Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘tax planning’

Tax disclosure framework: Map to transparency

KPMG has engaged with several UK headquartered multinationals to address how to proceed with future, and dissimilar, demands for transparency.  Although focused on UK based organisations, the framework promotes valuable Best Practices that can be used globally.  A link to the insightful article is provided for reference:

https://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Tax/developing-a-common-frameword-for-disclosing-tax-information.pdf

Five themes for a tax disclosure framework:

  1. Strategy/policy and approach to tax
    1. Tax policy
    2. Tax planning and risk approach
    3. Engagement with tax authorities
  2. Tax risk governance
    1. Link between tax strategy and governance
    2. Tax compliance and tax risk monitoring
    3. Non-compliance governance tools
  3. Business model
    1. Overview, including tax attributes for effective tax rate and cash taxes
    2. Transfer pricing overview
    3. Operations in low tax jurisdictions
  4. Tax contribution
    1. Data/narrative re: sales, profits and taxes paid
    2. Types of taxes paid and use of a company’s profits
  5. Specific information related to material issues
    1. Tax losses/carryovers
    2. Tax incentives/holidays
    3. Material items, such as pension contributions

The above issues exemplify the difficulty in developing a comprehensive framework, or flexible tool, to meet the varying transparency demands resulting from OECD, EU and UN guidelines and unilateral legislation efforts around the world.

The most important point is that the timing for the thought processes for a tax disclosure framework is now; there are no signs of the demand for tax transparency diminishing.

UK risk proposals: Public tax strategy, Voluntary Code of Practice and Special Measures

HMRC has issued consultation documents proposing requirements to publish a “tax strategy,”, voluntary Code of Practice corporate tax processes and creation of a “special measures” regime.  Comments are due by 14 October 2015 for each Consultation document.

These proposals follow closely upon the heels of the ATO issuance of Best Practice methodologies addressing a taxpayer’s tax risk.

Three documents are provided for reference: (1) A Clifford Chance Briefing note, (ii) HMRC’s Consultation document for Improving Large Business Tax Compliance and (iii) HMRC’s Consultation document on Strengthening Sanctions  for Tax Avoidance.

http://www.cliffordchance.com/briefings/2015/07/mandatory_tax_strategiesacodeofpracticean.html

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447313/Improving_Large_Business_Tax_Compliance.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447320/Strengthening_Sanctions_for_Tax_Avoidance_-_A_Consultation_on_Detailed_Proposals.pdf

Executive brief:

  • Public availability of a company’s tax strategy (financial penalty for non-disclosure) including:
    • Tax internal governance arrangements
    • Risk management approach
    • Tax planning attitude and tax risk appetite, including affirmation that it aims to satisfy the spirit, as well as the letter of the law
    • Attitude to relationship with HMRC
    • Target UK effective tax rate (if applicable), and what measures are being taken to achieve it
  • Voluntary Code of Practice, including affirmations that:
    • Tax planning is consistent with the economic consequences
    • Transactions provide a tax result that is in accordance with the intentions of Parliament: “HMRC will consider a purposive construction of the legislation, and will also consider whether Parliament can realistically have intended to give the proposed result in circumstances that are very different from those that prevailed at the time”
    • Transparent relationship is maintained with HMRC
    • Tax obligations are met
    • Early dialogues for engagement with HMRC to discuss tax planning, strategy, risk, significant transactions and full disclosure of areas providing significant uncertainty
    • Objective evidence is provided to HMRC that decisions with tax implications have been approved by a senior decision maker
  • Special Measures for companies entering into aggressive tax planning / failing to transparently engage withHMRC, including:
    • Providing all documentation (including third party tax advice) related to tax
    • Refusal to provide non-statutory clearances
    • Public naming
    • Automatic 100% tax penalties

Observations in the Documents:

  • Attitudes to tax avoidance and aggressive tax planning have altered significantly, including political interest
  • Intention is to create Best Practices
  • The Government is awaiting the EU Tax Transparency Package consultation, and will consider its findings carefully
  • Proposal is separate from the current SAO regime, as well as the OECD’s country-by-country reporting guidelines
  • A company could be required to state in their tax strategy whether they are a signatory to the Voluntary Code of Practice
  • Non-publication of a tax strategy will be a consideration of HMRC’s tax risk reviews
  • Evidence of “governance in action” to be provided
  • Voluntary Code of Practice is aimed at tax planning that crosses over into tax avoidance
  • The company should reasonably believe that transactions give a tax result which is not contrary to Parliament’s intentions
  • Special measures will remain for a minimum of 2 years

A higher standard of tax excellence is being demanded by public pressures and tax administrations in the form of an objective tax risk framework overseen at the Board level and subject to internal control testing.  HMRC’s proposals are being followed by other countries worldwide, and similar measures would not be unexpected in other jurisdictions.  Accordingly, all interested parties should review the documents, and provide comments thereto.

 

GAAR: India & International Perspective

http://www.pwc.in/assets/pdfs/publications-2012/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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