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
- Tax transparency
- Illicit activities
- 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.