The Tax Executives Institute, Inc. (TEI) previously issued excellent comments regarding divergent views of the Big 4 accounting firms for US GAAP tax accounting issues for the new US Tax Act aspects.
These views are still divergent today as we approach the end of March, and further issues continue to develop that impact the cash tax and tax reporting aspects for the US Tax Act. Accordingly, the same facts may provide a different repatriation tax liability and tax accounting for different multinational companies, certainly a difficult variable for comparison by tax experts and, most importantly, by investors.
As these positions may continue to diverge, position papers and discussions with the audit firm, Audit Committee of the Board of Directors and the company should be scheduled to ensure there are no surprises as earning release dates are emerging.
On October 19, 2017, Tax Executives Institute (TEI) filed a letter with the Platform for Collaboration on Tax, a joint initiative of the World Bank, OECD, International Monetary Fund, and United Nations, regarding the Platform’s draft toolkit on the taxation of offshore indirect transfers. TEI’s comments focused on the need for the Platform’s toolkit to educate and provide options to nations considering taxing offshore indirect transfers, rather than prescribing a preferred approach, among other things.
The Platform for Collaboration on Tax (the Platform), a joint initiative of the Organisation for Economic Co-Operation and Development, International Monetary Fund, United Nations, and World Bank, released a document entitled The Taxation of Offshore Indirect Transfers – A Toolkit (the Draft Toolkit or Toolkit) on 1 August 2017. The Draft Toolkit was designed to help developing countries address the complexities of taxing offshore indirect transfers of assets, which the Platform states is a practice by which some multinational corporations try to minimize their tax liability.
The toolkit and TEI’s submission paper are referenced herein for review
Highlights of TEI’s comments include the following points:
- There should be symmetry and neutrality as compared to direct asset transfers
- Status of toolkit is unclear, and is not a source of authoritative guidance
- The goal of the draft toolkit is unclear
- A capital gains tax can distort economic transactions
- Gains and losses should be the subject of the toolkit
- Most indirect transfers are made for economic, not tax, reasons
- The general treaty definition of immovable property seems to have been abandoned with no reason
The toolkit can be applauded for launching a multi-organizational approach with some good ideas, although such ideas should be further challenged and developed prior to an overall vision and detailed rules promulgated
The Tax Executives Institute (TEI) has provided comments to the FASB’s proposed changes to disclosure requirements for the reporting of income taxes. As the increased transparency demands continue, the attached views exemplify the theoretical and practical considerations for new standards re: added benefits for the readers of financial statements.
As the world of tax increases in complexity, public disclosures should avoid subjective and forward looking projections, as well as avoiding any potential conflicts with strategic forecasts and confidential information.
TEI’s comments are well written and should be welcomed by the tax and financial community looking to increase the transparency and practicality of financial statement times without duplication or non value-added actions.
As a long-standing advocate of Tax Executive Institute’s (TEI’s) expertise and peer networking for all executive tax members of multinationals, their reappointment as a member of the VAT Expert Group is a sound testament to their advice for the international tax community.
Additionally, TEI’s training programs, and opportunities to be a guest speaker, should be taken advantage of if one has the opportunity.
TEI Appointed as Member to the European Commission’s VAT Expert Group
On September 30, 2016, the European Commission reappointed TEI as a member of the VAT Expert Group for a three-year term. The VAT Expert Group was established in 2012 for the purpose of “advis[ing] the Commission on the preparation of legislative acts and other policy initiatives in the field of VAT” and “provid[ing] insight concerning the practical implementation of legislative acts and other EU policy initiatives in the field of VAT.” The VAT Expert Group’s next meeting will take place on October 17, 2016 in Brussels.
TEI has participated as a member of the VAT Expert Group since its inception. Allard van Nes will continue to continue to serve as TEI’s primary representative and Lorry G. Limbourg will serve as Mr. van Nes’ alternate. TEI wishes to thank Lynne Clare for her work as the alternate representative during TEI’s prior terms.
Tax Executives Institute, Inc. (TEI) has recently submitted comments in response to OECD’s public discussion draft on Action 15 re: technical issues for the upcoming Multilateral Instrument.
A link to TEI’s excellent comments are provided for reference:
- Mandatory binding arbitration was not included, thus the increase in MAP cases seem inevitable.
- A “baseball” type of arbitration is recommended.
- All MAP cases should be eligible for arbitration.
- All signatories should adopt the Action 14 minimum standard.
- Countries should have the ability to choose what treaty-related BEPS measures it will adopt.
- Countries should have the ability to choose what treaty partners and relevant tax treaties would apply for various BEPS provisions.
- The modified provisions are only effective upon official ratification.
- A new peer process should be adopted for treaty interpretation.
The multilateral instrument is key to the consistent application of BEPS Actions, and the well-written TEI comments are highly recommended for all interested parties.
The referenced TEI comments provide an excellent understanding into the challenges and complexity of Cost Contribution Arrangements (CCAs). http://tei.org/Documents/TEI%20Comments%20BEPS%20Action%208%20-%20CCAs%20-%20FINAL%20to%20OECD%2028%20May%202015.pdf\ Key observations:
- The Discussion Draft comments deviate from the current accepted methodology of sharing costs (apart from contributions of pre-existing intangibles at fair value) into an assessment of value in order to be consistent with the arm’s length principle.
- A CCAs risk arrangement is much different than other contractual arrangements, for which comparability is illusory.
- The Draft provides that low value-added series should be valued at cost for practical reasons, whereas BEPS Action 10 prescribes an election to value such services at a markup of 2-5%. These approaches should be aligned.
- If contributions are measured at value vs. cost, clarity of withholding tax application would be welcome.
- The condition of required balancing payments should be removed as it is not a feature of arm’s-length adjustments.
- Qualifications for a CSA participant should be clarified, as the Draft precludes a participant unless it has “the capability to make decisions to take on the risk-bearing opportunity, to make decisions on how to respond the the risks, and to assess, monitor, and direct any outsourced measures affecting risk outcomes under the CCA.”
- Funding the research and development in a CCA should receive increased emphasis.
- Complex and extreme examples should be accompanied by practical and easy examples to implement CCAs.
TEI’s comments introduce well written rationales for suggested changes to the Draft, resulting in a win-win opportunity for taxpayers and tax authorities. CCAs seem to be difficult to comprehend in various tax jurisdictions, thus the practicality to be introduced would significantly reduce misconceptions / assumptions for the use, and benefits, of a CCA.
TEI has provided recent comments addressing OECD’s Discussion Draft for BEPS Action 3: CFC rules. A link to their comments are provided for reference:
- Lack of definitive guidance will introduce additional complexity, double taxation and inconsistency of treaty applications.
- Overlap with other BEPS Actions and the role of CFC rules questions new complex rules at this time.
- Confusion re: transfer pricing rules and excess profits approach with arm’s length principle.
The well drafted comments provide clarity surrounding the complexity and uncertainty for new rules addressing BEPS concerns by interested parties. The first question therefore should always be: Do we need these rules at this time?
Notwithstanding the Discussion Draft’s proposals and comments by TEI, among others, MNE’s should plan for increased efficiencies to coordinate and report information, while ensuring global consistency for application of transfer pricing methodologies.