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Key International tax developments: what lies ahead?
Sarah Fahy - Vice President , Sony Global Tax Office , Europe Guy France – Senior Director, Sony Global Tax Office, EuropeJoy Svasti-Salee - Executive Director, Ernst and Young LLP - Visiting Prof. Queen Mary University of London26 January 2011
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Outline for discussion
Key influencers to-date
Issues faced by MNE’s today
Key influencers in the future
What lies ahead?
The principles of international tax
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Global fundamental principles? Separate entity approach
An entity is taxed based on its residence
Source countries may tax income and gains – PE threshold
Withholding tax may be deducted at source on passive income
A parent company can only tax dividends from, and not profits of, a subsidiary
Interest is deductible and dividends are not
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Emerging global principles?
1987
•CFC rules regarded as acceptable / encouraged by OECD
1990’s
•Thin capitalisation rules become commonplace
1992
•LOB concept starts (NL/US DTT) + anti conduit rules
1995
•Transfer pricing – OECD guidelines (major revision in 2010 )
2005
•Focus on exchange of information (Art 26 updated)
2010
•Update to MTC (including new Art 7)
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Key influencers to date
“Individually powerful” countries, e.g. USA Japan
The OECD
Europe and the ECJ
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The OECD and EuropeOECD Both European
Australia Austria Poland Bulgaria
Canada Belgium Portugal Cyprus
Chile (2010) Czech Republic Slovakia Estonia
Iceland Denmark Slovenia Latvia
Israel (2010) Finland Spain Lithuania
Japan France Sweden Malta
Korea (1996) Germany United Kingdom
Romania
Mexico Greece
New Zealand (1994) Hungary
Norway Ireland
Switzerland Italy
Turkey Luxembourg
United States Netherlands
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Traditional outbound parent jurisdictions
Powerful
countries
Tax rules of parent dictate the structure
Continuing strong global powers: Complex legislation Anti-inversion rules CFC rules and GAARs Restrictions on interest
deductibility But recognition of
some that they need to be competitive ....
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UK CT reform: delivering a more competitive system
Delivering a more competitive system: Creating the right conditions for business investment
and growth Responding to business concerns over instability and
unpredictability Reversing the trend of business leaving the UK
Principles: Lowering rates while maintaining the tax base Maintaining stability Being aligned with modern business practices Avoiding complexity Maintaining a level playing field for taxpayers
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Issues faced by MNE’s today Cost Speed Globalisation
Technology
Centralisation of functions
Rapid growth in emerging markets
Increased tax transparency
Complex regulation and aggressive tax authorities
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Future – “go East”?
Emerging Markets
OECD “outreach”
People getting
wealthier
New Stock Exchanges
Low cost of labour
Large populations attract activity
Trading “in” or “with” large markets
Increasing experience of international taxation
Pick and choose rules?
Tax a “toll” to do business?
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Key influencers in the future The new “individually powerful” countries
India China Brazil Russia Others ...
G20
Campaigners ......
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Fundstalk.co.uk
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What lies ahead?
More competition to be the country of the parent?
A shift back to taxation at source?
CCCTB in (part of) Europe?
MNE’s recognised for their role as collectors of taxes?
What should the global fundamental principles of international tax law be?
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What lies ahead - in the medium term?
Little cohesion?
MNE’s need to find new ways to engage with Governments particularly in relation to: Transfer pricing The avoidance of double taxation
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Thank you