Richard Cornelisse

Archive for the ‘tax avoidance’ Category

What is considered tax avoidance

In Indirect Tax Strategic Plan, tax avoidance on 15/11/2016 at 12:08 am

Tax avoidance is an attempt to exploit legislation to gain a tax advantage that was never intended. This often involves artificial transactions that serve little or no purpose other than to produce a tax advantage.

But tax avoidance is not the same as tax planning, which involves applying tax legislation in the way it was intended – for example saving in an ISA (Individual Savings Account) where you don’t pay tax on the interest.

Continu reading

SAF-T for Poland and SAP

In BEPS, Indirect Tax Automation, Indirect Tax Strategic Plan, Processes and Controls, SAF-T Poland, SAFT, State Aid, tax avoidance, tax transparency on 27/05/2016 at 4:25 pm

From 1st July 2016 onwards it is required to provide SAFT-PL files (in Polish: “Jednolity Plik Kontrolny” or “JPK”) in XML format on request of the PL Tax authorities.


Filing SAF-T will be mandatory for large taxpayers: employ more than 250 people or 50 million EUR sales revenue irrespective of whether they are established in Poland or not. Per 1st July 2018 this extended to taxpayers with more than 9 employees or 2 million EUR sales revenue.

Foreign businesses not having a branch and/or fixed establishment but that are registered for VAT in Poland fall within the scope of the above reporting requirement when above conditions are met.

On 19 May 2016 the Upper Chamber of the Polish Parliament passed a bill on the amendment of provisions of the Tax Ordinance and of some other acts. According to the bill adopted by the Parliament, the obligation to generate VAT reports in a SAF-T data format and their monthly reporting to the tax authorities will apply initially only to the largest enterprises for each month begun on or after 1 July 2016.

It means that Large Enterprises will be obliged to file VAT reports in the SAF-T data format already on 25 August 2016. Thus, Large Enterprises will be obliged to submit in monthly period VAT register in SAF-T format (according to JPK_VAT structure 4 – VAT register) even if the VAT reporting period is quarterly.

Taxpayers will be obliged to submit the SAF-T format:

  • on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
  • monthly mandatory – with respect to the VAT sales and purchases records only (Article 109(3) of the Value Added Tax Act of 11 March 2004 (VAT records) by submit monthly a SAF-T file that contains VAT sales and purchase records.

The first requests to submit audit files at their discretion will likely take place September 2016.  The monthly VAT reports on 25 August 2016.  Not complying with this obligation will not only negatively affect the position of taxpayers during a tax audit but also result in unforeseen tax costs as penalties will be levied.

‘Final’ version of the logical structures of the Standard Audit File (SAF) was published by the Ministry on 9 March 2016 including FAQ.

Besides introduced now in Poland similar EU obligations exist already in Portugal (2013) Luxembourg (2013), Austria (2009), France (2014), Lithuania (2015). More and more tax administrations around the world are implementing electronic auditing of a business’ financial records and systems.


SAF-T Poland and SAP


SAP developed currently only an extraction tool for SAP ECC 6 and higher version. The generation of the SAFT-PL XML files is not included. Certain companies use “older versions” of SAP and will not be supported by SAP.


Based on SAP’s OSS notes, SAP provides only at the moment a functionality for gathering and downloading the transactional data. However, it is not the complete set of data required and the creation of the SAF-T file for the tax authorities is also not included. The functionality will also only be available for companies established in Poland and not for companies with a foreign Polish VAT registration.

In order to be able to comply with the requirements and provide the XML file on request in time, tooling needs either to be developed or purchased.


Our solution


A SAFT-PL tool that already works for Portugal that includes also strategy for downloading the relevant data from SAP  for older SAP versions.


The basic design for a workaround solution is to extract the raw source data from the relevant SAP tables and use software tools to load the relevant data from the source SAP tables, perform additional mappings and data preparations and create the required XML files.

We offer 2 solutions:


  • A software application called Audit Command Language (ACL). This software is commonly used by auditing firms, tax authorities and internal audit departments. The process will be that the client will download the data from SAP and make it available to the Phenix. Phenix will then generate the XML files and some control reports and provide these files and reports available to client for submission.
  • A tool in MS Access in combination with a specific user interface for extracting the data from SAP. The result is a full in-house solution for the client.

Above process is based on our proven tool developed for the generation of the SAF-T files for Portugal.


Detailed information about SAF-T compliance and planning



Contact us for more information


Action Plan on VAT – European Commission

In EU development, Indirect Tax Strategic Plan, Processes and Controls, tax avoidance, Tax News on 08/04/2016 at 11:56 am

On 7 April 2016 the Commission adopted an Action Plan on VAT – Towards a single EU VAT area. The Action Plan sets out immediate and urgent actions to tackle the VAT gap and adapt the VAT system to the digital economy and the needs of SMEs. It also provides clear orientations towards a robust single European VAT area in relation to the definitive VAT system for cross-border supplies and proposes options for a modernised policy on EU rules governing VAT rates.

Key actions

Recent and ongoing policy initiatives

Removing VAT obstacles to e-commerce in the single Market

The current VAT system for cross-border e-commerce is complex and costly for Member States and business alike.

The Commission will, as part of its Digital Single Market strategy, present a legislative proposal by the end of 2016 to modernise and simplify VAT for cross-border e-commerce by:

  • Extending the current One Stop Shop concept to all cross-border e-commerce, including distance sales,
  • Introducing common EU-wide simplifications measures to help small start-up e-commerce businesses,
  • Streamlining audits in this sector (home country audits), and
    Removing the VAT exemption for the importation of small consignments from suppliers in third countries.

SMEs VAT package
SMEs bear proportionally higher VAT compliance costs than large businesses due to the complexity and fragmentation of the EU VAT system.

Further to the new Single Market Strategy, the Commission is preparing a comprehensive simplification package for SMEs that will seek to create an environment that is conducive to their growth and favourable to cross-border trade. In particular, the special scheme for small enterprises will be subject to review. This proposal will be presented by the end of 2017.

Urgent measures to tackle the VAT Gap

The ’VAT gap’ between expected revenue and revenue actually collected by national authorities is estimated at around EUR 170 billion, which equates to 15.2% of revenue loss. This calls for urgent action on several fronts:

  • Improving cooperation within the EU and with non-EU countries
  • Towards more efficient tax administrations
  • Improving voluntary compliance
  • Tax collection

See the 20 measures to tackle the VAT gap Choose translations of the previous link .

In 2016, the Commission will present:

In 2017, the Commission will present:

  • Proposal to enhance VAT administrative cooperation and Eurofisc. Choose translations of the previous link

Towards a robust single European VAT area

Definitive VAT regime for cross-border trade

The present VAT system, which has been in place since 1993 and was supposed to be transitional, splits every cross-border transaction into an exempted cross-border supply and a taxable cross-border acquisition. It is like a customs system, but lacks equivalent controls and is therefore the root of cross-border fraud. It is also complex for the growing number of businesses operating cross-border and leaves the door open to fraud: domestic and cross-border transactions are treated differently and goods or services can be bought free of VAT within the Single Market.

To this end, the Commission will present in 2017 a legislative proposal for a definitive VAT system for cross-border trade. This definitive VAT system will be based on the principle of taxation in the country of destination of the goods, as agreed by the European Parliament and the Council.

The Commission considers that in the definitive VAT system, the taxation rules according to which the supplier of goods collects VAT from his customer should be extended to cross-border transactions. This will ensure consistent treatment of domestic and cross-border supplies along the entire chain of a production and distribution, and re-establish the basic features of the VAT in cross-border trade i.e. the fractionated payments system with its self-policing character.

See the infographics on pages 2 and 3. Choose translations of the previous link .

Source: Action Plan on VAT – European Commission

Press Release – Starbucks decision has negative impact on dutch investment climate | AmCham

In Audit Defense, Belastingontduiking, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 24/10/2015 at 8:57 am

“This decision is a staggering,” says Arjan van der Linde, Chairman of AmCham’s Tax Committee and fiscal spokesman for The American Chamber of Commerce in the Netherlands (AmCham).

“By disregarding OECD rules, the European Commission is creating considerable uncertainty about the tax implications for foreign investment in the Netherlands. This has a direct effect on new investments and future employment. Uncertainty about such a fundamental component of an investment is unacceptable for many companies,” predicts Van der Linde.

He also highlights the expertise of the Dutch tax authorities,

“The Dutch tax authorities have years of experience with the application of OECD rules and work thorough and carefully in considering transfer pricing requests.  A separate APA practice exists.  In addition, the Dutch tax authorities are consistent in their approach, with all sorts of coordination groups looking over the shoulder of the inspector. This thorough approach cannot simply be cast aside.”

AmCham urges the Dutch government to appeal the decision of the European Commission. To prevent interim uncertainty regarding the application of the OECD rules in the Netherlands, AmCham also urges the Dutch government to enter into direct dialogue with the European Commission.

Van der Linde:

“The starting point should be that the Commission commits to harmonization of direct taxation within the EU on the basis of an anti-BEPS-directive and not through a disruptive autonomous interpretation of the widely accepted OECD rules.”

Read further: Press Release – Starbucks Decision Has Negative Impact on Dutch Investment Climate | AmCham

State aid or not – what about ‘reputational tax risks’

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance on 22/10/2015 at 11:23 pm

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Reputational risk is a key element in tax risk management as it is it not only considers individual tax risk but also sees how tax risk may influence the positions in other areas, negatively or positively

On June 2014, the European Commission said it had opened three in-depth investigations into tax decisions affecting Apple, Starbucks and Fiat Finance and Trade in Ireland, the Netherlands and Luxembourg respectively.

An U.S. Senate investigation has revealed that Apple, that, “under the agreement Apple has with Ireland”, Apple paid a maximum tax rate of 2 percent or less. Apple’s annual reports show that over the past three years, Apple paid taxes worth 2 percent of its $74 billion in overseas income.

On his 2008 Presidential campaign trail, Barack Obama made his hostility toward “offshore” jurisdictions very clear:

There’s a building in the Cayman Islands that houses supposedly 12,000 U.S.-based corporations. That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.

European Commission’s decision

In the light of the foregoing considerations, the Commission’s preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU [Treaty on the Functioning of the European Union]. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.

According to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), state aid which affects trade between Member States and distorts, or threatens to distort, competition by favoring certain undertakings, is incompatible with the EU Single Market.

The European Commission considers that advance pricing agreements (APAs) should not have the effect of granting taxpayers lower taxation than other taxpayers in a similar legal and factual situation.

Apple says EU probe of Irish tax policy could be ‘material’ on April 29, 2015 – Apple Inc (AAPL.O) said the European Commission’s investigation into Ireland’s tax treatment of multinationals could have a “material” impact if it was determined that Dublin’s tax policies represented unfair state aid.

Apple has warned investors that it could face “material” financial penalties from the European Commission’s investigation into its tax deals with Ireland — the first time it has disclosed the potential consequences of the probe. Under US securities rules, a material event is usually defined as 5 per cent of a company’s average pre-tax earnings for the past three years. For Apple, which reported the highest quarterly profit ever for a US company in January, that could exceed $2.5bn, according to FT calculations. [Source: ft.com]

The above, raises the question whether besides evaluating tax risks (level of tolerance) also reputational risks of the company – as part of proper tax risk management – should have been considered when such schemes were setup.

In Apple’s defense lots of multinationals have been doing the same and I believed myself that change of the tax system – as those structures are often legally allowed – was the only way to close such gaps. That changed a bit with the European Commission decision that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules: Fiat and Starbucks ruling.

About change and competencies

Effective tax advice by a tax professional should nowadays not only address the ways of how not paying more tax than necessary and evaluate associated tax risks of implementing such tax planning schemes (rate level of tolerance on a risk scale), but should also take in consideration the impact of such planning on the reputation of the company if it becomes public knowledge.

  • What is the impact if the tax planning at hand becomes public knowledge?
  • What are the consequences if a newspaper or politician picks it up to make statements about lack of ‘tax morale’ and the company is used as case study?

VAT reputational risks

VAT exposures associated with the wider impact on the company’s that arises from a company’s actions or errors and have become public knowledge, examples:

  • Aggressive VAT planning / VAT non compliance becomes public knowledge
  • Due to company’s VAT failures vendors are not paid in time that might disrupt the business
  • Due to company’s VAT failures VAT deduction of clients are disputed and assessed by tax authorities
  • Failure to drive the optimum relationship with the (indirect) Tax Authorities

A tax professional should contribute and give guidance to achieve that taxpayers do not pay more tax than necessary. Every opportunity had to be considered. At least that was the job description and actually how you could differentiate yourself among competition to make that happen for example via realizing beneficial tax rulings.

Has that – due to the Starbucks and Fiat ruling – now changed and to what extent?

In the indirect tax field, especially value added tax, similar aggressive tax structures were for a long time often approved by (national) case law. That has changed when the European Court of Justice ruled a couple of years ago (ECJ Halifax: February 21, 2006) that the tax advantage had to be revoked or denied.

The indirect tax profession had to change as well and reposition itself to ‘manage the numbers of indirect tax’ – focus more on risk management – and because of new trends relationships with tax authorities became more important to realize the taxpayer’s tax objectives.

Will tax planning become more about ‘being in compliance’ planning?

The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries. OECD promotes ‘enhanced relationship’ (OECD report: Study into the Role of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode and using elements of this way of working might not only safe time and money, result in a good relationship but as well mitigate reputational VAT risks.

Richard H. Cornelisse

Further (new) information

 

 

Anticipate, prepare for and lead change

In Audit Defense, Belastingontduiking, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, internal audit, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings on 22/10/2015 at 3:17 pm

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The consultation request – when a company’s tax strategy is in the end actually published and what currently proposed is in force – should be seen in my view as a ‘tax trend beyond UK’ also when this is read in combination with other (e.g. OECD) initiatives. Let me explain.

Based on the recent UK consultation request it is proposed that large businesses publish their company’s tax strategy, the executive signs off of the tax strategy and the business will practice the voluntary code of conduct as discussed earlier in a previous article “Improving large business compliance“.

The impact goes beyond the UK when the company’s tax strategy is actually published on either the business website or in the annual report. Some quotes from consultation document:

  • The strategy should set out the business’s attitude to tax risk, its appetite for tax planning and its approach to its relationship with HMRC.
  • It may also cover the governance framework describing the way a business takes decisions on taxation. The research found that “businesses with a greater appetite for risk tend[ed] not to have written (or published) tax strategies, while those with lower risk-appetite tended to have more formalised strategies.
  • Businesses will be required to inform HMRC as and when it is published.
  • It also shows us that increased scrutiny of tax strategy by a business’s Board actively discourages aggressive tax planning, with businesses stating that tax was now of “particular concern for senior management.
  • Building on this, the proposal is to include a requirement to have a named individual at Executive Board level who is responsible for owning and signing off the tax strategy. This will further encourage bringing responsibility for tax into the boardroom and align with the best practice many businesses already exhibit.
  • The proposed requirement for Board-level oversight echoes the existing Senior Accounting Officer (SAO) regime, which provides assurance that a business has adequate tax accounting arrangements in place. The SAO regime does not, however, extend to a business’s tax strategy. It is our intention that this proposal is kept apart from the existing SAO regime.

More efficient and effective tax inspections

The SAF-T standard, originally created also by the OECD, is intended to give tax authorities easy access to the relevant data in an easily readable format. This leads to much more efficient and effective tax inspections.

Certain countries have already implemented Standard Audit File for Tax Purposes submission. In Europe: Austria, France, Luxembourg and Portugal.

In line with SAF-T obligations, from 1 January 2016 registered businesses in the Czech Republic will be required to file a new VAT return which will have details of each taxable transaction made with other Czech registered business. The Slovak Republic and Hungary have also introduced similar VAT filing requirements in order to prevent VAT fraud.

Other countries such as Netherlands still have their own local methods, but that might change soon. The Dutch tax authorities announced on May 19, 2015 that 5,000 of its 30,000 employees will lose their current job, while at the same time 1,500 specialized data analysts will be hired as tax returns will be automatically assessed via data analysis. The world – how we know it – is changing fast.

“A pending reorganization at the Dutch tax authority Belastingdienst will likely result in the elimination of 4,000 to 5,000 jobs. The staff cuts are due to improvements to computer systems that reduced the need for many spot checks done by workers, reports broadcaster NOS. Improvements to information technology infrastructure will lead to better data analysis, and thus more accurate tax assessments, sources told NOS. This should not only reduce the amount of tax evasion, but also increase the amount of tax revenue received by anywhere from hundreds of millions to billions of euros every year.”

Richard. H. Cornelisse

Initiatives and views

Tax advantages for Fiat and Starbucks are illegal under EU state aid rules

In Audit Defense, Belastingontduiking, BEPS, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 21/10/2015 at 12:46 pm

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The European Commission has decided that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules.

Commissioner Margrethe Vestager, in charge of competition policy, stated:

“Tax rulings that artificially reduce a company’s tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today’s decisions, this message will be heard by Member State governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax.”

Following in-depth investigations, which were launched in June 2014, the Commission has concluded that Luxembourg has granted selective tax advantages to Fiat’s financing company and the Netherlands to Starbucks’ coffee roasting company. In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company.

Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, the two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies. They do not reflect economic reality. This is done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups (so-called “transfer prices”) that do not correspond to market conditions. As a result, most of the profits of Starbucks’ coffee roasting company are shifted abroad, where they are also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.

This is illegal under EU state aid rules: Tax rulings cannot use methodologies, no matter how complex, to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. It would give that company an unfair competitive advantage over other companies (typically SMEs) that are taxed on their actual profits because they pay market prices for the goods and services they use.

Therefore, the Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations. The amounts to recover are €20 – €30 million for each company. It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings.

Furthermore, the Commission continues to pursue its inquiry into tax rulings practices in all EU Member States.

It cannot prejudge the opening of additional formal investigations into tax rulings if it has indications that EU state aid rules are not being complied with. Its existing formal investigations into tax rulings in Belgium, Ireland and Luxembourg are ongoing. Each of the cases is assessed on its merits and today’s decisions do not prejudge the outcome of the Commission’s ongoing probes.

Fiat

P029404000102-345216Fiat Finance and Trade, based in Luxembourg, provides financial services, such as intra-group loans, to other Fiat group car companies. It engages in many different transactions with Fiat group companies in Europe.

The Commission’s investigation showed that a tax ruling issued by the Luxembourg authorities in 2012 gave a selective advantage to Fiat Finance and Trade, which has unduly reduced its tax burden since 2012 by €20 – €30 million.

Given that Fiat Finance and Trade’s activities are comparable to those of a bank, the taxable profits for Fiat Finance and Trade can be determined in a similar way as for a bank, as a calculation of return on capital deployed by the company for its financing activities. However, the tax ruling endorses an artificial and extremely complex methodology that is not appropriate for the calculation of taxable profits reflecting market conditions. In particular, it artificially lowers taxes paid by Fiat Finance and Trade in two ways:

  • Due to a number of economically unjustifiable assumptions and down-ward adjustments, the capital base approximated by the tax ruling is much lower than the company’s actual capital.
  • The estimated remuneration applied to this already much lower capital for tax purposes is also much lower compared to market rates.

As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration. As a matter of principle, if the taxable profits are calculated based on capital, the level of capitalisation in the company has to be adequate compared to financial industry standards. Additionally, the remuneration applied has to correspond to market conditions. The Commission’s assessment showed that in the case of Fiat Finance and Trade, if the estimations of capital and remuneration applied had corresponded to market conditions, the taxable profits declared in Luxembourg would have been 20 times higher.

Starbucks

P029401000202-962950Starbucks Manufacturing EMEA BV (“Starbucks Manufacturing”), based in the Netherlands, is the only coffee roasting company in the Starbucks group in Europe. It sells and distributes roasted coffee and coffee-related products (e.g. cups, packaged food, pastries) to Starbucks outlets in Europe, the Middle East and Africa.

The Commission’s investigation showed that a tax ruling issued by the Dutch authorities in 2008 gave a selective advantage to Starbucks Manufacturing, which has unduly reduced Starbucks Manufacturing’s tax burden since 2008 by €20 – €30 million. In particular, the ruling artificially lowered taxes paid by Starbucks Manufacturing in two ways:

  • Starbucks Manufacturing pays a very substantial royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how.
  • It also pays an inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL.

The Commission’s investigation established that the royalty paid by Starbucks Manufacturing to Alki cannot be justified as it does not adequately reflect market value. In fact, only Starbucks Manufacturing is required to pay for using this know-how – no other Starbucks group company nor independent roasters to which roasting is outsourced are required to pay a royalty for using the same know-how in essentially the same situation. In the case of Starbucks Manufacturing, however, the existence and level of the royalty means that a large part of its taxable profits are unduly shifted to Alki, which is neither liable to pay corporate tax in the UK, nor in the Netherlands.

Furthermore, the investigation revealed that Starbucks Manufacturing’s tax base is also unduly reduced by the highly inflated price it pays for green coffee beans to a Swiss company, Starbucks Coffee Trading SARL. In fact, the margin on the beans has more than tripled since 2011. Due to this high key cost factor in coffee roasting, Starbucks Manufacturing’s coffee roasting activities alone would not actually generate sufficient profits to pay the royalty for coffee-roasting know-how to Alki. The royalty therefore mainly shifts to Alki profits generated from sales of other products sold to the Starbucks outlets, such as tea, pastries and cups, which represent most of the turnover of Starbucks Manufacturing.

European Commission – Press release – Commission decides selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules

According to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), state aid which affects trade between Member States and distorts, or threatens to distort, competition by favouring certain undertakings, is incompatible with the EU Single Market.

The European Commission considers that advance pricing agreements (APAs) should not have the effect of granting taxpayers lower taxation than other taxpayers in a similar legal and factual situation.

Further information

Bloomberg Business: Starbucks, Fiat Decisions Seen in First Wave of EU Tax Cases

In Audit Defense, Belastingontduiking, Benchmark, BEPS, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 20/10/2015 at 8:27 am

Starbucks Corp. and a Fiat Chrysler Automobiles NV unit are set to be first in the firing line as European Union regulators issue a series of rulings over tax breaks for global companies, including Apple Inc.

The EU may issue decisions against Starbucks and Fiat as soon as next week following a two-year probe into how the companies may have gotten unfair tax treatment from Dutch and Luxembourgish authorities, people familiar with the cases said.

Speculation about the probes intensified this week as Margrethe Vestager, the EU’s competition chief, canceled a scheduled visit to China, citing pressing matters relating to her job.

Decisions on whether iPhone maker Apple and Amazon.com Inc. got sweetheart tax deals from Ireland and Luxembourg are expected at a later date, said the people who asked not to be identified because the decision isn’t public.

Apple’s tax strategies were thrown in the spotlight in 2013 when U.S. Senate scrutiny showed that a unit incorporated in Ireland and controlled by a board in California didn’t pay taxes in either location despite having recorded $30 billion in profit since 2009.

The revelations set in motion the EU competition regulator, which opened probes into the iPhone maker, Starbucks’ relationship with the Netherlands, and Amazon.com Inc. and Fiat deals in Luxembourg within months.

Luxleaks

While the EU focused on those four companies, the widespread nature of corporate tax avoidance in Luxembourg was highlighted in late 2014 when thousands of pages of secret fiscal deals the tiny nation struck with companies from around the world, including PepsiCo Inc. and Walt Disney Co., were leaked by an international consortium of journalists.

Seattle-based Starbucks said in a statement that it complies with all relevant tax laws around the globe and pays an “effective tax rate of around 33 percent.”

The company said it is cooperating with the EU probe. Officials from Luxembourg, the Netherlands and the EU declined to immediately comment.

Fiat declined to comment beyond previous statements. The Wall Street Journal reported earlier today that the EU would issue rulings saying the tax deals were improper.

Apple raised a flag in April about the potential cost if the company is required to pay past taxes to Ireland as part of the European Commission investigation.

While Apple hasn’t been able to estimate the amount, it could be “material,” the Cupertino, California-based technology company said in a filing with the U.S. Securities and Exchange Commission.

Back Taxes

Any ruling from the EU is unlikely to resolve how much money national governments have to claw back from the companies. Commission officials have previously said the initial decisions will merely contain a formula for national officials to calculate how much back taxes are owed.

While Vestager has promised to move quickly to complete the investigations, she has vowed not to sacrifice quality for speed, as the regulator seeks to build legally sound cases that can fend off legal challenges.

Ireland’s Finance Minister Michael Noonan has vowed to go to court to fight any negative ruling in the Apple case.

Whatever happens, “we don’t think it will be damaging,” Noonan told reporters earlier this month. “If it’s adverse, we think it’s based on very thin legal grounds and we’ll have it before the European Court of Justice.”

In the Starbucks case, the commission said last year that a Dutch unit paid millions of euros to a U.K.-based arm of the company that isn’t taxed in Britain in exchange for a technique to roast coffee beans.

Exaggerated tax-deductible royalty payments for this technique may have allowed Starbucks to unfairly lower its Dutch taxes, the commission said.

In the Fiat case, the commission raised doubts over Luxembourg’s arrangement with Fiat Finance & Trade SA. Fiat said last year it didn’t request a ruling to obtain a tax exemption from Luxembourg and was surprised by the probe. Starbucks, Fiat Decisions Seen in First Wave of EU Tax Cases – Bloomberg Business

Further information

State Aid Explained by Johan Muller

Australia reacts to BEPS Action Plans

In Audit Defense, Belastingontduiking, BEPS, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 18/10/2015 at 4:46 pm

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Australian Initiatives

In line with this directive, the Government of Australia has been working on measures to combat multinational tax avoidance by targeting core tax avoidance issues, whilst endeavouring to ensure that Australia remains an attractive and competitive place to do business.

The Australian Government has been very vocal in its intention to be at the forefront of tax integrity and the global fight against tax avoidance both from a local-country and multi-jurisdictional perspective.

Comment

The BEPS Actions will revolutionise international tax and transfer pricing practices. Governments all around the world need to act to protect their share of finite global revenues.

Whether those governments can work in a cooperative and mutually beneficial manner remains to be seen. However, Australia is determined to be one of the leaders in this area and to shoring up its share of that tax take is clearly its absolute priority. Read further: Quantera Global | Australia reacts to BEPS Action Plans

Relevant background information

Mandatory exchange of tax rulings proposal: a “missed opportunity” say MEPs

In Audit Defense, Belastingontduiking, Benchmark, BEPS, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 14/10/2015 at 9:54 am

The EU Commission proposal to make it mandatory for EU member states to exchange information on their tax rulings received only a lukewarm welcome in Parliament’s Economic and Monetary Affairs Committee on Tuesday.

However, the report by Markus Ferber (EPP, DE), voicing dismay at the directive’s limited scope and late entry into force, has already been overtaken by last week’s ECOFIN Council deal, which watered down the Commission proposal even further.

The report was approved by 49 votes in favour, 0 against and 6 abstentions.

“Disappointed”

Parliament’s rapporteur Markus Ferber is disappointed about the Council agreement:

“If this is the final text, member states will have missed a great opportunity to create more transparency in taxation. National budgets will continue to suffer.

We need an EU-wide systematic and mandatory procedure. For the moment, member states’ tax authorities would not realise that tax ruling deals forged in other member states are undermining their own tax bases.

Tax authorities should be obliged to exchange information on tax rulings and make them available to a central database at the European Commission.

There is also a competition side to tax rulings. This is why the Commission must be empowered to access and use the data to investigate tax avoidance and dumping practices and to assess whether they are in line with state-aid rules. Why are member states clearly denying the Commission access to these data? Are they hiding something?

What MEPs want, compared to what the Council agreed

Limited scope

MEPs would prefer the directive to apply to all tax rulings, not just “cross border rulings and advance pricing arrangements”, given that purely national transactions can also have cross-border effects. The Council made the directive’s scope “cross-border only”.

Commission not in the loop

The Council also ensured that the European Commission is explicitly not allowed to do anything with the information – to which the Commission only has very limited access – other than overseeing that it conforms to the directive, and that the directive is properly applied.

No retroactive effect

The Commission says that the mandatory exchange mechanism should apply to tax rulings issued in the ten years before it enters into force, whereas MEPs say it should apply to all rulings that are still valid on the day the directive enters into force. The Council agreed that the directive would apply only to rulings, amendments or renewals of rulings after 31 December 2016.

Start sooner

MEPS want the automatic exchange of information to start as soon as possible, whereas the Commission proposes that it should start on 1 January 2016. The Council agreed on 1 January 2017.

Exchange faster

MEPs insist that the information should be communicated “promptly after the ruling or price arrangement is issued” rather than “within one month following the end of the quarter during which the ruling was issued” as the Commission proposes. The Council deal says that the information should be provided “within three months following the end of the half of the calendar year during which the ruling was issued”. This means that if a ruling is issued in January, the mandatory exchange of information can take place until 30 September.

Next steps

The procedure for amending this Council directive is consultation. The Council struck its informal deal on the Commission proposal at the 6 October meeting of Economy and Finance (ECOFIN) ministers. The directive is to be adopted at a forthcoming Council meeting, once the European Parliament has given its opinion and it has been finalised in all official languages.

The new rules are to apply from 1 January 2017. Until then, existing obligations to exchange information among member states will stay in place.

Source: Mandatory exchange of tax rulings proposal: a “missed opportunity” say MEPs

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