Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘information exchange’

Belgium renews transfer pricing emphasis

The Belgian tax authorities (BTA) are accelerating their focus on transfer pricing ahead of the OECD’s recommendations from its Base Erosion and Profit Shifting (“BEPS”) Action Plan.  The transfer pricing initiatives are highlighted herein for reference and are discussed in the attached link from PwC.

http://www.publications.pwc.com/DisplayFile.aspx?Attachmentid=7092&Mailinstanceid=28847

Summary of initiatives:

  • Additional transfer pricing resources, with 30 individuals assigned to transfer pricing by year-end 2013.
  • A targeted action plan was started in January 2013, selecting 230 companies for a transfer pricing audit.
  • Determine taxpayer selection via risk assessment by the transfer pricing audit team, leveraging on information exchange with foreign tax authorities.  Companies with significant loss carry-overs and/or volatile profit margins will reflect a high risk rating.
  • The Belgian Tax Authority’s Special Investigation Tax team, re: fiscal fraud, and its transfer pricing audit team will form a collaborative centre of excellence to collect and share transfer pricing knowledge, including sharing respective databases.
  • An extension of the 3 year statute of limitations is envisaged.

As evidenced by the Belgian initiatives, the focus on transfer pricing will intensify as information initiatives are being developed within a jurisdiction in addition to exchange of tax information with other tax administrations.  These initiatives dictate increased emphasis on transfer pricing documentation for risk assessment and issue consistency in response to audits as tax information is shared.

OECD Exchange of tax information portal

As a follow up to the OECD G20 Report post on 8 September, information about the Exchange of Tax Information Portal is provided for further reference.  The respective jurisdiction can be selected, with agreements available via PDF files.  This site will be even more useful as countries complete the relevant Peer 1 and Peer 2 reviews.

The Exchange of Tax Information Portal is an initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes.  The Global Forum conducts peer reviews of its member jurisdictions’ ability to co-operate with other tax administrations in accordance with the internationally agreed standard. The standard provides for exchange of information on request where it is foreseeably relevant to the administration and enforcement of the domestic tax laws of the requesting jurisdiction. Effective exchange of information requires that jurisdictions ensure information is available, that it can be obtained by the tax authorities and that there are mechanisms in place allowing for the exchange of that information. The Global Forum’s peer review process examines both the legal and regulatory aspects of exchange (Phase 1 reviews) and the exchange of information in practice (Phase 2). The EOI Portal will track the development of these peer reviews, including changes that jurisdiction’s make in response to the Global Forum’s recommendations.  The Portal can be accessed from the following link:

http://www.eoi-tax.org/jurisdictions/AR

The Exchange of Tax Information Portal site should be used, and shared, for valuable reference on this important and current initiative.

OECD G20 Report & Best Practice Analogies

OECD’s report to the G20 leaders in St. Petersburg, Russia is attached for reference, consisting of a Progress Report to the G20 in Part I, and details of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and offshore tax evasion efforts in Part II.  This posting will capture some highlights from the report, and pose analogies for Best Practices in alignment with the OECD’s initiatives.  The report may be accessed at:

http://www.oecd.org/tax/SG-report-G20-Leaders-StPetersburg.pdf

The Introduction provides commentary on “legal tax avoidance,” renewed demands for greater transparency, calling for all taxpayers to pay their fair share, and completion of a global model for automatic exchange of information by 2014.

Initiatives of the Global Forum on Transparency and Exchange of Information (the Global Forum) have resulted in 119  jurisdictions committed to standards of transparency and exchange of information.  Best Practices includes communicating  results of the Global Forum to global and regional tax teams, and business leaders, to ensure that global consistency of information is being provided to tax authorities.  

The Global Forum promotes exchange of information via a monitoring and peer review process.  The process includes Phase 1 reviews, examining a jurisdiction’s legal framework for exchange of information, and Phase 2 reviews that examine information exchange in practice.  How well does the exchange of information process work for Multinational Enterprises (MNEs)?  Is this report, with a schedule of subsequent discussions on its impact, automatically sent to all tax team members, or is each individual personally responsible for accessing, reading and comprehending the report, including Phase 1 and Phase 2 reviews?

Peer reviews result in recommendations for improvement, with all jurisdictions required to provide follow-up reports describing actions taken. Re: global audits, are recommendations for improvement provided during, and after, the audit, with action steps documented?

The Global Forum has organized four training seminars in 2012, and five training seminars this year, in addition to implementation toolkits.  Appendix 4 of Part 1 provides a listing of members and observers, inherently resulting in potential impacts for these proposals beyond the OECD member countries.  How many training forums and business tools have been provided by MNEs in the last two years to review the ongoing trend of global tax proposals?

Part 2 lists the 15 activities of the BEPS Action Plan to be addressed by all relevant stakeholders.  For analogy, has the MNE also listed those same activities, addressing potential impacts, risk quantifications and expected actions for each of the proposals, including a relevant timeline and accountability?  Are all international tax team members and business leaders aware of the BEPS Action Plan?

Automatic exchange of information is becoming the norm, versus the exception, for tax authorities around the world.  How are tax changes, audit queries, changes in tax laws, etc., communicated within the MNE enterprise quickly and efficiently?  Is  a tax newsletter communicated to the global business, addressing areas of focus and learning?

Annex 2 of the Progress Report outlines a model of multilateral automatic exchange of information designed to implement a step change in transparency.    This section is useful in addressing future legislative changes, draft model competent authority agreements, legal / confidentiality concerns, and legal bases for the exchange of information.  MNEs should track public comments and future changes of OECD member countries and observers to address these initiatives.

The highlights of the OECD G20 Report, and suggested comments for Best Practices, are meant to promote creative thought and reflection to effectively plan for the rapid evolution of change in the international tax arena.

OECD Multilateral Convention: Automatic information sharing among G20 countries

With China’s commitment on 27 August 2013, all G20 countries have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Convention), resulting in automatic exchange of information as the new global standard.

Tax authorities are cooperating multilaterally and automatically, as the Convention provides for spontaneous exchange of information, simultaneous tax examinations and tax assistance.  The accompanying press release, including a list of the 56 signatories, is available at:

http://www.oecd.org/tax/china-joins-international-efforts-to-end-tax-evasion.htm

What are the implications on Best Practices for these continuing developments?  Ideas for consideration include the following:

  • Providing taxpayer information to one authority should be viewed as being provided to many countries worldwide, thus maintaining consistency is essential.  A formal methodology will ensure Best Practices are being followed.
  • Tax assistance, simultaneous examinations and joint audits should be envisioned for reviewing the global Tax Risk Framework.
  • Best Practices for implementation of Mutual Agreement Procedure (MAP) are a topic of frequent discussion by tax authorities worldwide; thus Best Practices for Multinationals should also be focused on risk identification, measurement and application of MAP.
  • Related posts for reference:
  1. 23 July, OECD exchange of information: Multilateral Convention review
  2. 27 June, OECD FTA MAP forum to develop Best Practices
  3. 25 June, OECD report to the G20: Status, training, effectiveness
  4. 20 June, OECD Global Forum on Transparency and Exchange of Information: Activities
  5. 18 June, OECD: Tax Transparency report.
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