The Council of the European Union (ECOFIN) has published its list of uncooperative tax jurisdictions, numbering 17:
American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates
The listing criteria are focused on three main categories: tax transparency, fair taxation and implementation of anti-BEPS measures.
There are potential counter-measures that could be employed by other jurisdictions, and there is the possibility of other countries aligning such countries on a comparable list. This list will be reviewed annually, thereby expanding or diminishing accordingly.
EY’s Global Tax Alert provides historical context for development of this list.
The European Parliament’s Policy Dept. A has provided a tax policy paper upon the request of the TAXE Special Committee of European Parliament. An EY summary, and detailed report, are provided for reference:
Developing country tax governance issues
Tax system trends and challenges
Impact of tax havens on EU countries
Challenges faced by tax policy makers
Exchange of information
Harmful tax competition
As the EU has stepped in to take the lead on various post-BEPS initiatives, this policy paper is recommended reading to gauge the trend in these topics that will also take place worldwide.
The latest EY tax risk and controversy survey series, entitled A new mountain to climb, provides some insights re: preparing for and proactively management tax / reputational risks. A link to the report is provided for reference:
Media coverage of how much companies pay in tax / low effective tax rates is extensive, although engaging with the media is seen by many companies as a “no-win” situation.
Leading companies have transformed the process of communication for tax risks and controversy to internal and external stakeholders.
Transparency is providing information to tax authorities re: how much tax is being paid in other jurisdictions as a tool to decide if the company is paying enough tax in their jurisdiction.
Global disclosure and transparency requirements will continue to grow in the next two years.
Transparency readiness of companies is a significant and underestimated need.
Direct ERP access by tax authorities represents a next phase of risk assessment.
Transparency readiness can help mitigate reputation risk.
Reputation risk strategy elements:
Actively monitor the changing landscape.
Assess readiness/desire to respond.
Enhance communication with internal and external stakeholders.
Gain insight into the total tax picture through the lens of public perception.
Decide with whom the company wishes to communicate.
Embed reputation risk thinking into core business strategy.
Transparency is the new norm, and (media) reputation risk may be a permanent risk.
Transparency demands have created a new toolbox required by all multinational organisations.
A tax policy and reputation risk strategy should be essential tools in a comprehensive tax risk framework. The EY report is required reading for all parties interested in learning more about tax risk trends and Best Practice ideas to proactively address the new world of transparency.
Poland’s latest amendments to its Draft Bill incorporates a major change to the date for submission of a country-by-country report (CbCR).
The original draft (refer to 28 May 2015 post) provided a 1/1/2016 effective date, with the CbCR due at the end of 2017 for 2016 data. However, the latest draft moves the effective date of the Bill to 1/1/2017, however it also states that the CbCR must be attached to the 2016 corporate income tax return, generally due 3 months after the end of the tax year.
The final version of the bill should be monitored closely, as it would accelerate submission of the CbCR to 31 March 2017 for 2016 activity, which is significantly earlier than the 31/12/2017 date (for calendar year taxpayers) envisioned by the OECD’s BEPS Action 13 Discussion Draft.
The latest changes reflect the increasing emphasis on transparency and assessment of transfer pricing risk, a trend that is closely followed by all other countries in assessing their urgent need for transparency.
The EY publication link is attached for additional reference:
Australia continues to lead the way after its completion of cloaking new PE rules within its GAAR legislation, thereby avoiding the protection of the double tax treaty network.
A voluntary tax disclosure code concept is in deliberation by the Australian administration for its 2105-16 Budget. This disclosure would be in addition to other disclosures, such as country-by-country (CbC) reporting.
KPMG’s commentary herein provides a snapshot of this potential new trend that should be monitored by multinationals, as countries around the world are also watching this recent development for perceived benefits.
Corporate tax disclosure code: next big thing in tax transparency?
by Stephen Callahan, Director, and James Gordon, Senior Manager, Corporate Tax
The 2015-16 Budget proposals to introduce a multinational (MNE) anti-avoidance rule and to levy GST on cross-border digital services grabbed the immediate headlines in the large business market.
However, arguably the more far reaching tax integrity proposal is the Board of Taxation review into the development of a voluntary code for greater public disclosure of tax information by large corporates.
There is the obvious, and as yet, unanswered question as to exactly which businesses the proposal is directed towards. Nevertheless, some initial thoughts on possible influences in this review include:
The controversy and confusion surrounding tax performance analytics based on financial statement tax
The tension between community expectations on disclosures covering tax, related party transactions and investment in subsidiaries as against the need for concise reporting for capital market purposes.
Debates surrounding what comprises a business’ tax contribution to a country and the measurement of effective tax rates.
Global developments on alternate models for improved tax transparency.
Tax contribution reporting by an increasing number of multinationals.
The relationship, if any, between a voluntary disclosure code and an involuntary tax transparency publications by the ATO.
We await with interest to see the terms of reference of the Board of Taxation review.
My prior post of 30 May 2015 revealed that the European Commission would be developing a new Action Plan, the contents of which are hereby revealed.
The objectives of the new Action Plan are:
Re-establish the link between taxation and where economic activity takes place
Ensuring that Member States can correctly value corporate activity in their jurisdiction
Creating a competitive and growth-friendly EU tax environment
Protecting the Single Market and securing a strong EU approach to external corporate tax issues, including BEPS measures, to deal with non-cooperative tax jurisdictions and to increase tax transparency
The new Action Plan is provided for reference:
5 Key Action Areas:
Mandatory Common Consolidated Corporate Tax Base (CCCTB), with the consolidation component included as a second step.
Taxation of profits where they are generated (“However, it is clear that the current transfer pricing system no longer works effectively in the modern economy.”)
Enhance the EU’s tax environment via cross-border loss offset and improving double taxation dispute resolution mechanisms.
Increased tax transparency via an EU-wide list of third country non-cooperative tax jurisdictions and assessing whether additional disclosure obligations of certain tax information should be introduced.
Providing EU Coordination Tools to improve Member States’ tax audit coordination and reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance.
The European Commission’s Action Plan clearly reveals a large step away from the traditional arm’s-length transfer pricing principle and toward an economic activity based source of taxation. This clear divergence, with the OECD and established legislation in most countries, sets the stage for a new evolution in transfer pricing and a hybrid of different approaches by various jurisdictions in the next several years.
Accordingly, the Action Plan is required reading to appreciate short and long-term objectives of the European Commission to unify the Member States.
EY’s publication discussing tax reputation readiness and transparency provides suggestions for increasing readiness with good processes, robust documentation/audit trail and class-leading data management. The publication is very timely, noting the recent European Parliament’s unanimous vote for public reporting of country-by-country (CbC) and beneficial ownership information.
More than 60% of companies believe that engaging with the media is a “no-win” situation.
Excellent timeline/events of transparency initiatives commencing from 2003 until present, and future, state.
65% of respondents have developed a more structured approach to managing their public tax profile in the previous 2 years.
94% of respondents expect increased growth in global disclosure and transparency initiatives.
“Business can do more and be more proactive to prepare for new reporting obligations and, as one proposed step, either proactively or defensively, Whatever choices a business makes, developing and sustaining the ability to source accurate data, in the right format and in a timely manner will be a critical factor for all large businesses in the years ahead.”
Multiple transparency initiatives are succinctly depicted in a table on page 9.
Transparency will be the new normal.
Quality information requires quality data.
Transparency readiness is a significant and underestimated need of companies.
Transparency readiness assessment questions are posed for consideration.
Detecting risk anomalies in the data is an important consideration; thoughtful questions are posed for review.
Companies that can quickly and clearly explain their tax transactions and strategies are best positioned to manage reputation risks.
Six proactive actions to consider:
Actively monitor the changing landscape
Assess readiness, and desire, to respond
Enhance communication with internal and external stakeholders
Develop steps to prepare the total tax picture
Decide with whom the company wishes to communicate
Embed reputation risk thinking into core business strategy
This survey provides an excellent approach and proactive roadmap in addressing the challenges, readiness and complex actions required to develop transparency readiness and engage reputation risk proactively. Accordingly, this should be required reading for all MNE’s as a primer and self test mechanism to address the new era of international tax transparency and potential angles of attack for reputation risk.
Australia’s Budget reveals its intent on becoming a leader in tax transparency and implementation of tools to address anti-avoidance initiatives. The provisions cite OECD BEPS initiatives, while deciding to act unilaterally on draft guidelines and introducing new transparency standards within its various proposals.
This Budget may set the stage for others to follow similar trends and timelines; accordingly such actions should be monitored in Australia as well as the rest of the world. The Public Tax Transparency Code is another signal that reporting of economic and tax activity will be used as a public measure to assess reasonableness for determining payment of a “fair share of tax.”
MNE’s have now fully realized the impending complexity, documentation demands and transparency standards that it will be judged by. Internal education, communication and alignment are now vital in establishing a MNE’s global tax risk framework.
A link to the Budget actions is provided for reference:
Cooperation between Member States, exemplified by EU Tax Transparency Package initiative (refer to 22 March 2015 post)
Full transparency cost/benefit assessment re: Country-by-Country reporting for public disclosure
New Action plan before summer (an issue that is fundamental to the EU) building on global developments
Assess relaunch of Common Consolidated Corporate tax base (CCCTB)
The European Commission is accelerating its efforts, resulting in a potentially different documentation framework than the OECD Guidelines may suggest and/or a basis that the rest of world will follow. The Commission has the necessary momentum and political cohesiveness to achieve its efforts for the EU, although with a possible demarcation with the rest of the world.
CbC reporting by MNE’s continues its actions on center stage as MNE’s should plan for (if they have not already) public disclosure of such reporting. Thereby, the topics of supplemental reporting (i.e. indirect tax contributions, etc.) become more important for senior leaders to consider. Finally, such disclosure warrants a seamless governance process and alignment for addressing future questions by interested parties.
KPMG’s informative tax guide not only provides detailed insight into the indirect tax schemes of 21 APAC countries, but most importantly offers valuable insight into the future including the role of Big Data. Indirect tax developments are becoming more significant, evidenced by a new GST for Malaysia effective 1 April 2015.
The indirect tax base will become more comprehensive and a global framework for cross-border services and intangibles will form a consistent “destination” principle approach.
Post-2020 Big Data propositions:
Real time tax settlement
Big Data will close the VAT/GST gap
Tax transparency debate will shift to indirect taxes
Data quality and analysis will be the new audit background
You won’t control all your own data
Your data will become very interesting to others
Indirect tax rules will be written with data analytics in mind
Tax manager role will be redundant by 2020
The Guide provides valuable thoughts about the future of indirect taxes, while providing a comprehensive reference for APAC indirect taxes of 21 countries. This trend is already seen with ERP data analyses conducted by IS experts within the tax administrations. As BEPS induced transparency has become the new focus for direct taxes, indirect taxes will surely be the next frontier.
In the context of State Aid, aggressive tax planning, tax avoidance and competition for a country’s fair share of tax, the European Commission has broadened its earlier request for taxpayer rulings to include all tax rulings of all Member States from 2010 to 2013. This initiative introduces additional transparency into the ruling practice of Member States.
Most importantly, the tax cost for denial of tax benefits for previously issued rulings is incurred by the respective companies, not the Member States. MNE’s can participate, directly and/or indirectly, into the process if such rulings are formally investigated. A link to the press release is attached for reference:
Loyens & Loeff provides a comprehensive and concise summary of the focus for the OECD BEPS Action 5, Countering Harmful Tax Practices. One of the priorities for this action is to improve transparency, with the EU Directive on Cooperation as a possible tool to carry out this objective. The Council Directive on administrative cooperation is highlighted to draw attention to its possible role in the OECD BEPS drama. An excerpt from their summary, and a link to their article, are provided for reference:
“Another priority under Action 5 is to improve transparency, including compulsory spontaneous exchange on rulings related to preferential regimes. To that extent the FHTP has put together a framework that describes in which situations, which information on which rulings should be exchanged between which countries. The Report mentions that the information exchange may take place on the basis of existing legal instruments, such as bilateral information exchange instruments, the Convention on Mutual Administrative Assistance in Tax Matters and the EU Directive on cooperation in the field of taxation. However, it remains unclear on what legal basis countries would have the obligation to exchange this specific information and how confidentiality can be guaranteed. Furthermore, it can be expected that such obligation may conflict with domestic legal requirements. The Report is also silent on how this should be handled.”
Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation, is applicable as of 1 January 2013 and is repealing the Directive 77/799/EES and lays down clearer and more precise rules governing administrative cooperation, in order to establish a wider scope of administrative cooperation between Member States.
The opportunity for OECD to successfully carry out is Action Plans relies on a legal instrument that provides automatic and timely implementation by the relevant countries. A forthcoming multilateral instrument may also be a possible tool to accomplish its objective. It is critical to monitor the implementation of this objective, as countries may comply completely, partially or not at all. Therein lies the complexity.
Ernst & Young (EY) have published their 10th issue of T Magazine, highlighting the topics of tax risk and controversy. The link is attached for reference:
GAAR, Burden of proof: Taxpayer, Tax authority or Shared; summary of 24 countries.
Sustained government pressure on tax compliance means tax risk is now an issue for corporate boards, not just tax directors.
Clarity is now the key attribute in any message about tax that companies convey to the outside world.
As emerging markets become more confident and sophisticated, they are challenging commonly applied international tax standards.
The OECD’s “Tax Inspectors Without Borders” program (details in a prior post of 9 June 2013) seeks to match demand from countries wanting assistance with complex international tax audits with the supply of international tax experts.
Companies need to improve local knowledge of risk rating processes in each Asian country, including key focus areas and potential audit triggers.
Organizations need to show a willingness to engage with policymakers and administrators to improve policy proactively.
Tax authorities are increasingly adopting the OECD’s concept of the “economic employer” to determine tax liabilities, rather than a treaty residence rule.
Creating a PE is the biggest tax risk companies face from sending employees on business or assignments overseas.
An increasing number of companies have appointed a head of tax controversy to manage tax risk and its implications.
Companies must be prepared to become more transparent.
Tax risk and transparency are the new challenges to be met by multinationals. The T Magazine is a valuable resource in understanding today’s risks, and the manner in which these issues will transform current standards into leading Best Practices, tax risk policies and processes.
The OECD published the OECD Guidelines for Multinational Enterprises (Guidelines) in 2011, this being the latest version of the Guidelines.
A unique feature of the Guidelines is the implementation of National Contact Points (NCPs), agencies established by adhering governments to promote and implement the Guidelines. They also provide a mediation and conciliation platform for resolving practical issues that may arise. Chapter XI of the Guidelines, Taxation, that begins on page 60 outlines important concepts including timely tax compliance, cooperation with tax authorities, compliance with the letter and spirit of the tax laws and regulations of the relevant countries, and conforming transfer pricing principles to the arm’s length principle.
These principles should form an important foundation for a company’s Tax Policy and/or Tax Risk Framework, providing transparent objectives in the global tax risk profile. The link to the Guidelines are provided for reference.
There is also a link to the Annual Report on the OECD Guidelines for Multinational Enterprises 2013, which describes the activities undertaken to promote the observance of the Guidelines during the period June 2012 – June 2013. The Annual Report outlines the role of the NCPs, and content of proposed violations (inclusive of Taxation), that have been submitted for review. All OECD countries, and 11 non-OECD countries (Argentina, Brazil, Columbia, Costa Rica, Egypt, Latvia, Lithuania, Morocco, Peru, Romania and Tunisia) adhere to the Guidelines.
The OECD Task Force’s role is to advise the OECD Committees in delivering a Tax and Development Programme focused on developing countries. Co-chaired by South Africa and the Netherlands, its members include OECD and developing countries, business, and regional/international organisations.
The annual meeting was held 30-31 October in Seoul, Korea, with the following points of emphasis.
State building, accountability and effective capacity development, including governance of tax incentives and a feasibility study on Tax Inspectors Without Borders initiative (9 June post)
More effective transfer pricing regimes in developing countries, with country initiatives in Columbia, Ghana, Honduras, Kenya, Rwanda, Tanzania and Vietnam developed in partnership with the EU and World Bank.
Increased transparency in the reporting of financial data by MNEs, identifying Best Practices while monitoring developments of the Dodd-Frank Act and proposals for revising the EU Transparency Directive.
Countering international tax evasion/avoidance and improving transparency and exchange of information, preparing countries for peer reviews by the Global Forum on Transparency and Exchange of Information and developing exchange of information projects in Kenya and Ghana.
The report provides added value with numerous links to referenced initiatives (i.e., Tax Inspectors Without Borders, EU Transparency Directive) for a comprehensive understanding of the multiple initiatives being developed.