Richard Cornelisse

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The European Parliament – tax avoidance and tax evasion as challenges for governance

In Indirect Tax Strategic Plan on 01/08/2015 at 10:04 pm

The European Parliament adopted by 50 votes to 57, with 23 abstentions, a resolution on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries.

Parliament recalled that tax evasion and avoidance have been identified as major obstacles to the mobilisation of domestic revenue for development by all major international texts and conferences on financing for development. It called on the Commission promptly to put forward an ambitious action plan, in the form of a communication, to support developing countries fighting tax evasion and tax avoidance.

Members insisted that effective mobilisation of domestic resources and a strengthening of tax systems will be an indispensable factor in achieving the post-2015 framework that will replace the Millennium Development Goals (MDGs). It expressed as well concerns about the level of corruption and non-transparent public administration that hinder tax revenues from being invested in state-building, public services or public infrastructure.

According to Parliament, tax resources remain low as a proportion of GDP in most developing countries, making them particularly vulnerable to the tax evasion and avoidance activities of individual taxpayers and companies. This represents a considerable financial loss for developing countries which needs to be addressed.

Action plan to combat tax avoidance and tax evasion in developing countries: the Commission is urged to take concrete and effective measures to support developing countries and regional tax administration frameworks, such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations, in the fight against tax evasion and tax avoidance, in developing fair, well-balanced, efficient and transparent tax policies.

Parliament asked the Commission to give good governance in tax matters, and fair, well-balanced, efficient and transparent tax collection, a high place on the agenda in its policy dialogue (political, development and trade), and in all development cooperation agreements, with partner countries. It also called for information on beneficial ownership of companies, trusts and other institutions to be made publicly available in open-data formats in order to prevent anonymous shell companies and comparable legal entities from being used to launder money, finance illegal or terrorist activities, conceal the identity of corrupt and criminal individuals, and hide the theft of public funds and profits from illegal traffic and illegal tax evasion.

It believes, furthermore, that all countries should at minimum adopt and fully implement the Financial Action Task Force’s (FAFT) anti-money laundering recommendations.

Publication of tax information: Parliament invited the European Union and its Member States to enforce the principle that listed or unlisted multinational companies of all countries and sectors, and especially those companies extracting natural resources, must adopt country-by-country reporting (CBCR) as a standard, requiring them to publish, as part of their annual reporting and on a country-by-country basis for each territory in which they operate, the names of all subsidiaries and their respective financial performance, relevant tax information, assets and number of employees, and to ensure that this information is made publicly available, while minimising administrative burdens by excluding micro-enterprises. The Commission is called upon to put forward a legislative proposal to amend the Accounting Directive accordingly.

Parliament recalled that public transparency is a vital step towards fixing the current tax system and building public trust. It underlined that tax exemptions and advantages granted to foreign investors through bilateral tax treaties provide MNCs with an unfair competitive advantage relative to domestic firms, especially SMEs. It also called for the fiscal conditions and regulations under which extractive industries operate to be revised.

Parliament called for the establishment, by the end of 2015, of an internationally agreed definition of tax havens, of penalties for operators making use of them and of a blacklist of countries, including those in the EU, that do not combat tax evasion or that accept it. It called on the EU to support the economic reconversion of those developing countries that serve as tax havens.

It also urged:

  • Member States with dependencies and territories that are not part of the Union to work with the administrations of these areas towards the adoption of the principles of tax transparency and to ensure that none serve as tax havens;
  • that, when negotiating tax and investment treaties with developing countries, income or profits resulting from cross-border activities should be taxed in the source country where value is extracted or created;
  • that impact assessments of European tax policies on developing countries be conducted (Parliament welcomed the Commission’s revised Action Plan on tax evasion and tax avoidance, to be presented in 2015);
  • the Member States to agree swiftly on a Common Consolidated Corporate Tax Base;
  • for sanctions to be considered both for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
  • the Commission and the Council, and on partner governments, to ensure that tax incentives do not constitute additional options for tax avoidance;
  • the EIB and the EBRD, and on Member States’ development finance institutions, to monitor and ensure that companies or other legal entities that receive support do not participate in tax evasion and avoidance.

2015/2058(INI) – 08/07/2015 Text adopted by Parliament, single reading.

Implementing the ‘destination principle’ to intra-EU B2B supplies of goods

In Indirect Tax Strategic Plan on 29/07/2015 at 12:12 am

Feasibility and economic evaluation study Final Report – 30 June 2015

The European Commission published a study prepared by EY that is titled “Implementing the destination principle to intra-EU B2B supplies of goods”.

The feasibility study examines issues of the current VAT model in force and the level of EU VAT fraud. It as well also takes into consideration the compliance costs by taxable persons, especially those who conduct cross-border transactions versus domestic.

In this report, administrative costs for a Member State Tax Authority will include costs relating to the following activities: processing VAT registrations, undertaking VAT audits, reviewing VAT returns, reviewing EC Sales Lists (recapitulative statements), helpline and written query handling, and the implementation of new legislation.

The European Commission has identified two fundamental issues with the current model of taxation: namely the additional compliance costs borne by businesses that conduct cross-border trade when compared to those businesses that only trade domestically and the occurrence of VAT fraud.

The European Commission has commissioned EY to conduct a study of five policy options designed to enable the implementation of a destination based VAT system across the EU that to some extent addresses these issues.

Option 1: ‘Limited improvement of current rules’

This involves improving the current rules without modifying them fundamentally. This option seeks to reduce the compliance obligations and costs for businesses engaged in particular cross-border transaction types, namely call-off and consignment stock transactions and chain transactions, as well as extending the use of a range of simplifications already contained within the legislation.

It seeks to address VAT fraud by clarifying the documentary evidence required to support the exemption of an intra-community supply. In addition, it also considers implementing a requirement for the customer to sign a document declaring receipt of the goods in the Member State of delivery.

Option 2: ‘Taxation following the flow of the goods’

This involves adapting current rules whilst still following the flow of the goods with the supplier charging the VAT of the Member State of destination.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by utilising a single One-Stop Shop (OSS) return through which the supplier can not only account for VAT due on sale, but also offset against this VAT incurred on purchases in other Member States.

It also seeks to address levels of VAT fraud by making VAT accountable on the dispatch of the goods, rather than the self-accounting that currently occurs on the
receipt.

Option 3: ‘Reverse charge following the flow of goods’

This involves adapting current rules whilst still following the flow of goods with the customer applying the reverse charge mechanism in the Member State of destination.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by harmonising the terminology associated with transactions and the method through which VAT is accounted for. No additional measures against VAT fraud are considered under this option.

Option 4: ‘Alignment with the place of supply of services’

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by harmonising the place of supply for services and goods.The customer will apply the reverse charge in its Member State of establishment.

Various anti-fraud measures may be implemented under this option. For example, there may need to be specific mention on the invoices and/or on the recapitulative statement about the location of the goods.

Furthermore, the treatment of the sale as B2B may become exclusively dependent on the provision of a valid VAT number by the customer to the supplier.

Option 5: ‘Taxation following the contractual flow’

This involves alignment with the contractual flow, with the supplier charging VAT of the Member State where the customer is established.

This option aims to reduce compliance obligations and costs for businesses engaged in cross-border trade by utilising a single One-Stop Shop (OSS) return through which the supplier can not only account for VAT due on sale, but also offset against this VAT incurred on purchases in other Member States.

It also seeks to address levels of VAT fraud by making VAT accountable on the dispatch of the goods, rather than the selfaccounting that currently occurs on the receipt.

As part of the study, EY has gathered information from businesses, tax experts, Member States’ Tax Authorities and additional sources in order to make a comparison against the current “As Is” taxation model and also determine the impact of the implementation of each of the five proposed policy options.

This information aims to assess the impact of the five policy options from both a qualitative and quantitative perspective.

To this end, information has been obtained on business compliance costs, tax administration costs, cash flow costs, VAT fraud implications, legislative implications and aspects of practical implementation for each of the five proposed policies.

In addition to the collection and analysis of this information, EY has provided a conclusion as to whether the policy options have a potential to address the two fundamental issues and what (if any) impact there will be on the European economy as a whole.

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Press release – Commission modernises EU customs procedures

In Audit Defense, Indirect Tax Strategic Plan on 28/07/2015 at 2:19 pm

The European Commission has adopted today a legal act to create a simpler, more modern and integrated EU customs system to support cross-border trade and provide for more EU-wide cooperation in customs matters. It builds on the Union Customs Code adopted in 2013, which sets out detailed rules for twenty-first century customs processes.

Customs services play a central role in policing the EU’s external borders and in facilitating trade. The customs union is the operational arm of much of the EU’s commercial policy measures. In addition, a growing range of government agencies call on customs to enforce their policies at the border. EU customs handle 16% of world trade, or over two billion tonnes of goods a year with a value of EUR 3,400 billion.

Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “A modern and cost-effective customs system facilitates international trade and is conducive to growth. It also plays a vital role in defending the safety and security of European citizens and in protecting Member States’ interests.”

The Commission has been working for several years on a major overhaul of customs rules in the EU. The basic regulations were changed in 2013. Detailed acts must subsequently be adopted so that the new rules can be applied as of 1 May 2016.

Today’s decision takes the form of a delegated act. This kind of legal act, introduced by the Treaty of Lisbon in 2010, gives the Commission power to adopt the technical, non-essential elements of an existing legislation, in this case of the Union Customs Code.

The act adopted today covers a wide area of customs activity, including:

  • Simplifications of the customs procedure inward processing which allows the processing of non-Union goods without payment of import duty and other charges to support creation of added value in the EU;
  • Clearer rules to ensure equal treatment of economic operators in the EU;
  • Wide-ranging provisions which will allow customs decisions and authorisations to be valid across the EU in the future;
  • Establishing common data requirements as the basis for new IT systems linking Member States’ customs administrations to ensure a seamless exchange of information;
  • Improvements in risk management to reinforce the fight against trade in illicit and prohibited goods, terrorism and other criminal activities.

The delegated act will now be considered by the European Parliament and the Council. In accordance with Article 290 TFEU, both can raise their objections within two months. This period of scrutiny can be extended by a further two months.

One minute in the life of the EU Customs Union

via European Commission – PRESS RELEASES – Press release – Commission modernises EU customs procedures.

Tax Compliance Consultation – UK

In Indirect Tax Strategic Plan on 27/07/2015 at 8:14 am

The Government’s goal is to make the UK the best place in the world to locate a business. We have one of the most open economies globally, a highly skilled workforce, access to capital markets, and first-class infrastructure.

We also have a highly competitive tax system. We remain committed to creating the most competitive corporate tax regime in the G20, having lowered the corporation tax rate to 20 per cent in 2015, the lowest in the G7, and the joint lowest in the G20, and announced that it will be lowered again to 19 per cent in 2017 and 18 per cent in 2020.

While we want a tax system that is competitive for businesses, we also want a tax system where businesses pay their taxes. It is clear that attitudes to aggressive tax planning are changing – and that the public, investors and stakeholders now expect higher standards of tax compliance and more transparency from large businesses about the way they approach taxation. The UK has played a leading role in the transformation of international tax transparency, working through the OECD to establish a common standard for the automatic exchange of information on financial accounts with more than 90 countries.

But there is still more to do. While increasing numbers of UK businesses are already being transparent about their approach to taxation, a number are still failing to do so. In addition, there are still a small number of businesses which simply do not play by the rules – persistently engaging in tax avoidance or highly aggressive tax planning, or refusing to engage with HMRC in a full, open and proper way. It would be unfair to the vast majority of businesses not to do more to tackle this problem, and to level the playing field for all.

We also recognise that any relationship must be built on clear and fair guiding principles, and that the relationship between HMRC and our large businesses should be no different. For these reasons we are proposing to introduce:

  • A legislative requirement for all large businesses to publish their tax strategy, enabling public scrutiny of their approach towards tax planning and tax compliance;
  • A voluntary ‘Code of Practice on Taxation for Large Business’, which sets out the behaviours which HMRC expects from its large business customers; and
  • A narrowly targeted ‘Special Measures’ regime to tackle the small number of large businesses that persistently undertake aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner.

These new proposals will continue to cement best practice amongst large businesses operating in the UK, contributing to the achievement of our ambition to make the UK the best place in the world to do business.

Read more detail in this article: ‘Improving Large Business Compliance

Improving Large Business Tax Compliance Consultation document Publication date: 22 July 2015

Special Measures

Monitoring Developments to address tax risk | Strategizing Multinational Tax Risks

In Audit Defense, Indirect Tax Strategic Plan, Processes and Controls, VAT planning on 26/06/2015 at 10:46 pm

A Board member may ask: How is the tax dept. monitoring daily developments of the OECD, BEPS Actions, European Commission, European Parliament, unilateral country actions, US Congress/Treasury, etc. to assess tax risk in this new era of transfer pricing interpretation?

For example, one University assigned this daily task to one individual who would report his findings for others to follow up.  However, many times this is not a proactive process, especially as new OECD transfer pricing guidelines, and perceptions of what a fair tax should be, develop for implementation in the foreseeable future.  If a tax department is fragmented for responsibilities of different areas (i.e. indirect tax, customs, direct tax, regional tax, country taxes, etc.) or regions, many people may be performing this function specifically to identify developments related to their narrow function.

Best Practice principles should be applied to allow time for planning, creating/revising new systems, interacting with other key stakeholders, etc.  Different tactics may be employed, although avoiding duplication of efforts and integrated communication should be the focus to identify efficiencies in a tax risk framework.  This need should be addressed in the short term, with long-term sustainability elements for new waves of ongoing actions by many interested parties.

via Monitoring Developments to address tax risk | Strategizing Multinational Tax Risks.

EU website features a completely revised VAT section

In Indirect Tax Strategic Plan on 08/06/2015 at 9:55 pm

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Phenix Consulting – booklet for indirect tax

In Indirect Tax Strategic Plan on 27/05/2015 at 9:50 am

Schermafbeelding 2015-05-27 om 10.46.54

Download leaflets

In Indirect Tax Strategic Plan on 24/05/2015 at 8:52 pm

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Phenix Consulting BV

In Indirect Tax Strategic Plan on 24/05/2015 at 7:44 pm

Phenix Consulting, a joint venture between LiNKiT Consulting and the KEY Group, specializes in the delivery of a range of SAP consultancy and implementation services from a tax, financial and control perspective.

Background

Phenix Consulting comprises 6 partners and a team of 30 consultants all with strong, international business experience across a variety of SAP environments. The strength of Phenix Consulting is built on bringing together two businesses with different – but complementary – strengths to provide integrated business solutions for clients.

The KEY Group’s strengths lie where business control, information technology and tax come together, whereas LiNKiT Consulting has particular expertise in finance and control – specifically in business consulting, SAP implementation and the development of innovative business and software solutions.

The establishment of Phenix Consulting strengthens our position in the SAP consultancy marketplace. All of our clients benefit from the synergies realized by LiNKiT and KEY Group working together – more so than either company could provide individually.

These synergies result from our ability to exploit economies of scale, focus resources & expertise and with a critical mass that supports broader geographic delivery.

The combined resources of the two companies allow us to deploy not just experienced, talented consultants but also draw on our intellectual property & copyrights, and the strong leadership skills from both the LiNKiT and KEY Group leadership teams.

Phenix Consulting continually strives to develop innovative SAP products and broaden our product lines. Examples of our innovative products include:

  1. eBilanz Cockpit – This is a solution for the mandatory filing of the German e-tax balance and has now been successfully implemented at 60 medium-sized and multinational companies.
  2. SAF-T Filing – Across the globe many multinational companies are facing challenges in complying with the mandatory SAF-T filing requirements. SAF-T is the OECD’s Standard Audit File for Tax Purposes that is being adopted as common practice for tax administrations and will be the basis for IT-based audit tools to help to combat fraud and tax evasion. We developed a lean and flexible solution which extracts relevant data directly from SAP systems and transforms the data into the XML format in compliance with the legal requirements.
  3. eBilanz Cockpit and SAF-T integration – With access to the full capabilities of the eBilanz Cockpit we are currently developing a SAF-T cockpit which will be fully integrated with SAP. It includes individual templates that satisfy the data and format requirements of each country and provides an analytical reporting library to support monitoring controls for finance and tax. This will subsequently be the basis for development of an ERP independent solution.

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Change VAT management

In Business Strategy, Indirect Tax Strategic Plan on 14/05/2015 at 1:51 pm

The tax function should ascertain proper implementation and determine the impact of changes in businesses, laws and regulations on implemented tax planning.

Operational changes have a tax consequence due to the change in transactional flows and the change in a company’s assets, functions and risks profile. Important is to ensure that the new operating model is not only implemented correctly from a tax perspective, but also ensures that business processes are tax aligned realizing support of the business in the areas of compliance, finance & accounting, legal IT systems, indirect tax and regulatory matters. That means teaming is a necessity with various work streams.

Technology-related tax risk: understand and address the potential harms and benefits of (new) technology

The selling arrangement may change from a buy/sell to broker/agent or vice versa. Goods purchasing may become centralized. The flows and storage locations of goods may change. In any of these cases, new VAT registration obligations may be created in different countries. Likewise VAT could be chargeable by different entities and the recoverability of the VAT could change and different billing flows are created.

That means that tax risk management continually influences operating decisions and strategic direction and indirect tax professionals are appointed to support multidisciplinary teams in projects and programs. That should ascertain timely input from indirect tax function before transaction, changes in activities, operations, structure and ensuring that unacceptable tax risks will be prevented where possible.

VAT should be considered in every aspect of the migration process, from concept through completion and beyond. Managing by design — looking at any process or transaction from end to end and factoring in all the requirements and controls essential to designing and optimizing a compliant VAT process.

Written by Richard Cornelisse, one of the articles published on Global Indirect Tax Management

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