Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘OECD’

OECD: (Revised) Safe Harbours, Chapter IV, Transfer Pricing Guidelines

Click to access Revised-Section-E-Safe-Harbours-TP-Guidelines.pdf

The OECD approved this revision on 16 May 2013 and discusses the benefits and concerns for safe harbour provisions.  It encourages appropriate bilateral or multilateral safe harbors for which the previous guidance was generally silent.  In an effort to facilitate negotiations between tax administrations, sample memoranda of understanding (MOUs)” are included for competent authorities to establish bilateral safe harbors for certain classes of transfer pricing cases.  Sample MOUs are provided for low risk activities of Manufacturing, Distribution, and Research and Development Services.

Benefits to be gained:

  • Compliance relief
  • Certainty
  • Administrative simplicity

Safe harbour concerns:

  • Divergence from the arm’s length principle
  • Risk of double taxation, double non-taxation, and mutual agreement concerns
  • Possibility of opening avenues for tax planning opportunities
  • Equity and uniformity issues

Sections 4.128 and 4.129 emphasize the fact that safe harbours can be negotiated on a bilateral or multilateral basis, providing significant relief from compliance burdens and administrative complexity.  Additionally, a safe harbour is not binding, or precedential, for countries which have not themselves adopted the safe harbour.

In an environment of increasing request for assistance from competent authorities, I am hopeful this tool is used proactively and efficiently by competent authorities to provide certainty for past, current, and future low risk activities.  Multinationals should be familiar with these new guidelines and the respective MOUs to aid negotiation efforts in bilateral or multilateral transactions.  Discussion of this principle in meetings with competent authorities will hopefully lead to enhanced mutuality, cooperation and resolution.

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OECD / UN, Transfer Pricing

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8th meeting of Forum on Tax Administration 16-17 May 2013: Cooperative Framework

http://www.oecd.org/site/ctpfta/

The Forum on Tax Administration (FTA) was created in July 2002 by the OECD with the aim of promoting dialogue between tax administrations and of identifying good tax administration practices.  The OECD link provides reference to the opening FTA remarks by Deputy Secretary-General Mr. Yves Leterme, and the Final Communique from the 16-17 May 2013 meeting in Moscow, Russian Federation.

The press release sets the stage with the following remarks:

  • Tax base of governments is being threatened by international tax avoidance and evasion.
  • Part of the answer to international avoidance by businesses is a question of tax policy, rather than administration.
  • The development of a new set of international standards is going to require ever closer cooperation at the international level.
  • International cooperation between tax administrations is enhanced by improved transparency, which helps tax administrations apply the rules effectively.
  • Transparency is also key to the fight against international evasion.
  • The OECD, working with the G20, is developing a new multilateral standard on automatic exchange of information.

The Final Communique’s first paragraph states the need to effectively address tax evasion, aggressive tax avoidance, trans-national tax fraud and aggressive tax planning.  The Communique addresses the need for increased transparency and comprehensive exchange of information, and strongly endorses exchanging information automatically.

Most importantly, the Communique further states: “We have developed a framework of co-operative compliance for the large business segment that provides a sustainable basis for a relationship based on transparency, justified trust and confidence between tax administrations and business.  We will continue to refine this framework, also working with the business community, and recommend all countries to adopt it.”

In today’s tax environment, against the backdrop of terminology including tax evasion, aggressive tax avoidance, tax fraud and aggressive tax planning, the recent and upcoming meetings of the OECD and related organizations are increasingly important.  The trend of a formal cooperative compliance framework is becoming more evident, and multinationals should already be planning for ways to develop such relationships with tax authorities around the world in present and future audits.

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OECD / UN

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Africa Progress Report 2013: Global Tax & Transparency initiatives

http://www.africaprogresspanel.org/en/publications/africa-progress-report-2013/apr-documents

The Press Release and Progress Report 2013 are not restricted to activities within Africa, as they advocate tax and transparency initiatives for the upcoming G8 Summit and the international community.  Japan, Russia, Switzerland, the UK and the US are individually identified in the report.

The Africa Progress Panel (APP) consists of ten distinguished individuals from the public and private sector who advocate for shared responsibility between African leaders and their international partners to promote equitable and sustainable development for Africa.  Mr. Kofi Annan chairs the APP. The Panel functions in a unique policy space with the ability to target decision-making audiences.

The press release sets the stage for the debate with the following statement: “International tax avoidance and evasion, corruption, and weak governance represent major challenges.  The report therefore welcomes the commitment from the current G8 presidency, the UK, and other governments to put tax and transparency at the heart of this year’s dialogue.  International business should follow best practices on transparency.”

Part III of the Report has sub-captions beginning on page 63 entitled: “Aggressive tax planning” drains the public purse, followed on the subsequent page with “When companies evade tax responsibilities.”  This section includes the following statements: “Tax avoidance has emerged as a global concern.  In Europe and North America, public anger has been directed towards highly visible multi-billion dollar firms that minimize their tax liabilities through sophisticated but aggressive tax planning.”

Part IV, “Fair taxation-an international challenge, ” provides the commentaries: “Many resource-rich countries in Africa are losing out as a result of “aggressive tax planning”-a euphemism in some cases for tax evasion.  Transfer pricing is another endemic concern.  Tax evasion is a global problem that requires multilateral solutions.  At the heart of the problem is the unwillingness of the OECD countries and wider international community to strengthen disclosure standards.  Japan, Russia, Switzerland, the UK and the US all operate regimes that allow for aggressive tax planning and limited regulatory oversight.  All tax jurisdictions should be required to declare the beneficial ownership structure of registered companies.  Governments in Africa could also look beyond the OECD dialogue.”

The sub-section entitled “Recommendations for Immediate Action” includes a message for transparency by extractive companies stating: “All countries should embrace the project-by-project disclosure standards embodied in the US Dodd-Frank Act and comparable EU legislation, applying them to all extractive industry companies listed on their stock exchanges.”

A message to the G8 community states: “The G8 should establish the architecture for a multilateral regime that tackles unethical tax avoidance and closes down tax evasion.  Companies registered in G8 countries should be required to publish a full list of their subsidiaries and information on global revenues, profits and taxes paid across different jurisdictions.  Tax authorities, including tax authorities in Africa, should exchange information more readily.”

The message to the international community states: “The G8 should adopt at its 2013 summit in the UK a framework that commits each country to full disclosure through a national public registry of the beneficial ownership of registered companies, with a commitment to create such registries before the 2014 G8 summit.”

This report demonstrates the tone for increased tax and transparency within Africa, and more importantly its message to the G8 and the international community.  Unfortunately, the terms aggressive tax planning, avoidance and evasion are used interchangeably in the Report which is intended to provide a strong message for tax and transparency changes but also provide complexity in seeking solutions.  This message is being seen more often in the news from around the world, and the transparency topic is one that should be discussed with senior management and the Board to ensure alignment going forward.

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Transfer Pricing

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OECD Draft Handbook on Transfer Pricing Risk: Public information

Click to access Draft-Handbook-TP-Risk-Assessment-ENG.pdf

OECD published this draft handbook on April 30, with comments due by Sept. 13.  I highly recommend reviewing the entire handbook.  Section 4.5 of the Handbook outlines the use of publicly available information for identifying overall risk assessment.  We are all aware of this information, although I will share some thoughts on being proactive in forming Best Practices around this topic.

Company website:

  • Does tax review the web content on a regular basis to ensure there are no innocent misstatements to defend.
  • As the web content is updated for marketing, sales and other relevant information, does tax receive a copy of the updates prior to releasing them to the public.
  • Are any of the statements on your website in conflict with your stated transfer pricing or other tax methodologies.
  • Does the website contain information on legal presence in each country; if so, what is the alignment process with tax.

Statutory financial information:

  • Many countries provide this information to the public; are these financials reviewed to ensure consistency with transfer pricing methodologies either internally or an external advisor. 
  • Additional disclosures increase every year; how familiar are you with new disclosures on a global basis.  Is there a process that can be implemented to identify tax sensitive information.
  • An individual with tax training should review this information prior to finalization to ensure there are no PE, transfer pricing or other tax risk areas addressed.

Coordination of Publicly Available Information:

  • Is there a central index listing all publicly available company information on a global basis.
  • Is this a process for which someone can be a champion to ensure timely updates.
  • If tax disclosures are prepared for public use, are the disclosures of taxes paid by country, etc. consistent with the statutory financial information that is available.  Should there be a process to rationalize, or explain, any discrepancies.
  • Are press releases reviewed by tax to ensure consistency of tax methodologies and minimization of potential tax risks.
  • Is issuance of publicly available information centralized or decentralized, depending on the content.
  • If comments are issued on this draft, who ensures the content is internally consistent since it will be on the OECD website.

 

 

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OECD / UN, Transfer Pricing

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OECD: Countering tax avoidance, evasion & aggressive tax planning

http://www.oecd.org/ctp/aggressive/atp.htm

As you may know, the OECD has an Aggressive Tax Planning (ATP) Steering Group, whose objectives include:

  • Identify current trends
  • Share experiences
  • Focus on timely information sharing in understanding new schemes
  • Provide information enabling countries to adapt their tax risk management strategies

Additionally, the work of the ATP Steering Group is supported by the OECD Aggressive Tax Planning Directory.  The ATP Directory is an online resource for governments to depict types of schemes discovered and fact patterns thereto, and details of their detection.

  • While “tax avoidance” and “tax planning” are frequently used terms, in direct contrast to “tax evasion,” it would be worthwhile to review Global Tax Policies and Tax Risk Management Strategies and verify if additional clarification is needed due to today’s tax environment.
  • Centralization of information by OECD: is your company also centralizing its issues, tax risks and strategies for synergy?
  • Are current trends being analyzed to adjust “tax planning” strategies and relevant tax risks?
  •  Are you ready to explain the difference between tax planning, aggressive tax planning, tax avoidance and tax evasion?

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OECD / UN, Tax Risk Management

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