a practical guide to beps: reviewing what the leaders are doing-tavin skoff, veritas technologies...

Practical Guide to BEPS

Tavin Skoff

Director, Tax Planning

Current Message

Dear CFO,

I’m going to spend large consulting and technology fees to change your ERP system and increase taxes. I look forward to discussing my bonus next time we meet…..

Tavin


Presentation


BEPS (Base Erosion & Profit Shifting) Environment

Game changer: OECD

intent to increase

worldwide corporate taxes,

making entities pay what is

perceived as “fair”.

Globally coordinated

approach by countries that

increases regulatory

filings to provide countries

support for their position.


Path To Success in BEPS Environment

Lead and move first. Determine and dictate how much tax is “fair”, rather than reacting to other’s standards. This positively shapes perception and frames the discussion in an advantageous manner where tax authorities react to Veritas.


Goals of Project

Design a well-thought out, consistent, global narrative and structure which provides a framework for deciding how much tax is “fair” and creates a strong case tax authorities will have to overcome.

Create an automated value chain analysis global model which can be updated in-house as facts change.

Create a high level implementation plan. Next step will be country by country implementation.


Appendix 1

Sample Deliverables


Sample World Heat Map of Revenue


Sample ETR Analysis


Sample Dashboard


Sample Risk Identification & Resolution


Sample Risk Identification and Resolution


Appendix 2

Strategy Decision Criteria


Global Narrative & Structure Decision Making Criteria

Copyright © 2015 Veritas Corporation

1 Certainty

2 Tax Position Optimization

3 Simplicity & Process and Administrative Efficiencies

15

One Ring to rule them all…..


Appendix 3

BEPS Actions


Current Law BEPS Goal


Standardization


Decision Makers


Flexibility Substance vs. Technically Correct


Action 1 – Addressing the Tax Challenges of the Digital Economy

• Governments have to adapt and change laws because of the digital economy.

• Hard to source and value

• “Artificial” shifting of income

• Significant economic presence (determined by facts and circumstances )

• Withholding on digital transactions


Action 2 – Neutralizing the Effects of Hybrid Mismatch Arrangements

• Gradual reduction of mismatches

• “Hybrid mismatches in aggressive tax planning”

• Idea – Want to have tax somewhere. Laws expected to be standardized, esp. with anti-abuse clauses.

• Thoughts – Build strong support for position or adjust.

• Will depend on exact wording of law and facts.


Action 3 – Designing Effective Controlled Foreign Company Rules

• Standardized laws of what is income between parent and CFC country. Definition of CFC.

• Use rules of parent country to calculate CFC income?

• Standardization and minimized profit shifting

• Thoughts – If every country applied the same tax rates and laws, there would be no issue! But because they don’t there are areas.


Action 4 – Limiting Base Erosion Involving Interest Deductions and Other Financial Payments

• Interest income in low tax jurisdictions and interest expense in high tax jurisdictions. Both 3rd party and intercompany debt.

• Limit interest deductions to a percentage of EBITDA. Potential carryforward.

• Monitor and adjust – Move substance and/or change transaction.


Action 5 – Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance

• In order for a regime to be considered preferential, it must offer some form of tax preference in comparison with the general principles of taxation in the relevant country. A preference offered by a regime may take a wide range of forms, including a reduction in the tax rate or tax base or preferential terms for the payment or repayment of taxes. Even a small amount of preference is sufficient for the regime to be considered preferential. The key point is that the regime must be preferential in comparison with the general principles of taxation in the relevant country.

• Get more transparency from preferential countries. European patent boxes.

• Ivory tower. Keep taxes high.

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Action 6 – Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

• Treaty shopping

• Make sure income is taxed once.

• Letterbox companies to become resident of preferential treaty

• New treaty anti-abuse rules


Action 7 – Preventing the Artificial Avoidance of Permanent Establishment Status

• Change PE definition to establish PE if there is substance. Form v. Substance argument.

• Under current treaties where went to court, taxpayer generally won.

• Commissionaire arrangements targeted. Many companies going to buy/sell.

• Eliminate legal entities? Cost conversion.

• Really thought out and explicit changes recommended.

• Example: Preparatory or auxiliary in nature (stop fragmentation of supply chain)

Copyright © 2015 VeritasCorporation 29

Actions 8-10 – Aligning Transfer Pricing Outcomes with Value Creation

• Contractual allocations vs. substantive functions, assets, and risks to determine arm’s length

• Intangibles: development, maintenance, enhancement, protection, and exploitation. Not just legal ownership alone

• Funding: risk, not just contractual relationship alone

• Intergroup services (management fees, AP, AR, HR): substance?


Action 11– Measuring and Monitoring BEPS

• Government Theory: Mismatches and gaps in international tax rules separate taxable profits from the underlying value-creating activity.

• Governments to report and analyze more corporate tax statistics and present them in an internationally consistent way. This will allow better measurement and monitoring by governments of BEPS effects.

• Example: MNE overall tax rate is lower than average country rates.

• Takeaway: Ivory tower. They are trying to monitor and eliminate BEPS. Govt. expects domestic and international businesses to have same ETR.


Action 12 – Mandatory Disclosure Rules

• Provides a modular framework that enables countries without mandatory disclosure rules to design a regime that fits their need to obtain early information on potentially aggressive or abusive tax planning schemes and their users. Set up regime for mandatory disclosure and then sharing among countries.

• Monitor – Disclose minimum legally required unless helpful to disclose more.


Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting

• Can either give you what you ask for or give you what you need.

• Master File – Overview - Global business operations, org chart and transfer pricing policies, financial statement, APAs, etc.

• Local File – Detailed transfer pricing documentation

• Country-by-Country Report



BEPS Table 1 - Overview of allocation of income, taxes, and business activities by tax juristiction

Number of

Employees

Tangible Assets other

than Cash and Cash

Equivalents

Unrelated Party Related Party Total

Tax Juristiction

Name of the MNE Group:

Fiscal Year Concerned:

Currency Used:

Revenues Profit (Loss)

before

Income Tax

Income Tax

Paid (on Cash

Basis)

Income Tax

Accrued -

Current Year

Stated Capital Accumulated

Earnings


BEPS Table 2 - List of all the Constituent Entities of the MNE group included in each aggregation per tax juristiction

Oth

er

Fiscal Year Concerned:

Name of the MNE Group:

Tax Juristiction of

Organization or

Incorproation if

Different from Tax

Jurisdiction of

Residence

Tax Juristiction

Constituent Entities

Resident in the Tax

Jurisdiction

Main Business Activitiy(ies)

Pro

vis

ion

of

Se

rvic

es t

o

Un

rela

ted

Pa

rtie

s

Inte

rna

l G

rou

p F

ina

nce

Re

gu

late

d F

ina

ncia

l S

erv

ice

s

Insu

ran

ce

Ho

ldin

g S

ha

res o

r O

the

r E

qu

ity

Instr

um

en

ts

Do

rma

nt

Ad

min

istr

ati

ve

, M

an

ag

em

en

t,

or

Su

pp

ort

Se

rvic

es

Sa

les,

Ma

rke

tin

g,

or

Dis

trib

uti

on

Ma

nu

factu

rin

g o

r P

rod

ucti

on

Pu

rch

sin

g o

r P

rocu

rem

en

t

Re

se

arc

h a

nd

De

ve

lop

me

nt

Ho

ldin

g o

r M

an

ag

ing

Inte

lle

ctu

al P

rop

ert

y

CBC Table 3

• Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the compulsory information provided in the Country-by-Country Report.

• Put your story in here and let them know why Table 3 is relevant to the discussion compared to Table 1 & 2 (unless they are).


Action 14 – Making Dispute Resolution Mechanisms More Effective

• Timely and fair resolution of tax issues using Competent Authority, peer-reviewed and monitored by the Committee on Fiscal Affairs to the G20.

• Mandatory binding arbitration

• Certainty, predictability, and accessibility

• Average 24 month resolution

• Suggests bi-lateral APA programs


Action 15 – Developing a Multilateral Instrument to Modify Bilateral Tax Treaties

• Governments have agreed to explore the feasibility of a multilateral instrument that would have the same effect as a simultaneous renegotiation of thousands of bilateral treaties.

• Efficiency

• Provides recommendations, guidelines, and comments on how to put together a multilateral instrument.


Thank you!

Copyright © 2015 Symantec Corporation. All rights reserved. Veritas and the Veritas Logo are trademarks or registered trademarks of Symantec Corporation or its affiliates in the U.S. and other countries. Other names may be trademarks of their respective owners.

This document is provided for informational purposes only and is not intended as advertising. All warranties relating to the information in this document, either express or implied, are disclaimed to the maximum extent allowed by law. The information in this document is subject to change without notice.

Tavin Skoff

[email protected] 650-933-1849