannot be completely avoided.

 

Category:

OECD / UN, Transfer Pricing

Tagged with:

European Commission: New Action Plan

The European Commission, in its meeting on 27 May 2015, determined that a new Action Plan is needed to address tax abuse and ensure sustainable fisc growth by the Member States.  This follows its proposals on the Tax Transparency Package, including automatic exchange of tax rulings, possible public tax disclosure, and a review of the Code of Conduct.

The new Action Plan will look at integrating BEPS actions within the EU, review the digitalized economy, relaunching the Common Consolidated Corporate Tax Base (CCCTB) initiative and further rules for increased transparency.

The KPMG Euro Tax Flash provides a summary of the new proposals.

Click to access etf-249.pdf

It is noteworthy that the EU is proceeding on designed actions in anticipation of, and subsequent to, BEPS actions for the EU Member States.  These actions may form a new set of rules similar to, as well as disparate from, the new OECD Guidelines and the rest of the world.  Other countries will be following these initiatives for similar adoption at a unilateral level, thereby providing a complex multi-layering of anti-abuse rules, transparency initiatives, and tax bases.

The answers to the struggle for fostering a better business environment in the EU market may be much different from an EU and rest of world perspective.

Category:

OECD / UN

Tagged with:

European Commission: Transparency blueprint

Commissioner Moscovici’s recent speech addressing the future of tax policy aims at developing an ambitious blueprint for taxation in Europe.  A link to his speech is provided for reference:

http://europa.eu/rapid/press-release_SPEECH-15-4900_en.htm

Key comments:

  • Enhanced EU transparency in tax matters
  • Coordination of Member States tax systems
  • Cooperation between Member States, exemplified by EU Tax Transparency Package initiative (refer to 22 March 2015 post)
  • Full transparency cost/benefit assessment re: Country-by-Country reporting for public disclosure
  • New Action plan before summer (an issue that is fundamental to the EU) building on global developments
  • Assess relaunch of Common Consolidated Corporate tax base (CCCTB)

The European Commission is accelerating its efforts, resulting in a potentially different documentation framework than the OECD Guidelines may suggest and/or a basis that the rest of world will follow.  The Commission has the necessary momentum and political cohesiveness to achieve its efforts for the EU, although with a possible demarcation with the rest of the world.

CbC reporting by MNE’s continues its actions on center stage as MNE’s should plan for (if they have not already) public disclosure of such reporting.  Thereby, the topics of supplemental reporting (i.e. indirect tax contributions, etc.) become more important for senior leaders to consider.  Finally, such disclosure warrants a seamless governance process and alignment for addressing future questions by interested parties.

Category:

Transfer Pricing

Tagged with:

European Commission’s Tax Transparency Package: new era

The European Commission published a package of tax transparency measures on 18 March 2015.  The press release and other documents, linked herein for reference, include a tax transparency communication, Council Directive re: automatic exchange of information and Q and A’s of the comprehensive package. Significant initiatives are included in this package addressing corporate tax avoidance and harmful tax competition in the EU, key components of which are highlighted. http://europa.eu/rapid/press-release_IP-15-4610_en.htm http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transparency/com_2015_136_en.pdf http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transparency/com_2015_135_en.pdf http://europa.eu/rapid/press-release_MEMO-15-4609_en.htm Press release:

  • The concepts of tax evasion, corporate tax avoidance, “pay their fair share,” aggressive tax planning and abusive tax practices are summarily stated, although corollary concepts for avoidance of double taxation and effective dispute resolution are noticeably absent.
  • Tax rulings will be automatically exchanged every 3 months.
  • Feasibility of public disclosure of certain tax information of MNE’s will be examined.
  • The EU Code of Conduct on Business Taxation will be reviewed to ensure fair and transparent tax competition within the EU.
  • The Savings Tax Directive is proposed to be repealed to provide efficiencies and eliminate redundant legislation in the Administration Cooperation Directive.
  • Next steps: The tax rulings proposal  will be submitted to the European Parliament for consultation and to the Council for adoption, noting that Member States should agree on this proposal by the end of 2015, to enter into force 1/1/2016.
  • Common Consolidated Corporate Tax Base (CCCTB) proposal will be re-launched later this year.

Tax Transparency proposal:

  • Existing legislative framework for information exchange will be used to exchange cross-border tax rulings between EU tax authorities.
  • The Commission will develop a cost/benefit analysis for additional public disclosure of certain tax information.
  • The tax gap quantification will be explored to derive more accuracy.
  • The global automatic exchange of information for tax rulings will be promoted by the EU.

Council Directive (amending Directive 2011/16/EU) re: automatic exchange of information:

  • Mandatory automatic exchange of basic information about advance cross-border rulings and advance pricing agreements (APAs).
  • Article I definition of “advance cross-border ruling:
    • any agreement, communication, or any other instrument or action with similar effects, including one issued in the context of a tax audit, which:
      • is given by, or on behalf of, the government or the tax authority of a Member State, or any territorial or administrative subdivisions thereof, to any person;
      • concerns the interpretation or application of a legal or administrative provision concerning the administration or enforcement of national laws relating to taxes of the Member State, or its territorial or administrative subdivisions;
      • relates to a cross-border transaction or to the question of whether or not activities carried on by a legal person int he other Member Sate create a permanent establishment, and;
      • is made in advance of the transactions or of the activities in the other Member State potentially creating a permanent establishment or of the filing of a tax return covering the period in which the transaction or series of transactions or activities took place.
  • Automatic exchange proposal is extended to valid rulings issued in the 10 years prior to the effective date of the proposed Directive (Article 8a(2)).
  • In addition to basic information exchanged, Article 5 of the Directive should provide relevant authority for the full text of rulings, upon request.
  • EU central repository to be established for submission of information by Member States.
  • Confidentiality provisions should be amended to reflect the exchange of advance cross-border rulings and APAs.

Q and A’s:

  • Corporate tax avoidance, as explained, undermines the principle that taxation should reflect where the economic activity occurs.
  • Standard/template information for the quarterly exchange of information includes:
    • Name of taxpayer and group
    • Issues addressed 
    • Criteria used to determine an APA
    • Identification of Member States most likely to be affected
    • Identification of any other taxpayer likely to be affected
  • Commission could open an infringement procedure for Member States not following the disclosure obligations.
  • Domestic tax rulings are exempt.
  • The EU could be a global standard setter of tax transparency.
  • The EU Code of Conduct criteria are no longer adequate, and it lacks a strong enough mandate to act against harmful tax regimes.

The EU Tax Transparency Package is required reading for all MNE’s and other interested parties, as it is an ambitious effort to provide globally consistent procedures for the exchange of tax rulings/APAs. Additionally, it is interesting to note the EU’s aggressive actions and timing in its efforts to align, as well as expand, the OECD’s efforts to address BEPS Action Items.  These actions are also intended to be a standard for global setting in the new era of international tax transparency.     As a Best Practice, the 10-year look-back provision for rulings implies that MNE’s should have a similar central database for prior, and future, cross-border rulings.  Additionally, this automatic exchange is another element of consideration prior to formally requesting a tax ruling.    

Category:

OECD / UN, PE, Tax Risk Management, Transfer Pricing

Tagged with:

EU TP Forum: Ready, set, go

The European Commission has formally established the EU Joint Transfer Pricing Forum expert group, based on the press release of 26/01/2015.  The Forum will be composed of transfer pricing experts that will discuss TP problems, advise the Commission on TP issues and assist the Commission in finding practical solutions.

Members will consist of Member States’ tax administrations and 18 organisations, for which guidelines for application are also attached for reference.  The names of the organizations will be published.  Rules for observer status are also set forth.  The Commission will publish all relevant documents such as agendas, minutes and participants’ submissions.  The Decision is applicable until 31 March 2019.

The definition of organisations is stated as: “Companies, associations, NGO’s, trade unions, universities, research institutes, Union agencies, Union bodies and international organisations.”  Application are to be submitted by 25 February 2015.

Click to access decision_c(2015)247_en.pdf

Click to access call_applications_2015_en.pdf

Further work on the work of the Forum may be accessed at:

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

This development should be closely followed, notably in the member selection, recommendations provided, and TP solutions proposed.

Category:

OECD / UN, Transfer Pricing

Tagged with:

EU ruling request: 2010-2013

In the context of State Aid, aggressive tax planning, tax avoidance and competition for a country’s fair share of tax, the European Commission has broadened its earlier request for taxpayer rulings to include all tax rulings of all Member States from 2010 to 2013.  This initiative introduces additional transparency into the ruling practice of Member States.

Most importantly, the tax cost for denial of tax benefits for previously issued rulings is incurred by the respective companies, not the Member States.  MNE’s can participate, directly and/or indirectly, into the process if such rulings are formally investigated.  A link to the press release is attached for reference:

http://europa.eu/rapid/press-release_IP-14-2742_bg.htm?locale=FR

This initiative should be monitored by all MNE’s, supplemented by coordinating a list of all such rulings that would be requested for additional review and reference.

Category:

Transfer Pricing

Tagged with:

EU Commission: State aid investigations

KPMG’s Euro Tax Flash provides a summary of the European Commission’s formal state aid investigations into tax rulings granted by Ireland (Apple) and Luxembourg (Fiat).  This round of investigations follows three investigations, announced 11 June 2014, into alleged state aid granted by Ireland (Apple), Luxembourg (Fiat) and the Netherlands (Starbucks) via transfer pricing rulings.

The procedure is now open for interested parties, including Member States to provide comments to the Commission.

The KPMG Euro Tax Flash and preliminary decisions (English version for Ireland, French version for Luxembourg) are attached for reference:

Click to access tp-eu-sept30-2014.pdf

Click to access 253200_1582634_87_2.pdf

Click to access 253203_1582635_49_2.pdf

Key observations:

  • State Aid – Apple; Section 3.1, par. 46: Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the provision of certain goods shall be incompatible with the common market, insofar as it affects trade between Member States.
  • Qualification as state aid – Apple; Section 3.1, par. 47:  The following cumulative conditions must be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and have the potential to affect trade between Member States.
  • Arm’s length pricing – Apple; Section 3.1, par. 55: The Court of Justice has confirmed that if the method of taxation for intra-group transfers does not comply with the arm’s length principle, and leads to a taxable base inferior to the one which would result from a correct implementation of that principle, it provides a selective advantage to the company concerned.
  • OECD Guidelines – Apple; Section 3.1, par. 56: The OECD Guidelines are a reference document recommending methods for approximating an arm’s length pricing outcome and have been retained as appropriate guidance for this purpose in previous Commission decisions.

These formal rulings and comments by interested parties should be followed closely, especially in today’s challenging international tax environment.

EU case law and European Commission reviews have a significant impact upon the new international tax principles being established by the OECD and EU.  For example, the general anti-abuse rule (GAAR) provision in the Proposal for the 2014 EU Parent-Subsidiary was ultimately not included in the final version of the 2014 Directive, one reason being that the requirements exceeded the precedents of EU case law and would not be ultimately sustained.

To the extent that new OECD guidelines provide an alternative, or exceptions, to the arm’s length principle, it should have a direct impact upon the precedence for reliance by the European Commission re: transfer pricing issues.

 

 

Category:

Transfer Pricing

Tagged with:

OECD BEPS & EU Case Law: Uncertainty ahead

PwC has published a very informative article addressing the impact of EU case law, exemplified by cases from the Court of Justice of the European Union, on the OECD BEPS international tax proposals.  There may be additional uncertainty by EU Member States after the OECD BEPS measures are announced due to the “fundamental freedoms” in the Treaty on the Functioning of the European Union (CJEU), State Aid principles and the EU direct tax initiatives, including the Parent-Subsidiary Directive.  The link to the article is included for reference:

Click to access pwc-eu-beps-july-2014.pdf

The article provides excellent references to current EU Law concepts, including the basic premise that domestic legislation must be compliant with EU law.  Additionally, the OECD proposals for hybrid mismatch transactions, tax treaty abuse and harmful tax practices are discussed against the backdrop of EU legislation.

The article concludes with the takeaway: “The implementation of OECD BEPS proposals within the EU/EEA Member States will only be possible to the extent that those proposals are also compliant with EU Law.  So far, however, little attention seems to have been paid to potential EU Law issues in the OECD’s draft discussion papers, so that EU/EEA Member States might actually risk breaching EU Law.  As a result, companies doing business in the EU/EEA will be faced with legal uncertainty about the lawfulness of implemented OECD BEPS proposals in domestic law or tax treaties.”

As an additional observation, there is a likelihood that the domestic legislation enacting OECD BEPS proposals will not be consistent for each Member State, thereby the legal uncertainty should be reviewed for each Member State as domestic legislation and OECD proposals are implemented.

 

 

 

Category:

OECD / UN

Tagged with:

European Commission report: TP adjustments/audit plan

The European Commission published a report 4 June 2014 on the work of the EU Joint Transfer Pricing Forum in the period July 2012 to January 2014.  The report highlights the effect, including double taxation, of secondary and compensating adjustments, in addition to a flowchart for a recommended transfer pricing audit plan.  The link to this report is included for reference, with key excerpts from the report:

Click to access com(2014)315_en.pdf

Secondary adjustments

The report presents the general aspects of secondary adjustments and gives recommendations on how to deal with possible double taxation in this context. Member States in which secondary adjustments are not compulsory are advised to refrain from making them in order to avoid double taxation. Member States in which secondary adjustments are compulsory are advised to provide ways and means to avoid double taxation.

Drawing on the EU Parent Subsidiary Directive (PSD) the report recommends characterising secondary adjustments within the EU as constructive dividends or constructive capital contributions. Accordingly, the PSD ensures that no withholding tax is imposed on the distribution from a subsidiary to its parent within the EU. For cases not covered by the PSD, the report describes and recommends the procedure of repatriation in the context of a Mutual Agreement Procedure (MAP) available under the respective applicable Double Taxation Agreement (DTA) or even at an earlier stage. Further it is recommended that Member States should refrain from imposing a penalty with respect to the secondary adjustment.

Compensating adjustments

The report recommends that Member States should accept a compensating adjustment initiated by the taxpayer (upward as well as downward adjustment), if the taxpayer has fulfilled certain conditions: the profits of the concerned related enterprises are calculated symmetrically, i.e. enterprises participating in a transaction report the same price for the respective transaction in each of the Member States involved; the taxpayer has made reasonable efforts to achieve an arm’s length outcome; the approach applied by the taxpayer is consistent over time; the adjustment has been made before the tax return is filed; in case a taxpayer’s forecast differs from the result achieved, the taxpayer is able to explain why this occurred, should it be required by at least one of the Member States involved.

The application of secondary adjustments may lead to double taxation. Therefore, if secondary adjustments are not compulsory, it is recommended that MS refrain from making secondary adjustments when they lead to double taxation. Where secondary adjustments are compulsory under the legislation of a Member State, it is recommended that Member States provide for ways and means to avoid double taxation (e.g. by endeavouring to solve it through a MAP, or by allowing the repatriation of funds at an early stage, where possible). These recommendations assume that the taxpayer’s behavior does not suggest an intent to disguise a dividend for the purpose of avoiding withholding tax.

When repatriation is agreed in a MAP settlement, it is recommended that the MAP agreement states that no withholding tax will be applied by the Member State out of which the repatriation is made and no additional taxable burden will be imposed in the Member State to which the repatriation is made.

As taxpayers may not be aware of the fact that in certain situations a separate request needs to be made for avoiding double taxation resulting from secondary adjustments, Member States which do not consider that secondary adjustments can be treated under the AC are encouraged to highlight in their public guidance the fact that a separate request under Art 25 OECD MTC may be needed to remove double taxation. For reasons of efficiency, it is recommended that taxpayers submit both requests in the same letter.

TP Audit Work Plan

This TP audit work plan is an example of the various steps that are typically performed during a TP audit (not a comprehensive audit) on the side of the taxpayer and on the side of the tax administration, respectively. It should be understood as an informative guide rather than as prescriptive rules. It is recognised that the structure suggested may not fit into all MSs’ and taxpayers’ legal framework and administrative practice. An underlying assumption of the work plan is that properly prepared documentation – as requested by local tax authorities – is available and well-trained staff act on both sides.

 

Re: Best Practices, this is an excellent document to review.  It explains secondary and corresponding adjustments, which are often areas overlooked in audits until the final assessment is issued and the audit has been settled in the primary jurisdiction.  Additionally, the TP audit work plan is a valuable document to develop Best Practices with the tax authorities in planning an audit, developing mutual trust and cooperation.  These principles should also be applied globally, not only within the EU.

Category:

Transfer Pricing

Tagged with:

VAT: European Commission update

Tax Fraud: Commission looks at how VAT collection and administrative cooperation can be improved

Today (12 Feb.) the Commission adopted two reports which shed more light on problems linked to fighting Value Added Tax (VAT) fraud within the EU, and which identify possible remedies. The first report looks at VAT collection and control procedures across the Member States, within the context of EU own resources. It concludes that Member States need to modernise their VAT administrations in order to reduce the VAT Gap, which was around €193 billion in 2011. (see IP/13/844) Recommendations are addressed to individual Member States on where they could make improvements in their procedures.

The second report looks at how effectively administrative cooperation and other available tools are being used in order to combat VAT Fraud in the EU. It finds that more effort is needed to enhance cross border cooperation, and recommends solutions such as joint audits, administrative cooperation with third countries, more resources for enquiries and controls and automatic exchange of information amongst all Member States on VAT. Both reports are part of the broad Commission Action Plan to fight against tax fraud and evasion (see IP/12/1325), and can be found online on the European Commission’s Taxation and Customs Union website .

Click to access com(2014)71_en.pdf

Click to access com(2014)69_en.pdf

It is interesting to compare developments on topics such as joint audits, automatic exchange of information, and tax controls with that of the OECD and UN for corporate income tax.  The reports provide a valuable reference in regards to VAT developments in the EU, which are observed by non-EU countries for Best Practices.

Category:

OECD / UN

Tagged with:

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.

Category:

OECD / UN

Tagged with:

European Commission releases 2012 APA & MAP statistics

The EU Joint Transfer Pricing Forum has released statistics for pending Mutual Agreement Procedures (MAPs) and APAs under the Arbitration Convention.

The MAP comparables provide interesting observations for countries in which there is no activity in contrast to active case developments in France, Germany, and the UK.  The average cycle time noted in several countries ranges from 9 to 47 months, which presents additional challenges in timely case resolution.  Reasons provided for cycle time variations included 24% being waived for the time limit with taxpayer’s agreement, 16% pending before court and 15% settled in principle, waiting exchange of closing letters for MAP.

The APA statistics reflect 222 EU and 168 Non-EU APAs in force at the end of 2012, 561 EU and 119 Non-EU APA requests in 2012, while 353 EU and 85 Non-EU APAs were granted in 2012.

Click to access jtpf_012_2013_en.pdf

Click to access jtpf_013_2013_en.pdf

The statistics for seeking resolution via the EU Arbitration Convention provide additional insight for evaluation of issues that are not being settled effectively at the local country level.

 

Category:

Transfer Pricing

Tagged with:

GAAR: Poland’s reintroduction

Click to access com_2012_722_en.pdf

Poland’s Minister of Finance plans to reintroduce a general anti-abuse rule (GAAR).  GAAR was in brief existence from 2003-2004, however the vague principles led to its removal.

The GAAR reintroduction follows the European Commission’s recommendation in December 2012, with a link attached for reference.  The European Commission Initiatives, Section 8, Recommendation on aggressive tax planning, states “The Commission also recommends a common GAAR.  This would help to ensure coherence and effectiveness in an area where Member State practice varies considerably.”

The GAAR proposal would apply to all types of taxes, with a 30% penalty of avoided tax via a “tax avoidance” transaction.  Appeal provisions are envisioned, in addition to advance rulings, although the time and expense for advance certainty may prove to be impractical.  A GAAR Council would provide an “expert” GAAR opinion that is not binding on the tax authorities.

Poland’s GAAR proposal should be analyzed for Best Practices, coupled with insights from prior posts: EY GAAR survey (7 August) and UK Finance Act 2013: GAAR has arrived (21 July).

It is hopeful that Poland will focus on learnings from the original GAAR introduction, as well as gain insight for Best Practices from other countries that have adopted a fair, and effective, GAAR.  It will be important to observe how the new GAAR legislation will correspond, or override, its double tax treaty provisions, and if the burden of proof will reside with the taxpayer and/or the tax authorities.

Most importantly, Best Practices should be continually reviewed, and revised,  for inclusion of new GAAR proposals and principles that are an integral part of the global Tax Risk Framework.  As stated in the European Commission report, each country’s practice is , and will continue to be, significantly different.  Robust documentation, in proactive tax risk management and planning memorandums, will provide directly relevant evidence to defend the subjective principles and guidelines of GAAR.

Category:

Tax Risk Management

Tagged with:

A European Taxpayers’ Code

http://ec.europa.eu/taxation_customs/common/consultations/tax/2013_tpcode_en.htm

The Commission adopted on 27th June 2012 a Communication on the fight against tax fraud and tax evasion. An Action Plan which details concrete proposals to strengthen the fight against tax fraud and tax evasion was adopted on 6th December 2012.

One of the 34 measures contained in the Action Plan is the development of a European Taxpayer’s Code which is described as follows (action 17):

“In order to improve tax compliance, the Commission will compile good administrative practices in Member States to develop a taxpayer’s code setting out best practices for enhancing cooperation, trust and confidence between tax administrations and taxpayers, for ensuring greater transparency on the rights and obligations of taxpayers and encouraging a service-oriented approach.

The Commission will launch a public consultation on this at the beginning of 2013. By improving relations between taxpayers and tax administrations, enhancing transparency of tax rules, reducing the risk of mistakes with potentially severe consequences for taxpayers and encouraging tax compliance, encouraging Member States’ administrations to apply a taxpayer’s code will help to contribute to more effective tax collection.”

In anticipation of this initiative, some points worthy of consideration are:

  • Does your company have a Taxpayers’ Code or Best Practices within a Tax Policy or Tax Risk Policy?
  • Should the concept of a Taxpayers’ Code be discussed at the beginning of an audit to enhance trust and confidence?
  • Will this initiative be helpful in a simultaneous or joint audit?
  • Should a discussion be initiated with the auditor to establish a mutual Taxpayers’ Code?

I look forward to your thoughts on this interesting topic.

Related articles

Category:

Audits, Tax Risk Management

Tagged with: