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BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BEPS: GLOBAL TAX FRAMEWORK & HOW IT APPLIES TO YOUR GLOBALLY MOBILE POPULATION
November 2017
PRESENTERS:CHIP MORGANDEBRA MOSESMESA HODSON
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BEPS: Global Tax Framework & How It Applies To Your Globally Mobile Population3
CHIP MORGANPartner, BDO USA
International Tax Services
DEBRA MOSESPartner, BDO Canada
Expatriate Tax Services
MESA HODSONPrincipal, BDO USA
Expatriate Tax Services
713-561-6508 [email protected]
WITH YOU TODAY
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4 BEPS: Permanent Establishments and Link with Tax/Global Mobility
WHAT BEPS MEANS FOR GLOBAL MOBILITY
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Overview
A number of the OECD’s Base Erosion and Profit Shifting (“BEPS”) Actions will impact on how enterprises manage and report on their globally mobile employees
The following presentation addresses the Action points that are relevant for Global Mobility professionals
It is important to understand the impact of BEPS on your company and when to involve your tax department and your tax and transfer pricing advisors
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
What global mobility needs to focus on
For international businesses, ensuring compliance with the OECD’s BEPS Action Plan could help reduce corporate tax risks associated with globally mobile employees
In order to become more compliant with the BEPS Action Plan, companies with globally mobile employees should consider the following key actions:
• Understand where you are today• Plan ahead• Establish specific rules• Document effectively• Ensure transfer pricing compliance
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IN CONTEXTThe Action Plan Against BEPS
The OECD’s 15-point action plan is outlined under three subheadings:
Establish international coherence of corporate
income taxation:
• Action 1: Address the tax challenges of the digital economy
• Action 2: Neutralise the effects of hybrid mismatch arrangements
• Action 3: Strengthen CFC rules
• Action 4: Limit base erosion via interest deductions and other financial payments
• Action 5: Counter harmful tax practices more effectively, taking into account transparency and substance
Restore full effects and benefits of international
standards through realignment of taxation and relevant
substance:
• Action 6: Prevent treaty abuse
• Action 7: Prevent the artificial avoidance of PE status
• Action 8, 9, 10: Assure that transfer pricing outcomes are in line with value creation –focusing on intangibles (8), risks and capital (9) and high risk transactions (10)
Ensure transparency while promoting increased certainty
and predictability:
• Action 11: Establish methodologies to collect and analyse data on BEPS and the actions to address it
• Action 12: Require taxpayers to disclose their aggressive tax planning arrangements
• Action 13: Re-examine transfer pricing documentation
• Action 14: Make dispute resolution mechanisms more effective
• Action 15: Develop a multilateral instrument
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Understand where you are today
Evaluate activities of globally mobile employees and current tax strategies to develop a more concrete plan to address risk exposure to expected rule changes
Heightened focus on substance, thus employment relationships and structures are expected to be examined more closely by tax authorities
These relationships can often drive PE determination, employee taxability, transfer pricing implications, and indirect tax applicability among others
Maintaining and enhancing adequate substance within the employment relationships and structures is going to be critical to manage unanticipated outcomes in case of challenge by the tax authorities
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Plan ahead
Establish processes and procedures to track and monitor globally mobile employees –create the structure needed to address future compliance requirements
Solidify protocols and procedures to track mobile employees, including business travelers, in order to assess associated PE risk and comply with reporting and withholding requirements
Data transparency and visibility will be key where tax authorities are becoming very technically savvy and exchange of information between authorities is becoming commonplace
Knowing where employees are and what activities they are performing will be key in managing the detailed country-by-country requirements and associated compliance
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Establish specific rules
Country-by-country (CbC) specific rules to ensure compliance with reporting requirements in each jurisdiction where a company does business, thereby minimizing the risk exposure
The new country-based reporting requirements can be quite detailed. In order to successfully mobilize workforce and mitigate risks, teams need to be confident that the organization is using the appropriate method of initiating assignments and adhering to the most up-to-date standards
Establish processes and procedures not only to support but drive compliance – multi-disciplinary approach to building these processes as necessary, looking from a tax, mobility, HR, finance, payroll and legal perspective
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Document effectively
Ensure robust assignment and inter-company documentation is in place – have the information needed to respond to increased scrutiny from tax authorities so as to avoid potential penalties
Contemporaneous documentation to support assignments – first line of defense in an audit situation in order to manage global tax risk
Review mobility documentation for details on assignees’ activities, roles and responsibilities of the home and host entities, and alignment with the commercial reality and actual practice
Important that document clarifies defacto or economic employment of the individual while on assignment, as well as lay the basis for cross-charge of costs between entities in line with transfer pricing regulations to manage risks
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WHAT BEPS MEANS FOR GLOBAL MOBILITY
Ensure transfer pricing compliance
Assess cost recharge arrangements relative to globally mobile employees to ensure policies adhere to transfer pricing guidelines to remain outside any corporate tax requirements in the jurisdictions in which companies do business
Institute appropriate cross-charging methodology and ensure that entities are adequately compensated for value created by each entity
In addition to cross-charge of employees’ compensation, appropriate allocation for deemed transfer of intellectual property, that may be seen as being transferred on secondment of employees, may also be required – added complexity
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13 BEPS: Permanent Establishments and Link with Tax/Global Mobility
BEPS PROJECT AND MULTILATERAL INSTRUMENT
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Background and definitions
Organization for Economic Co-operation and Development (OECD) project against base erosion and profit shifting (“BEPS”)
• Action point 7: Preventing the Artificial Avoidance of the PE status
Globalization and technology allows many companies in one country to operate economically without having a controllable presence in another country:
• Use of exceptions to the classical concept of a PE• Misuse of the agent concept ("Commissionaire structures")• Split of contracts
Consequences• Many transactions remain untaxed• Unfair allocation of taxation rights• The profit is not taxed where the value-added activity takes place
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Background and definitions
Different nexus rules exist for different taxes: • Corporate Income tax- Permanent Establishment• Value Added Tax (VAT) – taxable supply of goods and services• Payroll – physical location where employees work• Employer/Entity can be subject to one or more but not all
BEPS Action Item 1 – ecommerce • Countries to coordinate on ecommerce • VAT exception - each country may take steps to protect this revenue source
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Background and definitions
Multilateral Instrument (MLI)
MLI is intended to adapt a large number of Double Tax Treaties (DTT’s) to international standards
About 70 countries signed MLI on 7th June 2017
But no complete harmonization • Each country chooses which of their DTTs shall be amended by the MLI• Both DTT countries have to agree with the application of MLI to their DTT • The countries determine which BEPS regulation shall be integrated in the DTT
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Background and definitions
Multilateral Instrument (MLI) – continued
The U.S. has not signed. Although the US Model Treaty is generally BEPS consistent, the actual U.S. treaties use the traditional definition of PE
U.S. views tax law and treaties with equal authority so “last in time” concept prevails
Many countries provide tax treaties as a higher authority above domestic tax law
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Signatories and parties of the multilateral convention
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BEPS PROJECT AND MULTILATERAL INSTRUMENT
Countries which have expressed their intent to sign the convention
SUMMARY AND CONCLUSION About 70 jurisdictions have now signed, impacting approximately 1.100 tax treaties when
ratified (out of approximately 2.300 tax treaties globally). OECD expects close to 100 countries to sign by the end of 2017. One of the big successes of the BEPS project: the first time, tax treaties can be modified
without undergoing a bilateral treaty negotiation and ratification process. This will significantly speed up the implementation of these changes outside of the U.S.
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20 BEPS: Permanent Establishments and Link with Tax/Global Mobility
BEPS PROJECT AND MULTILATERAL INSTRUMENT - TECHNICAL EXAMPLES
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Key areas of focus: Strives to update the definition permanent establishment (“PE”) to counter artificial
avoidance of PE status. This will involve:– Ensuring that core activities cannot inappropriately benefit from the exception
from PE status and that artificial arrangements relating to sales of goods and services cannot be used to avoid PE status; and
– Preventing the artificial fragmentation of business operations among multiple group entities to qualify for the exceptions to PE status for preparatory and auxiliary activities.
OECD project to develop revised model treaty provisions and commentary
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Actual situation “before BEPS”
Taxable presence of a company in another country PE
Classic PE Dependent Agent
Construction PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Specific activity exemption
Impacts early stages of expansion into a new country
Current rules - a PE is deemed not to exist when a place of business is used solely for storage, maintenance of stocks of goods for storage, display, delivery or processing, purchasing or the collection of information
New rules - the activities referred to above must be of a preparatory or auxiliary nature
Preparatory - emphasizing the short-term duration of the relevant activity
Auxiliary - being an activity “to support, without being part of, the essential and significant part of the activity of the enterprise as a whole”
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Specific activity exemption
For example, storage and delivery activities to fulfill online sales do not have a preparatory or auxiliary character; whereas the storage of goods in a bonded warehouse during the custom clearance process would be acceptable
Anti-fragmentation rules - introduced to prevent the fragmentation of a cohesive operating business into several small operations in order to get within the "preparatory or auxiliary" exemption
Activities of related parties will be viewed as a whole when determining whether such activities would still fall within the "preparatory or auxiliary" exemption
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions – prior to BEPS
Problem:• Art. 5 (4) of the OECD Model Tax Convention (MTC) contains a list of activities
that do not lead to a PE considered out of context (so called “exemption catalogue“), e.g.:
– Storage of goods– Keeping stock for delivery– Purchasing goods– Collecting information
• Original intention: this list only shall include auxiliary activities
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions – prior to BEPS
online retailer in Luxemburg
storage in Germany
according to the current legal situation, no PE in Germany, since
business facilities is "only" a storage
purchaser in Germany
value-adding activities in Germany
non-taxed profitsin Germany
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
Example auxiliary activities:• Is the large warehouse of a
Luxembourg company with a significant number of employees, which is located in Germany and serves as a storage and for a timely delivery of online sold products to German customers (still) an auxiliary activity?
• NO, according to BEPS action point 7: Storage and delivery are an essential part of the company's sales activities!
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
Solution according to the BEPS-Project:MLI adds the requirement: “provided that such activity or.... the overall activity of the fixed place of business, is of a preparatory or auxiliary character”
• Preparatory activities:– Preparatory activities precede what constitutes the essential and
significant part of the activity of the enterprise as a whole.– Short-term duration of the activities.
• Auxiliary activities: – An activity that has an auxiliary character, on the other hand, generally
corresponds to an activity that is carried on to support, without being part of, the essential and significant part of the activity of the enterprise as a whole.
– It is unlikely that an activity that requires a significant proportion of the assets or employees of the enterprise could be considered as having an auxiliary character.
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions – Results after BEPS project:
online retailer in Luxemburg
storage in Germany
PE in Germany because storage and delivery are an essential part of the
company's sales activities!
purchaser in Germany
value-adding activities in Germany
profits taxed in Germany
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Splitting up contracts
Splitting up contracts artificially into shorter periods of less than 12 months in order to benefit from the "construction site" exemption
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
Example for preparatory activities:• Is the training of workers of a German
construction company, which takes place in Austria before these workers are later dispatched to Switzerland (location of the construction site) a preparatory activity?
• YES:The training precedes the construction site and is carried out over a short period of time.
construction company in
Germany
training in Austria in rooms rented
there
construction site in Switzerland
NO PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
Split of activities between separate business units
If a company is operating in another country with a number of spatially and organizationally separate fixed business establishments, each of them performing activities of the exception clauses, shall be summarized if the activities are complementary.
Company Xbusiness unit for sales
activities
Company Xbusiness unit for storage
activities
PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
Split of activities between affiliated companies
In the future this point of view shall be extended to the whole group of companies, that a company's activities performed through various business facilities as well as activities of affiliated companies are combined by different business facilities or the same business facilities.
parent companybusiness unit for sales
activities
subsidiarybusiness unit for storage
activities
PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
1. Specific activity exemptions
MLI adds an “anti-fragmentation rule“• Taken separately each entity claims that activity is auxiliary • Currently: no taxable presence • MLI: add activities of related parties together to assess auxiliary nature
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
2. Splitting up contracts
Problem• Today A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months (see art. 5 (3) OECD MTC).
• Strategy of many companies splitting-up of a single construction process into several parts or phases, each with own contracts lasting less than 12 months.
parent companyphase 1 (4 months)
subsidiaryphase 2 (9 months)
NO PE
NO PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
2. Splitting up contracts
Solution according to BEPS project• Anti-fragmentation rule for construction PEs• Periods of time of connected activities of one
company or of several closely related companies are added
• Closely related: – One company has control of the other
company– Especially if one company possesses
directly or indirectly more than 50% of the shares in the other company
– Both companies are under control of the same persons
parent companyphase 1 (4 months)
subsidiaryphase 2 (9 months)
sum: 13 months
PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Dependent Agent Test
Impacts globally mobile senior executives, sales representatives and contractors who may be performing activities in relation to the conclusion of contracts in other tax jurisdictions
Current rules - focuses on habitual conclusion of contract by the agent
New rules - habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification
Need to develop criteria for assessing whether the ‘principal role’ test is met and the meaning of ‘material modification’; little guidance now
Will not apply where an intermediary acts in a principal, not agency, role (which might be true with certain low-risk distributor structures)
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Independent Agent Exemption
Tightening the circumstances in which an agent would be considered as “independent”
For example, if an agent acts exclusively or almost exclusively for one or more enterprises to which it is closely related, it will not be an independent agent
Enterprises are closely related if there is direct or indirect control of more than 50 percent of the beneficial interests or de facto control
Many times “agents” are initially hired on a contract basis when an enterprise expands into a country and then brought on as full-time employees
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Agent PE:• A company has an agent PE in
another country if a person (commission agent) is empowered to conclude contracts on behalf and in the name of this company, or otherwise bind this company and carries out this power of attorney habitually.
Company in Germany
profit taxed in France
PE in France due to an agent with power of attorney
agent with power of attorney
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Commission agent model:
• A person – the commission agent – sales goods in its own name, but on behalf of a foreign company who is the owner of the goods
– Commission agent is NOT taxed, since he isn’t the owner of the goods.
– The foreign company will not be taxed in the country where the sale takes place, since there will NOT be established a PE.
Company in Germany
profit taxed is NOT taxed
in France
PE in France due to an agent with power of attorney
agent with power of attorney
NO power of attorney
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Problem:• Tax structuring until now: companies acted in the other country by means of a
distribution entity.• Only by a simple contract change, the status of a distribution entity was
downsized to the status of a commission agent.• Result:
– A classic distribution entity and a commission agent perform the same duties: distribution of the foreign company’s goods.
– But the profits earned by the commission agent in the source country remain untaxed.
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goods
ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Example: distribution company
customer in France distribution company
in France
profit taxed in France
dividends
parent company in Germany
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goods
ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Example: distribution company
customer in France distribution company
in France
profit in France NOTtaxed
parent company in Germany
profit (deducted by commission fee)
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Solution• Extending the wording
• Conclusion of contracts in the name of the company.
• Conclusion of contracts for transferring propertybelonging to the company or transfer of the right of
use to goods which the company may use. • Conclusion of contracts for which the company
provides a service.
• Conclusion of contracts in the name of the companyToday Post BEPS
No restriction on actions on behalf of the company!
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies
Solution• Agent PE is established even if contracts would not be concluded formally in
the name of the company.• The main focus of the term is not who is legally bounded anymore, but what is
the subject of the contract.• Contracts re. goods, rights of use and services on behalf of a company (not
necessary on its own name) in one country are sufficient to establish a PE in the respective country.
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goods
ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Solution
customer in France Commission agent
profit taxed in France
parent company in Germany
profit (deducted by commission fee)
PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies –Civil law countries
Dependent agent without power of attorney• An agent PE shall be established in the future if
a person usually plays the key role for the conclusion of contracts and the final contracts will be concluded by the company without substantial changes.
• The usual use of the power of attorney responsible for the conclusion of contracts in the source country is not required anymore; a causal connection between the work of the agent and the conclusion of the contract is sufficient to establish an agent PE
Agent PE
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Dependent agent• A PE for a company in another country shall NOT be established due to
the business activities– of a broker,– an ordinary commission agent, or – of another independent agent.
• Problem: Contracts were concluded often in the name of the foreign company in the source country, but from an affiliated company that acts as an “independent agent”.
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Independent agent • Solution
– An independent agent shall not be assumed if the respective person acts exclusively or almost exclusively for one or more companies to which the person is related.
– A relation exists if one company has a share to another one directly or indirectly of at least 50%.
– If an agent brokers more than 90% of the turnover to related companies, the agent is NOT considered to be an independent agent.
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Independent agent • Solution
– An independent agent shall not be assumed if the respective person acts exclusively or almost exclusively for one or more companies to which the person is related.
– A relation exists if one company has a share to another one directly or indirectly of at least 50%.
– If an agent brokers more than 90% of the turnover to related companies, the agent is NOT considered to be an independent agent.
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Civil law countries
Situation with MLI• No application of the commissionaire rules (art. 12 MLI):
– Australia – Canada – Germany – Luxembourg – United Kingdom
In today’s gig economy the line between independent agent and dependent agent/employees is becoming blurred – Uber, for example
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
3. Commissionaire arrangements and similar strategies – Common law countries
Common law countries (U.S.) – agent acting on behalf of undisclosed principal Options for distribution:
• Representative office: no contractual authority, a cost center (a non PE)• Cost plus support office: no contractual authority, cost plus
intercompany service fee• Commission agent: not in chain of title, variable intercompany fee
(percentage of revenues). A commission agent is not the same thing as a commissionaire.
• LRD (limited risk distributor): in chain of title, variable intercompany cost of goods sold
• Full-fledged distributor: in chain of title, variable intercompany cost of goods sold
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Failure to appropriately manage the PE risks associated with mobile employees may result in:
• Additional reporting requirements• Corporate tax exposure• Penalties for non-compliance• Reputational risk and• Increased scrutiny from tax authorities
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ACTION 7: PERMANENT ESTABLISHMENT STATUS
Conclusions and recommendations
One of the main topics is the extension of the PE definition
Recommendations:• Timely analysis with the reform projects• Verify whether or not the qualification of company activities is changing• Consideration of whether the PE is to be avoided or whether the PE in
the foreign country is useful• Important: Possible taxable event, including the disclosure of hidden
reserves, if Intellectual Property (IT) is assigned to a "new" PE abroad• Some treaties (U.S. & Canada) have specific PE rules• Most treaties apply generic PE rules across all types of businesses
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OTHER ACTION POINTS
Transfer Pricing has also been affected by action Items under the BEPS initiatives
As part of an effort to ensure transparency of Transfer Pricing practices by taxpayers, BEPS addresses the following changes:
Pre BEPS• Limited transparency into how
company operates globally• Individual reports for each country
focused on local rules• One sided analysis focused solely on
results of single entity
Post BEPS• CbC Report / Master File • Local File provided along with CbC
/ Master File allows visibility to multiple jurisdictions into whole value chain
• Value chain analysis / profit split
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OTHER ACTION POINTS
Of the remaining action points – 8, 9, 10 and 13 relate to transfer pricing and documentation
Key Areas of Focus:• A focus on a three-tiered approach for documentation to increase transparency
and streamline the information necessary for the development of an audit through the creation of:
– A ‘master file’ that provides an overview of the multinational group and business;
– A ‘local file’ that provides additional detail on the operations and transactions relevant to that jurisdiction; and
– A ‘country-by-country reporting template’ that provides summary data, by jurisdiction, with respect to the group’s income, taxes, and indicators of economic activity.
• Allows local tax authorities to conduct more informed transfer pricing analyses.
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OTHER ACTION POINTS
A number of countries have enacted legislation which took effect on 1 January 2016
The Country by Country Report (CbCR) forms one part of the three-tiered transfer pricing documentation obligations
It will provide information on a group’s income and assets, including the number of employees located in each group entity, to tax authorities in every territory in which the group operates
Allows tax authorities to identify where the level of profits does not align with an entity’s substance, so they can consider challenging transfer pricing arrangements
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OTHER ACTION POINTS
Collating the employee data for each territory may be more complex than initially thought
Which territory should a globally mobile employee be reported?
The answer will vary depending on the type and length of assignment, the employment contract and whether a global employment company is used.
Enterprises will need to think about ensuring the data on the CbCR is consistent with other employee information available to tax authorities, such as numbers reported on short term business visitor agreements and through visa applications
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HOW DOES TRANSFER PRICING FIT INTO THIS PICTURE?
What types of transactions are addressed under Transfer Pricing?
When one entity undertakes any of the functions or bears any of the risks associated with the activities outlined below, there is a potential for compensation under transfer pricing rules. It‘s important to remember that correct attribution of intercompany profit will follow functions, risks and assets employed.
• Tangible Property (purchase/ sale of tangible goods)
• Services (contract R&D, management and administrative, etc.)
• Loans, Interest, Guarantee Fees, and Cash Pooling
• Intangible Property (licensing of intellectual property (“IP”), royalty payments, IP migration, etc.)
• Leases / Rental Charges
• Cost Sharing Arrangements (product R&D, marketing, etc.)
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HOW DOES TRANSFER PRICING FIT INTO THIS PICTURE?
What are some common Transfer Pricing misconceptions?
Transfer pricing is merely a tax issue that is eliminated upon consolidation for book purposes.
Related party transactions can be bundled and assessed on an aggregated basis.
A single global transfer pricing documentation report will satisfy transfer pricing documentation requirements for all local jurisdictions.
Transfer pricing is a compliance-based service that adds little value to a multinational enterprises’ global business operation.
Transfer pricing is not affected by movement of employees or provision of services or activities engaged in by seconded employees.
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NEXT STEPS
As a result of BEPS, enterprises should:
Establish procedures to track and monitor global mobile employees and to develop the ability to assess associated PE risk
Establish compliance rules for country-by-country based reporting
Ensure robust assignment and inter-company documentation is in place
Assess cost recharge arrangements relative to mobile employees to ensure policies adhere to transfer pricing guidelines (ie. recharge in line with the value created by the employee)
BDO can help you prepare for the changes under BEPS
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BIOGRAPHYChip Morgan
Chip’s career has been centered on international tax for over 31 years. He has been an ITS partner with two of the Big 4, where he advised clients across a broad range of industries, geographies and transactions. In addition, he has industry experience as VP Tax for a semiconductor manufacturer and a software company, where he had practical experience with implementing and defending international tax structures, and working to keep the tax structures aligned with the underlying business operations as they evolve over time.
Chip has worked in New York, Brussels, San Jose and Los Angeles and has assisted companies ranging from startups to very large, mature enterprises. He has deep technical knowledge, combined with practical hands on experience
[email protected]: 310-557-7517Mobile: 310-500-9522
600 Anton BoulevardSuite 500Costa Mesa, CA 92626
Tel: 714-957-3200Fax: 714-957-1080www.bdo.com
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BIOGRAPHYDebra Moses, CPA, CMA, EA
[email protected]: 514-934-7809
1000 De La Gauchetière West St. Suite 200Montréal QC H3B 4W5Canada
Tel: 514-931-0841Fax: 514-931-9491www.bdo.ca
Debra has over twenty-four years of experience in Expatriate Tax She assists multinational companies with Global Mobility, including Canadian and U.S. Income Tax Compliance, Payroll, Social Security, Compensation, Global Equity and Tax Policy Consulting.
Debra is a member of BDO’s Global Expatriate Centre of Excellence as well as the Expatriate Strategy Group, along with the other BDO country leads of Expatriate Tax. She is also a member of BDO’s Global Equity and the Global Customized Payroll teams.
Debra has taught the CICA In-Depth Tax Course and has written various tax articles.
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BIOGRAPHYMesa Hodson
Mesa Hodson is a Principal in the Expatriate Tax Services. She has over 30 years of experience in the individual tax area assisting both U.S. citizens and foreign nationals working on international assignments. Mesa spent the first 20 years of her career in Big Four firms serving the expatriate population of large corporate clients. She has managed the tax return compliance for international tax programs of various sizes and consulted on tax equalization policy and expatriate payroll for the corporate programs. Mesa has also assisted companies with sending their first expatriates on assignment. She has worked with both public and private companies across multiple industries including Oil & Gas, Engineering, Aviation and Real Estate.
Mesa has spoken at the SHRM Global HR conference on basic expatriate tax issues. She has also hosted a panel discussion at the conference on the topic of U.S. Financial & Estate Tax Issues for International Assignees. Mesa hosted a panel discussion on HR, Legal and Individual Tax issues companies need to consider for international assignments at the Financial Executives International (FEI) Summer Breakfast Series.
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