Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘tax risks’

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:

Click to access 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.

China – Tax risks re: outbound payments

The State Administration of Taxation (SAT) has focused its risk determinations for outbound payments.  Supplementing this focus, the State Tax Bureau of Zhejiang Province (Zhejiang STB) recently issued its Guideline for Administration of Tax Risks on Outbound Payments to Overseas Related Parties.

PwC’s Business Advisory provides details of this new focus on tax risk:

Click to access 635731620115472907_chinatax_news_jul2015_33.pdf

Key observations:

  • Incentivized by BEPS Acton Plans, and local tax practices
  • Six tests for profit shifting/base erosion:
    • Authenticity
    • Necessity
    • Benefit
    • Value creation
    • Duplication
    • Remuneration
  • Required relevant information  during record-filing for outbound payments

The timeliness of providing contemporaneous transfer pricing documentation, subjective tests for assessment of benefit / value for intercompany services, varying interpretations of internal guidance and lengthy appeal processes are becoming more common, evidenced by this recent focus by China and followed in many other jurisdictions.

The additional focus has introduced additional uncertainty, as well as less consistency, in jurisdictions around the world.  However, the concept of simultaneous corresponding adjustments are generally not addressed in such initiatives, thereby increasing the level of double taxation for MNE’s.

A Best Practice approach will require additional resources focused upon such efforts, as the probability of double taxation increases exponentially.

 

Tax Function of the Future; Insights

PwC’s publication, referenced herein, provides revealing predictions and insights into the tax function of the future.

Click to access pwc-tax-function-of-the-future.pdf

Key observations:

  • Reputation is being impacted by external perceptions, therefore companies need to respond clearly and succinctly to a wider stakeholder base.
  • A course must be charged for continual transformation.
  • Many jurisdictions will legislatively require adoption of a tax control framework, which will be shared with tax authorities.
  • Dedicated tax data hubs will become mainstream; data is the new business currency.
  • Most global tax compliance and reporting activities will be performed via shared service centers and/or third parties.
  • Tax professionals will require strategic risk management skills.

As post-BEPS time nears, with inherent complexities and global disparities, the time to examine current and ideal states of the tax function should be an immediate priority to avoid recurring reactive responses.

%d bloggers like this: