Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘tax evasion’

UK Autumn Statement: 2015

UK’s Autumn Statement 2015 has been announced, with several measures aimed at changing corporate tax behavior and promoting transparency with the objective to achieve a modern and fairer tax system.  A link to the Statement is provided for reference:

https://www.gov.uk/government/publications/spending-review-and-autumn-statement-2015-documents/spending-review-and-autumn-statement-2015

Key points:

  • A 60% penalty of tax due for successful general anti-abuse rule (GAAR) cases, to be implemented in 2016.  The revenue impact of this measure is highly uncertain, as it is also meant to be an incentive to change corporate tax behavior.
  • A desire to be to the most digitally advanced tax administration in the world.
  • New criminal offense for corporates failing to prevent tax evasion; failure to prevent their agents from criminally facilitating tax evasion by an individual or entity.
  • Hybrid mismatch rules to be effective 1/1/2017, following the OECD’s BEPS Guidelines.
  • Corporates to publish tax strategies as they relate to, or affect, UK taxation.
  • Cooperative compliance framework.
  • “Special measures” regime to tackle businesses that persistently engage in aggressive tax planning.

A carrot, stick and transparency approach is contained within the Statement, and thus important to follow as other countries will surely review UK’s leading initiatives to gauge impact on their respective economy.  The GAAR related penalty, which is inherently subjective, will be dictated in some fashion by HMRC’s aggressiveness to assess GAAR and a willingness to pursue it through the respective appeal avenues or court.  The tax strategy initiative will also be interesting to monitor as to its breadth and potential impact upon a company’s risk rating.

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Tax Risk Management

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ATO interim report: Corporate tax avoidance

The Senate Economics References Committee has published its interim report entitled “Corporate tax avoidance.”  Part I, “You cannot tax what you cannot see” provides an excellent frame of reference for the discussions therein.

It is worthwhile noting that there is a section “Government Senators’ Dissenting Report” expressing concerns about some recommendations therein; this should be a additional warning sign of the recommendations put forth.  Conversely, there are “Additional Comments from the Australian Greens” fully supporting the report in its entirety.

The final report is due in November 2015, although this interim release provides an indication of the thought trends currently in process by the Australian Tax Office (AT0).  A link to the report is provided for reference:

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporate_Tax_Avoidance/Report_part_1

Key observations:

  • 17 recommendations provided addressing (1) evidence of, and multilateral efforts to combat, tax avoidance and aggressive minimization, (2) multilateral actions to protect Australia’s revenue base, and (3) capacity of Australian government agencies to collect corporate taxes.
  • Australian government to work with other countries having significant marketing hubs to improve the transparency of information
  • Australian government continues to take the load re: OECD BEPS initiatives; international collaboration should not prevent the Australian Government from taking unilateral action
  • Mandatory tax reporting (transparency) code
  • Existing transparency laws to be identical for private and public companies
  • Public register of tax avoidance settlements reached with the ATO
  • Public excerpts from the Country-by-Country OECD reports, based on the EU’s standards
  • Annual public report on aggressive tax minimization and avoidance activities
  • Section 3.95 discusses a novel concept: “Effective tax borne” effective tax rate formula, a metric that seeks to reflect all of the channel profit derived from business activities involving Australia and the Australian and global tax paid on that channel profit.  Appendix 3 provides additional rules for application of this formula, noting that there has not yet been a consultation with taxpayers or other stakeholders.  The metric envisions that the entire supply chain profit is a profit of the economic group arising from Australian business activities (i.e. intercompany purchases of goods and services from offshore related parties).  Numerator is either the Australian tax paid on business activities by the economic group, or the global tax paid by such group.  Denominator is the total economic profit from business activities which are linked to Australia.  Withholding taxes of economic group profit are includable, whereas royalties and excises are not.  Numerous rules apply for intercompany adjustments.

Australia is still recognized as a leader in the pursuit of the BEPS objectives, using transparency as a weapon to fight ensuing battles.

This report not only extends the strong cry for public disclosure of tax information, it suggests a new concept to examine the effective tax rate of jurisdictions having activities with an Australian related party.  However, it is hopeful the envisaged complexity, cost/benefit and technical nuances of the “effective tax borne” concept are presented to stakeholders with enough time to review, plan and adjust/eliminate the final recommendation accordingly.

As Australia leads, many others follow.  This report is required reading for all interested parties, as the ideas presented have a high probability of appearing in other jurisdictions in a similar form and formulating the same intent for transparency.

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Tax Risk Management, Transfer Pricing

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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

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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.    

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

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UK: Name and shame scheme of promoters

HMRC has published new guidance providing for publication of names re: high risk promoters.  To the extent a promoter has not complied with the terms of a Conduct Notice previously communicated to them, the promoter will be publicly named and they will need to inform their clients of this monitoring action.

The first Conduct Notice has already been issued, as part of HMRC’s ambitious intent to address “tax avoidance.”

A link to the news story is provided:

https://www.gov.uk/government/news/high-risk-promoters-of-tax-avoidance-face-government-clampdown

The timing is also noteworthy, as it precedes final drafting of the Diverted Profits Tax proposal which will soon be followed by elections.

Advisors, as well as MNE’s, should monitor this trend of “name and shame,” as it is generally considered too late for damage control after one’s name and reputation are subject to public perception in this new age of addressing “tax avoidance.”

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Tax Risk Management

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Inconsistent (tax) terminology adds to confusion

The inconsistent use of (tax) terminology in drafting / enacting legislation and communicating issues re: perceived tax abuse, developing specific/targeted/general anti-avoidance rules (SAAR, TAAR, GAAR), anti-abuse rules, etc. promotes subjectivity, uncertainty, and misguided perceptions in trying to understand complex legal and technical international tax laws and regulations.

The recently drafted anti-abuse rule in the EU Parent-Subsidiary Directive (attached link for reference) is designed as a minimum standard to be adopted by EU Member States.  Article 1, paragraph 4 of the Directive states “This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.”  This language should be compared to other tax legislation that introduce additional subjectivity and confusion with undefined and misunderstood terminology.

http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2016633%202014%20INIT

Subjective terminology that accompanies undefined verbiage as a basis for tax laws and regulations, such as anti-avoidance / abuse rules, further complicates comprehension, application, interpretation, and assessment of complex international tax rules.

The phrases “tax evasion” and “tax fraud” clearly set forth bright legal lines for definition and enforcement, whereas inherently subjective phrases of “tax avoidance,” “aggressive tax planning,” “intent of Parliament”, “tax abuse,” and similar terminology result in additional uncertainty for deciphering the true intent of significant tax legislation.

It would be beneficial to recognize the inherent inconsistencies of terminology applied in tax laws and regulations, and commence inclusion of verbiage and definitions that provide clarity promoting consistent application, implementation and enforcement of international tax guidelines.

Category:

OECD / UN, Transfer Pricing

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2014 Update to the OECD Model Tax Convention

The 2014 Update, as adopted by the OECD Council on 15 July 2014, includes changes that were previously released for comments, including the meaning of “beneficial owner.”  Numerous additions and deletions to Commentaries on various Articles, including positions of non-member countries, are also included.  A link to the Update is provided for reference:

http://www.oecd.org/tax/treaties/2014-update-model-tax-concention.pdf

Interesting changes:

  • Article 5 Commentary: new views by Germany, Estonia, and Israel.
  • Article 9 Commentary: Hungary (newly added) and Slovenia reserve the right to specify that a correlative (i.e., offsetting) adjustment will be made only if they consider that the primary adjustment is satisfied.
  • The term “beneficial owner” does not have reference to any technical meaning under domestic law, thus it should not be used in a narrow technical sense, rather, it should be understood in its context and in light of the object and purposes of the Convention including avoiding double taxation and the prevention of fiscal evasion and avoidance.
  • The term “beneficial owner” does not deal with other cases of treaty shopping, which can be addressed in specific anti-abuse treaty provisions, general anti-abuse rules (GAAR), substance-over-form or economic substance approaches.
  • Article 13 Commentary: With respect to paragraph 3.1, Austria and Germany hold the view that when a new tax treaty enters into force, these countries cannot be deprived of the right to tax the capital appreciation which was generated in these countries before the date when the new treaty became applicable.
  • Article 26 Commentary: The Commentary was expanded to develop the interpretation of the standard of “foreseeable relevance” and the term “fishing expeditions,” i.e. speculative requests that have no apparent nexus to an open inquiry or investigation.  The Commentary further provides for an optional default standard of time limits within which the information is required to be provided unless a different agreement has been made by the competent authorities.  The examples provided are to demonstrate the overarching purpose of Article 26 not to restrict the scope of exchange of information but to allow information exchange “to the widest possible extent.”

The Update requires a comprehensive review to determine potential implications, including beneficial ownership restrictions and ways of working by competent authorities.  Such review should distinguish changes to the Articles versus additions or deletions to the Commentary interpreting such Articles.  Note that the OECD BEPS changes will be an addition to this Update.

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OECD / UN

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Meeting of G5 Ministers: Tools to fight tax fraud & evasion

The Governments of France, Germany, Italy, Spain and the UK (G5) held a meeting on 28 April, 2014 to discuss progress on their mutual objectives to promote tax transparency and cooperation, fight tax fraud and evasion, counter harmful tax practices and respond to aggressive tax planning practices.  The following link provides detailed actions that were discussed:

Click to access Comunicado%20del%20G-5%20sobre%20reunión%20en%20Par%C3%ADs%2028%20abril%202014%20en%20inglés.pdf

Summary of discussions:

  • Agreement to sign the Automatic Exchange of Information (AEOI) agreements in alignment with the new, single, global OECD standard, joining 39 other jurisdictions that will effect exchange of information in 2017 with respect to 2015 data.
  • Reiteration of support to the OECD Base Erosion and Profit Shifting (BEPS) project.
  • Re: taxation of digital economies, the countries where companies conduct economic activities must be able to receive their “fair share” of tax.  To align this initiative, the G5 Ministers agreed on the interest of a flexible interpretation of the territoriality rules, including a Digital Tax Presence concept.
  • Transfer pricing rules must be adapted to ensure that profit and value creation are aligned, citing economic justification.
  • Tax avoidance re: hybrid mismatch arrangements should be addressed.
  • Country-by-Country (CbC) reporting is important, as it should provide all relevant tax administrations with the information necessary to complete a high level risk assessment.
  • OECD BEPS developments must be reflected at the EU level, encouraging review of the EU law and its impact on aggressive tax planning practices.

The conclusions set forth are significant for the following reasons:  Proposal by the G5, EU focused, collaborative discussions and agreement re: “fair share” of tax alignment, economic justification profit / value drivers, and a presumption that CbC reporting will provide information to complete a relevant risk assessment.

These initiatives should be monitored in alignment with the OECD BEPS proposals set forth for 2014 and 2015.

 

 

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OECD / UN

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EY 2013 survey: GAAR history/trends & Tax Treaty vs. domestic law application

Click to access GAAR_rising_1%20Feb_2013.pdf

The EY report is invaluable in explaining the origins of a general anti-avoidance rule (GAAR), recent developments and future trends.  It provides a comprehensive background on GAAR, including results from a survey of 24 countries.  The February 2013 report looks at various countries developing GAAR, European Commission recommendations, how and when GAAR measures may be invoked, and what companies can do to mitigate risk in their tax risk management.  One of the many highlights in the report is the comparison of tax treaties and domestic application of GAAR.

Examples of EY insights include the following:

  • GAAR is defined as a set of broad principles-based rules within a country’s tax code designed to counteract the perceived avoidance of tax.
  • Tax law designed to deal with particular transactions of concern are termed as either specific anti-avoidance rules (SAARs) or targeted anti-avoidance rules (TAARs).
  • China had started 248 GAAR cases in 2011, concluding 207 cases with taxes collected of $3.8 billion.
  • Each country will have its own definition of an “abusive” or “avoidance” transaction that could be the target of its GAAR.
  • A tax benefit, transaction or arrangement within GAAR regimes are not unified, thus requiring a close review of each country’s definitions.
  • GAAR independent review panels are developing to oversee its application
  • Virtually all countries have multiple SAAR and/or TAAR provisions, although only a few have been abolished with introduction of a GAAR.
  • Inconsistency of GAAR application to arrangements that have already been subject to one or more SAAR measures in that jurisdiction, including India, China and Chile.
  • China SAT seems to be expanding its beneficial ownership test into an anti-treaty shopping/anti-abuse test, creating more uncertainty.
  • The use of GAAR also extends to benefits provided by tax treaties.  Tax treaties include bilateral anti-avoidance provisions, although several countries are applying unilateral anti-avoidance measures via interpretations of existing treaties or applying domestic law GAAR provisions to treaty benefits.
  • Countries are including in their tax treaties explicit authorization of the application of domestic law anti-avoidance provisions.
  • Approx. 12 of 24 countries surveyed allow their GAAR provisions to override existing tax treaties, unilaterally or applying domestic GAAR.
  • 30% of participants from a 2012 GAAR webcast responded that they do not address GAAR within their tax risk management approach.
  • Best Practice: Use a tax governance framework with documented processes for significant transaction sign-off.
  • Best Practice: New GAAR, SAAR and TAAR proposals should be monitored and factored into the tax life cycle of a multinational business
  • Best Practice: Transaction documents should state the intended purpose of the overall transaction, as well as each step therein.
  • Best Practice: Document alternative positions considered, demonstrating that the final position was the only reasonable position to obtain the commercial objectives, and that there were no transactional steps taken that were explicable only in a tax benefit context.
  • Best Practice: Obtain external advice on significant transactions, including opinions on GAAR.

Several tables include insightful observations, including:

  1. Table 1, GAAR introduction timeline in various countries
  2. Table 2, Burden of proof for each country; taxpayer, tax authority, or shared
  3. Table 3, Examples of 2011-12 tax treaties with reference to application of domestic anti-avoidance rules in the treaty context.
  4. Table 4, Countries providing GAAR rulings/clearances

Additionally, eight questions are posed for a Board to ask in relation to GAAR:

  1. Does the transaction have a valid commercial purpose?
  2. Is the transaction unique and complex?
  3. Is the tax benefit material to the financial statement?
  4. Could the transaction  be undertaken in a different manner, without attracting the potential application of GAAR?
  5. Has an opinion been obtained that the transaction will more likely than not withstand a GAAR challenge?
  6. Is the transaction defendable in the public eye?
  7. What is the corporation’s tax risk profile both globally and locally?
  8. How comfortable is the corporation with litigation if it is required to defend the transaction?

The Appendix of the report provides answers, for each of the 24 countries, to the following queries:

  • Does a GAAR exist?  If so, year of introduction and effective date
  • Can the GAAR be applied retrospectively?
  • Do specific anti-abuse measures exist?
  • Does your country have specific legislation in place related to the indirect transfer of assets?
  • What are the circumstances in which the GAAR can be invoked?
  • Is the burden of proof on the taxpayer or taxing authority?
  • Does your country have a GAAR panel?
  • What is the attitude of the tax authority toward invoking a GAAR?
  • Is a clearance/rulings mechanism available?
  • Can the GAAR override treaties when invoked?
  • What penalties may result from the GAAR being invoked?
  • Provide a summary of key judicial decisions involving GAAR or other anti-abuse legislation.
  • Are there any legislative proposals or open consultations that may affect the future composition of a GAAR?

Prior posts for additional reference:

  • 6 August; U.N. Committee of Experts to address the Manual for Negotiation of Bilateral Tax Treaties in October 2013
  • 21 July; UK Finance Act 2013: GAAR has arrived
  • 19 July; OECD BEPS Report & Action Plan
  • 4 July; Italy: New Co-operative Compliance Program
  • 29 June; Board Oversight and Responsibilities for Tax Risk Management
  • 13 June; OECD: A Framework for Co-operative Compliance
  • 5 June; GAAR: India & International Perspective

This report is a comprehensive review of GAAR and should form a foundation for planning significant transactions and adopting Best Practices within the global Tax Risk Framework.  For example, the eight questions to be posed by the Board could form Best Practices for planning significant transactions.  The report is a valuable tool for regional and global tax teams as the trend of GAAR, and understanding its subjective principles, is becoming more complex in today’s ever-changing tax environment.   

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Tax Risk Management, Transfer Pricing

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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.

Category:

Tax Risk Management, Transfer Pricing

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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.

Articles

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Transfer Pricing

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European Council May Agenda: Energy; Tax Evasion/Avoidance/Fraud

http://www.european-council.europa.eu/the-president.aspx

In a speech by European Council President Herman Van Rompuy, he mentioned energy and taxes as two issues that will be discussed at the meeting in May.  Interestingly, the press release states: “The other issue I put on the May agenda for European leaders is tax evasion and avoidance.  There we have to seize the current political momentum, especially on improving exchange of information between our countries.  Tax fraud is exactly the kind of issue where it is first and foremost for Member States to act, but where they cannot effectively do so on their own.”

  • The phrases “tax evasion,” “avoidance” and “tax fraud” all seem be used interchangeably with no distinction in application or meaning.  This seems to be a growing trend in public communications, leading to potentially wrong conclusions and inappropriate actions.  Ensure the relevant phrases, supplemented by intent, are used to convey the message.
  • Ensure one or more members of Tax are keeping aware of these meetings and trends.
  • Inform senior management regularly of current trends, as perceived by the European Council and Member States.

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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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