Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘World Bank’

Offshore indirect transfers: TEI’s comments

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

 

Click to access discussion-draft-toolkit-taxation-of-offshore-indirect-transfers.pdf

 

Click to access TEI-Comments-Offshore-Indirect-Transfers-Oct192017.pdf

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Tax Risk Management

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The Platform’s TP toolkit

On 22 June 2017, the “Platform for Collaboration on Tax” (the Platform) – a joint effort of the Organisation for Economic Co-operation and Development (OECD), United Nations (UN), International Monetary Fund (IMF) and World Bank Group (WBG) – released a toolkit (the Toolkit) designed to help developing countries address the lack of “comparables” for transfer pricing analyses and better understand mineral product pricing practices.

This Toolkit should also be reviewed by multinationals (MNEs) in developing countries to address the potential lack of comparables to better understand how the tax authorities will approach a transfer pricing audit.  The mining supplement is required reading for those working in that industry.

Additional toolkits will be forthcoming:

  • TP documentation
  • Indirect transfer of assets
  • Base eroding payments
  • Tax treaty negotiation capacity
  • Supply chain management
  • BEPS risk assessment

As the first edition of the Toolkit has now been published, it will be interesting to watch developing countries apply the tools prescribed, providing a baseline going forward.  All international tax practitioners should be familiar with this latest joint endeavor, as it is an indication of the shared resource approach that is now our future.

EY’s Global Tax Alert provides additional details, and the OECD Toolkit are referenced for review.

Click to access 2017G_04037-171Gbl_OECD%20UN%20IMF%20and%20World%20Bank%20issue%20toolkit%20for%20difficulties%20in%20accessing%20comparable%20data%20for%20TP%20analysis.pdf

Click to access toolkit-on-comparability-and-mineral-pricing.pdf

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OECD / UN

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TP & Developing Economies: World-Bank Handbook

The attached link provides access to an invaluable transfer pricing (TP) handbook which is an excellent resource for all international tax practitioners/advisors.

With the advent of the BEPS era and new/novel approaches to arms’s-length pricing are voiced, this resource is a great desktop reference with experience gained by the authors in both applying TP principles as well as teaching those principles to tax administrations in developing economies.    

Examples and “boxes” of summary content are provided in the handbook, in addition to a discussion on TP disputes that is inevitable with BEPS Actions and unilateral actions (both legislative and “soft law”) being applied across the world.

A summary of the chapter titles provides a summary of the details therein:

  • TP, Corporate strategy, and the Investment Climate
  • The International Legal Framework
  • Drafting a TP Legislation
  • Applying the Arm’s-Length Principle
  • Selected Issues in TP
  • Promoting Taxpayer Compliance through Communication, Disclosure Requirements, TP Documentation, and Penalties
  • Avoiding and Resolving TP Disputes
  • Developing a TP Audit Program

https://openknowledge.worldbank.org/handle/10986/25095

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Transfer Pricing

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IMF, World Bank: Support for developing countries

The World Bank and the IMF have released a new initiative to support tax systems in developing countries; a link to the press release is provided for reference.

http://www.imf.org/external/np/sec/pr/2015/pr15330.htm

Key observations:

  • World Bank Group President Jim Yong Kim’s statement: “If everyone pays their fair share – developing countries can close their financing gaps and promote inclusive growth.”
  • The IMF and World Bank will continue to collaborate with the OECD and other development partners in expanding tax assistance and expertise.
  • Two pillars of development:
    • International tax dialogue to increase their collective voice
    • Developing diagnostic tools to evaluate and strengthen tax policies

These developments will be a key metric to monitor, in view of the increased complexity and documentation demands in a post-BEPS era.

Multinationals may also view these developments as added impetus to be more proactive in engaging with tax authorities in developing countries to better understand their business, as well as provide expertise in the complex transfer pricing arena.

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OECD / UN

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APAC: BEPS Best Practices by tax administrations

The Study Group on Asian Tax Administration and Research (SGATAR) met recently in Sydney, resulting in the creation of a new task force for the Asia-Pacific region to collaborate on OECD BEPS initiatives while enabling cooperation to develop cohesive tax systems in each jurisdiction.  A link to the Communique is attached for reference:

https://www.sgatar2014.org/media/communique

SGATAR 2014 brought together almost 200 delegates, including representatives from the Asian Development Bank (ADB), Inter-Amercian Center of Tax Administrations (CIAT), Asia-Oceania Tax Consultants’ Association (AOTCA), International Bureau of Fiscal Documentation (IBFD), OECD and the World Bank Group (WBG).

SGATAR members include the following jurisdictions: Australia, Cambodia, People’s Republic of China, Hong Kong SAR, Indonesia, Japan, Republic of Korea, Macao SAR, Malaysia, Mongolia, New Zealand, Papua New Guinea, The Philippines, Singapore, Chinese Taipei, Thailand and Vietnam.

Best Practice observations:

As each of these countries propose unilateral legislation, it should be closely monitored as it may well form a foundation of Best Practices  and SGATAR collaboration for the Asia-Pacific region.  A recent example of potential early guidance is Singapore’s transfer pricing documentation paper by the Inland Revenue Authority of Singapore; (refer to my earlier post of 31 October 2014).

The Asia-Pacific regional approach is worth watching to discern trends that may vary from the OECD BEPS Guidelines, forming additional complexities and different interpretations for international tax norms.

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OECD / UN

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MENA Regional Profile 2014: World Bank Report

The World Bank and the International Finance Corporation collaborated in providing a 2014 Doing Business Report for the Middle East and North Africa (MENA) Region.  A link to the report is attached for reference:

Click to access 834130DB140Mid0Box0382128B00PUBLIC0.pdf

Key observations:

  • Ease of Doing Business: UAE and Saudi Arabia were first (23) and second (26), while Libya rated 187th of 189 economies.
  • Total Tax Rate measures corporate income tax, social contributions and labor taxes, property taxes, dividend, capital gains and financial transaction taxes, waste collection, vehicle, road and other taxes.  Qatar, Kuwait, Bahrain, Saudi Arabia, UAE, the West Bank and Gaza all had a total tax rate less than 20%, while Tunisia was 62.4% and Algeria 71.9%.  The MENA Regional Average total tax rate was 32.3%.
  • Egypt made paying taxes more costly by increasing its corporate income tax rate.
  • Recent years have seen a reduction in Yemen’s corporate income tax from 35% to 20%, while UAE and Saudi Arabia have introduced online filing and payment systems for social security contributions.

The MENA Region is a significant area of focus for many MNE’s , with this report showing the tremendous progress and large gaps between countries in this interesting region.

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Tax Risk Management

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World Bank: Doing Business 2015 Report

The World Bank Group Report compares business regulations, including taxation, in 189 Economies.  A link to the report is attached for reference:

Click to access DB15-Full-Report.pdf

The Report provides an Ease of Doing Business Ranking for each economy, in addition to related sections for starting a business, dealing with construction permits, getting electricity, registering property, taxation, trading across borders, and various legal aspects including enforcing contracts and protecting minority investors.

Key summaries re: taxation:

  • Governments generally reduced the rates and broadened the base for corporate income tax while increasing the rates for the consumption or value added tax (VAT)
  • The total tax (profit, labor and other) rate averaged 43.1% of commercial profit in 2012 (Sub-Saharan Africa was 53.4% in 2012 versus over 70% in 2004, while the Middle East and North Africa region was approx. 35% in 2012 versus over 45% in 2004).

The report is useful in comparing trends and business related factors, in addition to taxation, that impact a MNE’s operations around the world.  The measurement of total tax is an interesting concept that many MNE’s are using in Corporate Sustainability Reports to reflect tax contributions around the world.

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Tax Risk Management

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Tax Policy: Interaction of the Main Players & MNE’s

The executive summary of a paper entitled “The Structures and Mandates of Eight International and Regional Organizations That Work on Tax” was published earlier this year by the International Tax and Investment Center (ITIC) with the Vienna University of Economics and Business.  The link to the article is referenced herein:

http://www.iticnet.org/file/document/watch/4008

The executive summary provides valuable insights into tax structures and mandates of various organizations, including the IMF, World Bank and the UN.  The two primary sections are entitled “Who are the Main Players in the International Tax Arena” and “How can Business Interact with Different Groupings?”

The first section includes a description of the breadth of activities for the organizations, including  those of the UN that include transfer pricing, exchange of information, cross border VAT issues, taxes in climate change, financial transaction taxes, tax on foreign direct investment, and natural resource taxation.  The second section is very interesting reading, providing insights into how Multinationals (MNE’s) can proactively interact with the various tax policy making bodies.

The topics of tax policy, and interaction between the MNE’s and the relevant organizations, have evolved into very significant issues in today’s changing tax environment.  Roles in a MNE, and the necessity to proactively interact with such organizations has now become a necessity that will derive mutual benefits and win-win relationships.

 

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Global & Regional tax trends: World Bank / PwC study

PwC and the World Bank have published a study on tax trends from 2004-2012 in 189 economies.  The Paying Taxes study, part of the World Bank Doing Business project, looks at tax systems from the business tax perspective, including direct and indirect taxes, employment taxes, mandatory contributions, property taxes, environmental taxes, and others.  A link is provided for reference.

Click to access pwc-paying-taxes-2014.pdf

The study is valuable in analyzing trends, and also is helpful in depicting the different types of taxes that multinationals are paying in different regions around the world.  The disparity in countries and regions becomes immediately apparent.  This information also provides context for corporate sustainability reports reflecting global tax transparency for direct and indirect taxes in addition to economic contributions.

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Tax Risk Management

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OECD Task Force on Tax & Development: Meeting update

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.

http://www.oecd.org/tax/tax-global/taxanddevelopment.htm

Click to access taskforce-tax-development-korea-outcome-statement.pdf

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.

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OECD / UN

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