Richard Cornelisse

Posts Tagged ‘Limited Risk Distributor’

BEPS and Indirect Tax

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 10/10/2015 at 3:21 pm

Final BEPS package for reform of the international tax system to tackle tax avoidance has been published. The final reports include recommendations for substantial direct tax change. Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues.

Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant. G20 finance ministers endorse reforms to the international tax system for curbing avoidance by multinational enterprises – OECD

BEPS has an Indirect Tax impact too

Let’s highlight for example action 7, 13 and 1:

  • Prevent the artificial avoidance of PE status’
  • Country-by country reporting (CbC)
  • Deliverable on the subject of “Addressing the Tax Challenges of the Digital Economy”

Action 7 – prevent the artificial avoidance of PE status

The final BEPS report includes changes to the definition of PE for income taxes of Article 5 of the OECD Model Tax Convention. Action 7 broadens the threshold to determine when such PE status exists. Currently such a PE status does not exist for commissionaire arrangements and the specific activity exemptions in treaties, such as warehousing, purchasing and preparatory and auxiliary activities.

The indirect tax definition of a fixed establishment (FE) is different from a PE and has its foundation in EU VAT law and should therefore not be affected by the BEPS initiative or OECD definition. Some countries however do (still) not accept the absence of a FE once a PE has been established. Note that the amount of PEs will increase when “Action 7” is in force.

As businesses are facing global challenges it makes sense that the existing business model is reevaluated and amended when necessary to meet the new PE environment. That most likely means moving away from a commissionaire structure.

Commissionaire (1)

Action 13 – country-by country reporting (CbC)

Action 13 provides a template for multinationals to report on an annual basis and for each tax jurisdiction in which they operate revenue figures and other key figures should be reported. The data of these reports give direct tax authorities the possibility to audit the amount of direct tax paid.

However for indirect tax authorities it is useful data as well. From a custom perspective it could be supportive during auditing the valuation of the transactions when customs duties are due and for VAT cross border intercompany transactions have always qualified as a high risk area.

The SAF-T standard, originally created by the OECD, is intended to give tax authorities easy access to the relevant data in an easily readable format for both corporate income tax as VAT. This leads to much more efficient and effective tax inspections. Data analytics will become the most efficient and effective way of future tax auditing.

Action 1 deliverable on the subject of “Addressing the Tax Challenges of the Digital Economy”

The digital economy is changing fast. The international tax standards has to adapt accordingly: the tax system have to adjust to ensure tax collection and avoid that domestic and foreign non resident suppliers are treated differently.

The European Union (EU) and South Africa, have taken steps to manage their VAT bases by broadening the mandatory registration rules. The EU has implemented in 2015 the destination principle (i.e. where consumption takes place) as place of supply rule. Many other countries however have different indirect tax rules.

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to give effect to the 2015-16 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities. Australia – GST Treatment of Cross-border transactions

The area of attention are the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services: online sale, importation of low-value goods and in B2C (business-to-consumer) transactions that digital services supplied remotely by non-registered vendors.

Technical options to deal with the broader tax challenges such as nexus and data are discussed and further analyzed by the OECD and analyzed data will become available in due time.

Read more about impact, challenges and background

Written by Richard H. Cornelisse 

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G20 finance ministers endorse reforms to the international tax system for curbing avoidance by multinational enterprises – OECD

In Audit Defense, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, SAP add on, State Aid, tax avoidance, tax rulings, tax transparency on 09/10/2015 at 10:04 pm

09/10/2015 – G20 finance ministers endorsed the final package of measures for a comprehensive, coherent and co-ordinated reform of the international tax rules during a meeting on 8 October, in Lima, Peru.

Schermafbeelding 2015-10-06 om 08.35.02During a meeting chaired by Turkish Deputy Prime Minister Cevdet Yilmaz, the G20 finance ministers expressed strong support for the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, which provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low/no tax environments, where little or no economic activity takes place.

“Base erosion and profit shifting is sapping our economies of the resources needed to jump-start growth, tackle the effects of the global economic crisis and create better opportunities for all,” said OECD Secretary-General Angel Gurría.

“The G20 has recognised that BEPS is also eroding the trust of citizens in the fairness of tax systems worldwide, which is why we were called on to prepare the most fundamental changes to international tax rules in almost a century. Our challenge going forward is to implement the measures in this plan, rendering BEPS-inspired tax planning structures ineffective and creating a better environment for businesses and citizens alike,” Mr Gurría said.

Undertaken at the request of the G20 Leaders, the work to address BEPS is based on the 2013 G20/OECD BEPS Action Plan, which identified 15 actions to put an end to international tax avoidance.

The plan was structured around three fundamental pillars: introducing coherence in the domestic rules that affect cross-border activities; reinforcing substance requirements in the existing international standards, to ensure alignment of taxation with the location of economic activity and value creation; and improving transparency, as well as certainty for businesses and governments.

Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant.

The final package of BEPS measures includes new minimum standards on: country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises; treaty shopping, to put an end to the use of conduit companies to channel investments; curbing harmful tax practices, in particular in the area of intellectual property and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.

The BEPS package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called “cash box” entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of Permanent Establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.

The BEPS package offers governments a series of new measures to be implemented through domestic law changes, including strengthened rules on Controlled Foreign Corporations, a common approach to limiting base erosion through interest deductibility and new rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.

Nearly 90 countries are working together on the development of a multilateral instrument capable of incorporating the tax treaty-related BEPS measures into the existing network of bilateral treaties. The instrument will be open for signature by all interested countries in 2016.

The BEPS measures were agreed after a transparent and intensive two-year consultation process between OECD, G20 and developing countries and stakeholders from business, labour, academia and civil society organisations.

“Everyone has a stake in reversing base erosion and profit shifting,” Mr Gurria said. “The BEPS Project has shown that all stakeholders can come together to bring about change. Swift implementation by governments will ensure a more certain and more sustainable international tax environment for the benefit of all, not just a few.”

For further information on the OECD/G20 Base Erosion and Profit Shifting Project, including the 2015 Explanatory Statement, the 2015 BEPS Reports, background information and FAQs.

Australia – GST Treatment of Cross-border transactions 

In Audit Defense, Benchmark, BEPS, EU development, Indirect Tax Strategic Plan, SAFT on 08/10/2015 at 2:01 pm

UnknownThe exposure draft legislation is the second part of consultation on the Government’s tax integrity measure to extend the GST to digital products and other services imported by consumers.  This exposure draft builds on the feedback received from the first round of consultation, conducted from 12 May 2015 to 7 July 2015:

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to give effect to the 2015-16 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

The proposed amendments:

  • make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
  • provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
  • allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.

The exposure draft also seeks comments on provisions to give effect to the announced but previously unenacted measure relating to GST cross border transactions and the ‘connected with Australia’ rules.

Key Documents

Closing date for submissions: Wednesday, 21 October 2015: GST Treatment of Cross-border transactions | The Treasury

Technical consultation: country-by-country reporting – UK

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, tax avoidance, tax rulings, tax transparency on 06/10/2015 at 8:49 pm

The aim of this technical consultation process is to ensure that country-by-country reporting will be implemented in the United Kingdom as intended and with effect for accounting periods commencing on or after 1 January 2016. Legislation was introduced in section 122 Finance Act 2015 to enable the making of regulations to implement country-by-country reporting once the Organisation for Economic Co-operation and Development (OECD) had completed work on Action 13 of its action plan on base erosion and profit shifting (BEPS).

These draft regulations should be read in conjunction with the OECD’s consolidated report on Action 13 of the BEPS action plan transfer pricing documentation and country-by-country reporting published on 5 October 2015. The technical consultation will be open until 16 November 2015.

Documents

Google and Apple hit by £160n tax crackdown

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, SAP add on, State Aid, tax avoidance, tax rulings, tax transparency on 06/10/2015 at 4:38 pm

1E6F2D6700000578-0-image-a-2_1444090262536‘Seismic shift’ in rules aimed at forcing huge companies to pay their dues where they operate’

  • Tactics used to avoid billions in tax are to be outlawed in global crackdown
  • Organisation for Economic Co-operation and Development announces plan
  • OECD aims to claw back £160billion it says is lost to legal tax avoidance by multinationals
  • See more news on Google tax avoidance

By Peter Campbell City Correspondent For The Daily Mail

Source: Google and Apple hit by tax crackdown as shift in rules aims to force companies to pay their dues | Daily Mail Online

BEPS 2015 Final Reports

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 05/10/2015 at 4:57 pm

Final BEPS package for reform of the international tax system to tackle tax avoidance. The final reports  include recommendations for substantial tax change.

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BEPS 2015 Final Reports

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BEPS – Country by Country report also implemented in the Netherlands

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 16/09/2015 at 11:49 am

UnknownOn the 15th of September 2015 the Dutch legislator announced new Dutch reporting standards for the Dutch Corporate Income Tax Act. The annual TP documentation package should consist of a master file and a local country file (Dutch or English language).

The report is used to assess material transfer pricing risks and other risks that relate to base erosion and profit shifting and monitor possible non-compliance to transfer pricing rules by members of the group.

The reporting standard is intended for intercompany transactions with more than €50 million annual revenues. Further Country by Country (CbC) reporting requirements are also included with an treshold of €750 million. A penalty is included as well.

The report will be mandatory per January 2016 due to obligations with OESO /G20.

The Dutch Ministry of Finance will issue a decree at a later stage that provides more detailed rules about form and content of the master file, local file and CbC-reporting.

Specific penalties for non-compliance

Not being compliant with submission the CbC report qualifies as a criminal offense. Non-compliance will lead to a monetary fine as of 1 January 2014: €8,100) or custody of six months at the most for the party involved.

In case non-compliance occurs intentionally, then a fine of the fourth category applies in addition to an imprisonment of four years at the most. The authority to levy an administrative penalty will expire five years after the end of the calendar year in which the requirement originated. Criminal prosecution will generally be reserved for the most serious cases.

Relevant chapters:

  1. BEPS – Country by Country report also implemented in the Netherlands
  2. The changing tax world and taxpayer’s impact
  3. Developing a common framework for disclosing tax information
  4. Tax Trends

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In Dutch Belastingplan 2016

The changing tax world and company’s impact

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 13/09/2015 at 11:38 am

The ‘enhanced relationship’ model in UK and new proposals will most likely be copied and implemented by other tax authorities. Penalties when the ‘tax rulings’ are considered State Aid exceed the external auditor’s materiality (5% of turnover: Apple penalty might exceed $ 2.5 bn), impact shareholders value and a company’s reputation.

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

Coke says tax assessment could be ‘material’ on September 18, 2015: “The Internal Revenue Service said on Friday that Coca-Cola owes them $3.3 billion. Coke disclosed that on Thursday it had received a notice from the IRS seeking $3.3 billion, plus interest, after the service completed a five-year audit of its tax years running from 2007 to 2009. Basically, the IRS is asserting that Coke should recognize some of this income in the US, rather than overseas, and now wants Coke to pay up.”

Tax assurance will become more and more important and included mandatory in the scope of work of an auditor. That will influence or have a direct impact on senior management’s KPIs and (reevaluation of) tax priorities set.

When a company does not publish its tax principles, notify the authorities of publication or voluntarily implement and execute a ‘Code of Practice on Taxation’ the tax authorities’ qualification of that company will be a ‘High Risk’ resulting in an increased risk of tax audits and/or litigation. Tax audits will likely be done via data analytics (OECD’s SAF-T) and review of the company’s Tax Control Framework. As the trend is global this would likely apply country by country. There is therefore not really a choice whether or not to participate. This is strengthened as an individual at board level has to sign off the tax strategy published.

It is not only about being in agreement but is focused on execution as well. That means a company should have a Tax Control Framework in place where tax material risks (amount much lower than external auditor’s materiality!) are properly managed and continuously monitored. Essential is the own testing of tax controls as its outcome should be disclosed to the tax authorities to actually prove that the company is ‘in control’.

Although tax audit outcome in the past could have been at an acceptable level, the above is about anticipating the future and shows besides ‘Tax Transparency’ and ‘sign off of Tax Strategy by the board’, etc. also a different way how a tax audit will likely be performed in every country in the near future. SAF-T originates as well from the OECD and is developed to make tax audits for the tax authorities more efficient and effective.

A monthly mandatory submission of electronic audit files is a step closer to ‘Big Brother is watching you’ than the current ‘as is’ in many countries.

Is a tax risk assessment needed prior to submission? It highly recommended as you leave an audit trail behind with potential unforeseen risks.

In the Netherlands we know that the authorities are reorganizing and recruiting 1,500 people with IT skills. We also know that knowledge and experiences – e.g on tax risk management – are shared between tax authorities and that the governments are in a real need to optimize their tax revenue.

Is it therefore still wise to continu in the same way or is reevaluation of the company’s overall ‘Audit Defense’ tax strategy in order? That is a question that an in-house tax function needs to answer first.

Triggers for substantial change and tone at the top

  • Tax Transparency and Code of Practice is high or should be high on the agenda of senior management / Head of Tax
  • Change management applies: business model change (e.g. due to State Aid discussion and risk), financial transformation, post merger integration or implementation of COSO ERM as business model, litigation due to aggressive tax planning or is or might be mentioned in public domain

Extraction from the article: Developing a common framework for disclosing tax information by Richard Cornelisse
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Developing a common framework for disclosing tax information

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 13/08/2015 at 8:28 pm

See the KPMG – Developing a common framework for disclosing tax information – executive summary and actions proposed and below quote:

There can be little doubt that the debate around greater tax transparency by companies is becoming increasingly prominent. There are a growing number of calls from various parts of civil society for companies to be transparent about where they operate around the globe, where they make their profits, where they pay their taxes and how much tax they pay.

The above has a relation with the recent UK consultation request to publish company’s tax strategy, sign off such strategy by the executive and 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.
  • The consultation request is – when a company’s tax strategy is in the end actually published – therefore in my view a ‘tax trend beyond UK’ also when you read this in combination with other (e.g. OECD) initiatives.

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.

Status

European_Parliament_transparancy

I gathered most relevant documents for quickly access in the chapters ‘Audit Defense‘ and ‘Tax Trends‘. Those initiatives are or will be embraced by governments for establishing a good and effective tax audit practice (see also below performance review of tax administrations).

Understanding the bigger picture and how it all fits is therefore important.

I gave as example on the GITM website that certain countries have implemented Standard Audit File for Tax Purposes submission (also originated from OECD). In Europe: Austria, France, Luxembourg and Portugal have already implemented SAF-T. The SAF-T standard, originally created 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.

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.

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.

The documents gathered in chapters ‘Audit Defense’ and ‘Tax Trends’ – should give a clear view of that bigger picture – about trends and actions needed to manage CIT and VAT.

These documents and initiatives should also be read in combination with the latest surveys: the performance review of tax administrations ‘OECD Tax Administration 2015‘ and ‘OECD – Update on voluntary disclosure programmes‘.

The tax world is changing fast and it is important to keep up:

  1. From a direct tax and indirect tax perspective begin to think further about how this aspect of tax strategy will be articulated on both a UK and international basis
  2. If the UK document is going to be published, as planned in the consultation, it will be accessible to other tax authorities of course and they will need to be considered when drafting even a purely UK strategy document
  3. Make all the improvements possible in the time before such legislation comes into force so that the starting position is as strong as possible

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OECD Tax Administration 2015

In Audit Defense, Belastingontduiking, Benchmark, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 12/08/2015 at 7:44 am

Tax Administration 2015, produced under the auspices of the Forum on Tax Administration, is a unique and comprehensive survey of tax administration systems, practices and performance across 56 advanced and emerging economies (including all OECD, EU, and G20 members). Its starting point is the premise that revenue bodies can be better informed and work more effectively together given a broad understanding of the administrative context in which each operates. However, its information content is also likely to be of interest to many external parties (e.g. academics, external audit agencies, regional tax bodies, and international bodies providing technical assistance).

The series identifies some of the fundamental elements of national tax system administration and uses data, analyses and country examples to identify key trends, comparative levels of performance, recent and planned developments, and good practices.

I have grouped together other key documents in ‘Audit defense strategy‘ and ‘Tax trends‘ for easy access

OECD

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