Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘OECD’

OECD exchange of information: Multilateral Convention review

http://www.oecd.org/ctp/exchange-of-tax-information/conventiononmutualadministrativeassistanceintaxmatters.htm

This link provides access to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters prescribing procedures for the exchange of information between tax authorities, in addition to press releases and related documents.

The Convention, and its provisions, are becoming more important with increased tax transparency and sharing of Best Practices among tax jurisdictions.  The Multilateral Convention, as well as factors leading to its current and future importance provide valuable context in understanding the current state of affairs, and intentions to increase the exchange of information worldwide.

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OECD / UN, Tax Risk Management

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UK Finance Act 2013: GAAR has arrived

Click to access ukpga_20130029_en.pdf

http://www.hmrc.gov.uk/avoidance/gaar.htm

The links provide reference to the UK Finance Act 2013 and information about the development and intent of the new general anti-avoidance rule (GAAR).

The GAAR legislation, effective at date of enactment, includes various taxes with its stated purpose as counteracting tax advantages arising from tax arrangements that are abusive.  A “tax arrangement” must also be “abusive” for GAAR to apply. Part 5, in part, is provided herein for reference.

207 Meaning of “tax arrangements” and “abusive”

(1) Arrangements are “tax arrangements” if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.

(2) Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances including

(a) whether the substantive results of the arrangements are consistent with any principles on which those provisions are based (whether express or implied) and the policy objectives of those provisions,

 (b) whether the means of achieving those results involves one or more  contrived or abnormal steps, and

(c) whether the arrangements are intended to exploit any shortcomings in those provisions.

The UK GAAR legislation, as in other countries, is principle based and subjective.  Accordingly,  a comprehensive understanding of the GAAR legislation, and inherent intent, is required.  An interesting aspect of the UK GAAR legislation is the formal procedure to be used by HMRC for application of GAAR.

Best Practices include preparation of a memorandum for planning transactions that objectively states the business / economic reasons to provide rationale for the proposal, thereby deriving business intent for application of the GAAR rules.  Additionally, benefits of early discussions with tax authorities in countries for which co-operative compliance programs are in place (refer to 13 June 2013 post: OECD – A Framework for Co-operative Compliance) should be considered.  

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Tax Risk Management

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OECD Base Erosion and Profit Shifting (BEPS) report & Action Plan

http://www.oecd.org/tax/beps.htm

Click to access OECD.pdf

The BEPS report, previously released, and the new Action Plan are available for public review, with many commentators already providing insight on the Action Plan.

The 24 month Action Plan is comprehensive and aggressive, with tax transparency and disclosure rules likely to be implemented early in that timeline.  The report also discusses an improvement of global rules in developing countries, further referenced by work of the Tax Inspectors without Borders study, as discussed in my 9 June 2013 post.

One very interesting proposal in the report is the development of a multilateral convention to address BEPS issues.  This will allow countries to rapidly implement some actions without formally renegotiating bilateral treaties.  Additionally, Appendix C provides examples of tax planning structures by multinational organizations.

The OECD BEPS report and Action Plan will provide additional momentum and debate for the proposed actions, for which multinationals should prepare an internal action plan to address such initiatives.

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OECD / UN, Tax Risk Management, Transfer Pricing

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Tax transparency; Seizing the initiative

Click to access EY_Tax_Transparency.pdf

I highly recommend reviewing this comprehensive publication by Ernst & Young, focusing on strategies and questions Boards should ask to prepare for tax transparency reporting.  One insightful section describes key stakeholders for tax transparency reporting, including consumers, NGOs, Parliamentarians, OECD, and the media.

The publication encompasses the following concepts:

  • Current context for transparency
  • Current tax transparency reporting requirements
  • What others are reporting
  • Information that could be disclosed
  • Challenges to be faced
  • Deriving value from tax transparency
  • Next steps

There is an excellent summary, at the end of the publication, depicting a structured approach for managing your tax profile, outlining ideas leading to a Best Practices strategy.

A Best Practices initiative for tax transparency reporting should be initiated, forming a framework to address challenges and identify opportunities.

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Tax Risk Management

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Global Perspective & Challenges: VAT / GST/ Indirect taxes

http://www.pwc.com/gx/en/tax/indirect-taxes/shifting-balance.jhtml

PwC has recently published this report highlighting new challenges and forward looking insights for indirect taxes.  Detailed country summaries are presented for Brazil, Canada, China, China, Germany, India, Russia, Singapore, South Africa, United Kingdom, and the United States.  The article referenced at the end of the post highlights India’s intentions to introduce a GST.

VAT systems are present in more than 150 countries, with VAT receipts representing approx. 20% of total tax revenue in the OECD countries.  As VAT rates are increasing, tax bases are broadening, and EU joint audits with VAT are commencing, indirect taxes are requiring added focus for effective tax risk management.

The OECD’s Global Forum on VAT held its first meeting in November 2012, striving to increase collaboration and establish Best Practices in VAT administration and compliance.  The OECD International VAT/GST Guidelines will be finalized by year-end 2013, studying VAT neutrality, the destination principle for supply of services and intangibles, anti-abuse provisions, as well as enhancing mutual cooperation and dispute resolution mechanisms.

The report highlights Best Practice ideas, including the following:

  • Identifying responsibility and awareness for indirect taxes, including environmental taxes
  • Drafting contracts with provisions for new VAT/GST consequences in different jurisdictions
  • Import and export risks and opportunities for logistic planning
  • Risk awareness for indirect tax consequences
  • Reviewing refund opportunities based on case law precedents
  • Developing a methodology for reviewing and testing VAT characterizations and rate changes
  • Inclusion of indirect taxes as an integral component of the global tax strategy and Tax Risk Framework

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OECD / UN, Tax Risk Management

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Italy: New Co-operative Compliance Program

http://www.agenziaentrate.gov.it/wps/content/nsilib/nsi/documentazione/regime+di+adempimento+collaborativo+-+grandi+contribuenti/pilot+project+-+english+version

The Italian tax administration will be accepting applications until 31 July 2013 for their new Co-operative Compliance program.  The OECD Framework for Co-operative Compliance, as summarized in my posting of 13 June 2013, is intended to bring certainty into the tax filing and controversy process while  developing a win-win relationship.

Mutual cooperation and transparency are the keys to success for this new initiative.

Mandatory requirements

  • being qualified as a “Large Taxpayer” (under the section 27, paragraph 10, of decree-law no. 185/2008, as converted by section 1 of law no. 2/2009), i.e. taxpayers with total turnover or operating revenues not less than 100 million/€, with reference to the tax year 2011;
  • having implemented an organizational model pursuant to section 6 of legislative Decree no. 231/2001 or having adopted a “Tax Control Framework” to manage tax risks

Optional requirements

  • belonging to a multinational group of companies, or to carry out its business activity in Italy or abroad through permanent establishments;
  • having adopted similar cooperative compliance programmes in foreign jurisdictions or having subscribed a code of conduct with other tax administrations;
  • having already entered into initiatives falling within the concept of cooperative compliance in Italy, such as the International Tax Ruling (provided for by section 8 of decree-law no. 269 of 30 September 2003, converted with amendments into law no. 326 of 24 November 2003 and implemented with Regulation of the Director of the Revenue Agency of 23 July 2004) or having adopted the transfer pricing documentation requirements regime.

Note the importance of having established a Tax Control Framework to manage tax risks, a mandatory requirement for this program.

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Audits, Tax Risk Management

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OECD FTA MAP forum to develop Best Practices

A new forum, open to all members of the Forum on Tax Administration (FTA), will convene later this year to discuss Best Practices for improving MAP.  Topics that may be discussed include:

  • Development of a strategic plan
  • Resource limitations
  • Relationship building
  • Identifying trends in disputes
  • Increasing APA’s and accelerated CA procedures
  • Roll-over adjustments
  • Multilateral case procedures
  • Taxpayer’s involvement in MAP resolution
  • Achieving certainty sooner for a win-win result

This new forum will be an interesting development for all.

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Audits, OECD / UN, Tax Risk Management

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OECD report to the G20: Status, training, effectiveness

http://www.oecd.org/tax/2013-OECD-SG-Report-to-G20-Heads-of-Government.pdf

The OECD report provides relevant information worthy of review, including the following items:

  • 119 member jurisdictions have committed to the Transparency & Exchange of Information initiative (except for Lebanon),
  • Status of ongoing technical assistance and training objectives,
  • Competent Authority database is in place, containing information for over 70 jurisdictions,
  • Measurement techniques to determine effectiveness, and
  • Appendices listing various factors in providing exchange of information, including confidentiality provisions, rights and safeguards.

These notable efforts are ongoing, providing timely and informative information that should be shared.

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OECD / UN, Tax Risk Management

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OECD Global Forum on Transparency and Exchange of Information: Activities

http://www.oecd.org/tax/transparency

The Global Forum has 120 members and is the premier international body re: implementation of internationally agreed transparency standards and exchange of information.  This Forum is very active in today’s tax environment, as demonstrated by its recent activities including:

  • 2nd meeting of the Competent Authorities on 30-31 May 2013, attended by 174 delegates from 77 jurisdictions.  Delegates shared procedures for Exchange of Information networks to tackle tax evasion, tools to enhance effective communication between Competent Authorities, as well as providing opportunities to  share experiences and practices.
  • Regional Training Seminar in Brazil 7-10 May 2013, attended by 70 tax administrators from Argentina, Brazil, Columbia, Costa Rica, Dominican Republic, El Salvador, Paraguay and Uruguay.  Panama and the United Kingdom provided expert trainers, focusing on an OECD overview of Exchange of Information, the 2012 update to Article 26 of the OECD Model Tax Convention and its Commentary, and the Multilateral Convention on Mutual Administrative Assistance.
  •   Regional Training Seminar in Dakar, Senegal 24-26 April 2013, attended by 20 tax authorities in 8 francophone African countries (Burkina Faso, Cameroon, Democratic Republic of Congo, Gabon, Morocco, Niger, Senegal and Tunisia).  The African countries are recent members of the Global Forum and will have Phase 1 peer reviews in 2014.  Belgium and Qatar provided expert trainers, focusing on the peer review process and preparation for evaluation of legal and regulatory frameworks for the exchange of information.

The activities of this Forum are visibly expanding transparency initiatives and the exchange of information around the world.  The recent G8 conference encouraged all countries to join in order to share mutual benefits.

Regional and global tax teams should review internal processes to ensure global consistency and adherence with internal governance protocols.  Additionally, a dialogue should be established between tax and the business leaders to heighten global awareness and ensure strategic alignment.

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OECD / UN, Tax Risk Management, Transfer Pricing

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OECD: Tax Transparency report

Click to access taxtransparency_G8report.pdf

This OECD report entitled “A Step Change in Tax Transparency” was prepared for the G8 meeting and summarizes recent developments, action plans for global automatic exchange of information and a feasibility assessment.

In today’s tax environment the exchange of tax information is quickly evolving and gaining momentum.  This report provides valuable context for discussion.

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OECD / UN

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OECD: A Framework for Co-operative Compliance

http://www.oecd.org/tax/administration/co-operative-compliance.htm

This insightful report focuses on practical experiences of 24 countries, with a chart summarizing each country’s status for this initiative.  Additional features are identified leading to successful “co-operative compliance” strategies.

A framework is developed, based on a business case approach, for revenue authorities to measure results, and success.  The report adopts a systematic approach to tax risk and discusses the five pillars established in 2008 based on understandings for:

  • Commercial awareness
  • Impartiality
  • Proportionality
  • Openness through disclosure and transparency
  • Responsiveness

Evolving concepts include:

  • Future direction of initiatives
  • Multilateral co-operative compliance
  • Approaches by tax authorities to measure results and success.

The report provides useful links in Appendix A for country specific information and is an excellent reference to develop further understanding into this rapidly growing initiative, while providing a foundation for Best Practices including:

  1. Documentation of the current enhanced relationship / co-operative compliance methods in use.
  2. Reviewing available co-operative compliance programs for the 24 countries in the report.
  3. Developing a process determining if, when and how the voluntary programs are to be adopted.
  4. Developing a measurement for success based on current initiatives, as well as benchmarking results and experiences with your peers.
  5. Reviewing this evolving initiative annually.
  6. Developing Memorandum of Understanding learnings, as programs are both formal and informal in approach.
  7. Advising regional teams of country developments for continual awareness and future opportunities.
  8. Comparing resource limitations with potential benefits for future co-operative compliance initiatives.

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Audits, OECD / UN, Tax Risk Management

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Global Tax Policy in 2013: report by Ernst & Young LLP

Click to access TPC_outlook.pdf

This informative publication reviews tax policies in 60 countries, against a backdrop of today’s tax environment with continuing controversy and disputes as countries pursue general anti-avoidance rules (GAAR) and suggest public disclosure initiatives for tax payments by multinational corporations.

As OECD and UN tax initiatives are increasing in scope, coupled with developing countries continually evolving their tax proficiencies, this publication provides valuable context for the present and expectations in the near future.

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Tax Risk Management

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OECD: Tax Inspectors Without Borders 2013 initiative

Click to access Tax-Dev_3_CoChair_Statement.pdf

The OECD’s Task Force on Tax and Development will use this concept to assist developing countries by providing international auditing expertise and advice to better address tax base erosion, including tax evasion and avoidance.  This initiative  is led by the Commissioner General of the South Africa Revenue Service, South Africa’s Deputy Finance Minister and Director of the OECD’s Centre for Tax Policy and Administration.

The Tax Inspectors Without Borders program will match demand from countries requesting international tax audit assistance with a supply of international experts, primarily consisting of tax inspectors in other tax administrations.  Accordingly, the experts will now be made available to developing countries.

The initiative is being launched this year, thus communication with the auditors in developing countries should include a discussion on the use of this concept, a listing of the respective experts and the communications that could be shared with the corporation.

It will be interesting to see the development of this initiative, the sharing of information, memorandums of understanding with the corporation or, absent an explicit statement that the country is using this initiative, any impact on the appeal process resulting from assessments of this sharing program.  Additionally, it would be interesting to compare the developing countries that use this program versus, or along with, tax training from the United Nations, posted in the blog dated 2 June 2013.

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OECD / UN, Tax Risk Management

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GAAR: India & International Perspective

Click to access pwc-white-paper-on-gaar.pdf

This publication provides a very interesting treatise on the development of GAAR in India, including an international perspective in Appendix B for the United States, S. Africa, Germany, China, Canada, United Kingdom and Australia.

Importantly, the publication sets forth the OECD definitions for tax evasion, tax avoidance and tax planning for clarity.

This concept is increasing in importance, and should be followed closely with ideas of forming Best Practices re: tax planning, tax documentation, etc.

Ideas for Best Practice consideration:

  • Address the concepts of GAAR, formal or informal, as part of every tax planning exercise.
  • Ensure the global tax team is informed about the latest GAAR developments to increase awareness and responsibility.
  • Brainstorm ideas about GAAR, forming Best Practices for the organization.
  • Proactively ask for input from external advisors to gain different perspectives on this evolving topic.
  • Share your ideas with your peers from other organizations for a win-win result.

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Tax Risk Management, Transfer Pricing

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UN: Practical Manual on Transfer Pricing & Tax Training Initiatives

Click to access UN_Manual_TransferPricing.pdf

This link directs you to the final version of the U.N’s Practical Manual on Transfer Pricing for Developing Countries.  This version corrects minor technical errors in the 2012 version.  The separate country guidance is already attracting controversy since these countries are provided an official platform to express their views on location-specific advantages, etc. that compete with OECD guidelines.

In addition to this document, Alexander Trepelkov, Director of Financing for Development Office (FFDO), U.N. Department of Economic and Social Affairs has stated three primary initiatives of the FFDO.  The three initiatives will create tax training tools to:

  1. Strengthen developing nations’ capacity to conduct transfer pricing analyses,
  2. Negotiate, administer, and interpret tax treaties, and
  3. Develop tax administration systems.

Transfer pricing analyses initiative:

  • A meeting is being held this week to determine the scope and content of the project, focused on supporting tax administrators apply the arms-length principle to transactions between associated enterprises.

Tax treaty initiative: Training tools in development for tax administrators

  • Fundamentals of tax treaties course, including similarities/differences between the U.N. models, is planned for early 2014
  • Advanced tax treaty course to be developed jointly with the OECD, ensuring materials covering the U.N. model are included
  • A joint project to create training tools on tax treaty administration with the German Federal Ministry for Economic Development and Cooperation.

Develop tax administration systems initiative:

  • A joint project with the Inter-American Center of Tax Administrations to develop an empirical method to measure and assess tax administration cost.  Pilot programs are taking place in Costa Rica and Uruguay.

These developments should be closely followed, especially in developing countries that are developing transfer pricing expertise and non-OECD countries that have publicly stated their views in the U.N.’s Practical Manual on Transfer Pricing for Developing Countries.  This insight is also valuable information to review in a pre-audit strategy for such countries, having advance knowledge of their stated positions and differences with OECD methodology.

 

 

 

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Audits, OECD / UN, Tax Risk Management

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