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GLOBAL TAX

A N N UA L R E V I E W 2 0 1 7

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Annual Review • April 2017

Global Tax

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GLOBAL TAXA P R I L 2 0 1 7 • A N N U A L R E V I E W

F i n a n c i e r Wo r l d w i d e c a n v a s s e s t h e o p i n i o n s o f l e a d i n g p r o f e s s i o n a l s a r o u n d t h e w o r l d o n t h e l a t e s t t r e n d s i n g l o b a l t a x .


UNITED STATES ..................................................... 08Nate Carden SKADDEN, ARPS, SLATE, MEAGHER & FLOM

CANADA ............................................................... 12Alex Smith GRANT THORNTON

MEXICO ................................................................ 16Alejandro Barrera BASHAM, RINGE Y CORREA

BRAZIL .................................................................. 20Alexandre Gleria ASBZ ADVOGADOS

CHILE .................................................................... 24Joseph Courand DELOITTE CHILE

CURAÇAO ............................................................. 28Bryan Irausquin ERNST & YOUNG DUTCH CARIBBEAN

UNITED KINGDOM ................................................ 32Vimal Tilakapala ALLEN & OVERY

IRELAND ............................................................... 36Lorraine Griffin DELOITTE IRELAND

Contents


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NETHERLANDS ...................................................... 40Mario van den Broek RSM NETHERLANDS

GERMANY ............................................................. 44Marko Gründig KPMG IN GERMANY

AUSTRIA ............................................................... 48Rudolf Krickl PRICEWATERHOUSECOOPERS LIMITED

ITALY .................................................................... 52Luca Bosco STUDIO TRIBUTARIO E SOCIETARIO

JAPAN ................................................................... 56Joachim Stobbs ERNST & YOUNG TAX CO.

AUSTRALIA ........................................................... 60Peter Feros CLAYTON UTZ

KENYA .................................................................. 64Peter Kinuthia KPMG KENYA

UGANDA ............................................................... 68Plaxeda Namirimu PRICEWATERHOUSECOOPERS LIMITED

CONGO ................................................................ 72Emmanuel Le Bras PRICEWATERHOUSECOOPERS TAX & LEGAL

Contents

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A N N U A L R E V I E W • G L O B A L TA X 2 0 1 7

INTRODUCTIONFollowing negative media attention in light of the ‘Panama Papers’ scandal, as well as an increase in shareholder litigation in jurisdictions like the US, global tax regimes are in the spotlight. Corporate tax planning and ‘tax avoidance’ have become significant global issues.

Many global tax regimes are being revised. The introduction of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) project will have a significant impact, given its focus on tax avoidance strategies. The BEPS initiative is driving new legislation across the globe. Equally, the European Union’s Anti-Tax Avoidance Directive II has played an important role. Across Europe, governments are also looking to simplify their tax rules, particularly those governing cross-border operations, with the hope of attracting foreign investment.

Digitisation and new technological developments are transforming tax regimes. Countries are devoting resources to strengthen and modernise their tax authorities, to enhance monitoring, investigation and enforcement activities.

In the US, gains made by the Republican Party in the Senate, the House of Representatives and the White House will have major ramifications for tax regulations. Like many other aspects of US corporate life, the direction of tax policy in the Trump era will surely make waves, as well as headlines.

T

A N N U A L R E V I E W • G L O B A L TA X 2 0 1 7

A N N U A L R E V I E W • G L O B A L TA X

8 • F INANCIER WORLDWIDE • APRIL 2017 www.f inancierworldwide.com


UNITED STATESNATE CARDENSKADDEN, ARPS, SLATE, MEAGHER & FLOM

CARDEN: On many fronts, the most significant policy development

in the US in the last 12 months was the 2016 election. The election

of president Trump, along with the continuing Republican majority

in both the Senate and House of Representatives, appears to have

significantly increased the likelihood of fundamental US corporate, or

at least international, tax reform. Moreover, the administration appears

to be re-examining the US’ posture with respect to trade agreements,

which is also influencing the direction of US tax policy. This has led to

more serious discussion of the House Republican proposal, known as

the Destination-Based Cash Flow Tax, which has some features similar

to a value-added tax. The proposal also denies deductions for imported

goods and services while exempting exports – referred to in the media

as ‘border adjustability’. However, significant opposition to the border

adjustment features of the proposal, as well as uncertainty regarding

the effect of such a policy, both on US trade agreements and US tax

treaties, has created significant uncertainty in the tax and finance

community. As a result, many companies appear to be taking a ‘wait

and see’ approach with respect to fundamental tax decisions.

CARDEN: In the US, tax authorities face significant budget constraints

that limit staffing, which, in turn, makes it difficult to increase

monitoring and enforcement. However, like other OECD countries, the

US is implementing country-by-country reporting. It remains to be seen

whether US MNEs’ country-by-country reports will be used to redirect

audit resources or reassess risk. Thus, the more significant developments

on the US front are unrelated to tax authority enforcement efforts.

In particular, popular press coverage and shareholder litigation have

become increasingly important considerations for tax and finance

teams. Many companies are now facing unprecedented public scrutiny

regarding their tax positions, as well as claims by shareholders asserting

Q COULD YOU OUTLINE

SOME OF THE KEY

DEVELOPMENTS RELATING

TO CORPORATE TAX THAT

YOU HAVE SEEN IN THE

US OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN THE US INCREASING

THEIR MONITORING AND

ENFORCEMENT ACTIVITIES?

A N N U A L R E V I E W • G L O B A L TA X A N N U A L R E V I E W • G L O B A L TA XA N N U A L R E V I E W • G L O B A L TA X

APRIL 2017 • F INANCIER WORLDWIDE • 9 8www.f inancierworldwide.com

UNITED STATES • NATE CARDEN • SKADDEN, ARPS, SLATE, MEAGHER & FLOM

that their public disclosures regarding tax issues understated risk or

were otherwise misleading in some way.

CARDEN: Tax authorities in the US have taken a fairly aggressive

approach to transfer pricing enforcement for at least the last 10-15

years. Consequently, few companies now underestimate risks and

challenges because they, or their peer companies, are confronting

challenges every day. However, there are several high-profile transfer

pricing cases pending in US courts. The decisions in these cases will

likely have a significant impact on transfer pricing enforcement in

coming years. A recent report issued by the Treasury Inspector General

for Tax Administration revealed that a large portion of transfer pricing

adjustments proposed by IRS exam teams were ultimately not

sustained after further administrative or judicial review, meaning that

significant time and effort, on the part of both companies and the IRS,

is ultimately wasted. If the pending cases provide additional clarity on

certain key legal issues, this trend will hopefully reverse.

CARDEN: It is well known that the US is one of the few remaining

worldwide taxation systems. However, the OECD Base Erosion and Profit

Shifting (BEPS) initiative, as well as actions by the European Union (EU)

alleging that certain EU Member State tax practices constitute state aid,

are actually driving many European systems toward a US-style system

in which foreign tax arrangements are more relevant to domestic tax

treatment. That being said, US rules, many of which date back to the

1960s, tend to be more form-driven than the recommendations made

in the BEPS Action reports, as well as related legal developments such

as the UK diverted profits tax and anti-hybrid rules and the EU Anti-Tax

Avoidance Directives.

Q HOW WOULD YOU

DESCRIBE TAX LAWS IN

THE US AS THEY RELATE

TO FOREIGN ENTITIES?

ARE THERE ANY UNIQUE

REGULATORY ASPECTS,

WHETHER POSITIVE OR

NEGATIVE, THAT NEED TO BE

CONSIDERED?

Q HOW ARE TAX

AUTHORITIES APPROACHING

THE ISSUE OF TRANSFER

PRICING? IN YOUR

EXPERIENCE, DO COMPANIES

TEND TO UNDERESTIMATE

THE RISKS AND CHALLENGES

IN THIS AREA?




CARDEN: In the transfer pricing area, litigation seems to be an

increasingly common result for companies which are challenged by

the tax authorities. In other areas, however, there is not a discernible

trend – the IRS is challenging certain transactions related to foreign tax

credits and international cash planning – but many other issues appear

to be left to prospective regulation.

CARDEN: It is always critically important to have robust documentation

supporting tax positions at the outset of an audit, because a lack of

support can lead to increasingly aggressive inquiries by tax authorities.

This documentation includes both technical analyses, such as legal

memoranda, as well as financial records related to both initial planning

and ongoing operations. We often see companies do an excellent job

documenting their tax positions when they initially take them, but they

are often less robust about maintaining that documentation process in

the months and years that follow. Often this will result in foot-faults

or, worse, patterns of practice inconsistent with the analysis that was

initially undertaken. Hence, we recommend that any company facing

a tax-related audit or investigation gather up both initial and ongoing

documentation so that positions can be readily supported. Finally, it is

very important that company executives in legal and risk management

be aware of tax-related disputes, because these controversies may

result in other types of legal challenges, such as whistleblower actions,

employment law disputes involving tax department personnel, or

shareholder suits alleging that the corporation acted irresponsibly or

made misleading tax-related statements.


Q HAVE YOU SEEN AN

INCREASE IN TAX DISPUTES

IN THE US? WHAT LESSONS

CAN COMPANIES LEARN

FROM RECENT SETTLEMENTS,

PROSECUTIONS, PENALTIES

AND COURT RULINGS?

Q WHAT IS YOUR ADVICE

TO A COMPANY THAT

FINDS ITSELF SUBJECT TO

A TAX-RELATED AUDIT,

INVESTIGATION OR

ENQUIRY?


APRIL 2017 • F INANCIER WORLDWIDE • 11www.f inancierworldwide.com

CARDEN: While budget pressures make investment in process and

compliance difficult, it is very important to avoid a ‘penny-wise,

pound-foolish’ approach to key tax positions. It is important to invest

the resources in documentation and compliance, especially for a

company’s most significant positions. Additionally, the companies that

we see manage compliance successfully are the ones which tend to

have consistent policies and approaches to certain issues, for example,

transfer pricing matters, that are known to tax and finance teams

across the organisation. Such consistency makes it much more likely

that local or lower-level decisions accurately reflect corporate policies

and objectives, substantially reducing the likelihood of missteps.

“ It is important to invest the resources in documentation and compliance, especially for a company’s most significant positions.”

Nate Carden

Partner

Skadden, Arps, Slate, Meagher & Flom

+1 (312) 407 0905

[email protected]

www.skadden.com

Nate Carden focuses on planning and controversies arising in connection with transfer pricing and related international tax issues. He specifically concentrates on the tax aspects of ongoing business operations. Mr Carden works with clients across many industries, with a particular focus on life sciences, healthcare and technology. He has been recognised as a leading lawyer in International Tax Review.


Q WHAT STEPS CAN

COMPANIES TAKE TO ENSURE

THEY MAINTAIN ROBUST TAX

COMPLIANCE PROCESSES

WHILE MAXIMISING TAX

EFFICIENT STRUCTURES?




CANADAALEX SMITHGRANT THORNTON

SMITH: From a global tax perspective, the OECD Basis Erosion Profit

Shifting (BEPS) initiative has taken centre stage with regard to driving

new legislation. Canada is no different, although over the past 12-18

months, the Department of Finance has taken a measured approach to

introducing legislation to address perceived abuses and to harmonise

current practices to the new global standard. Directly addressing BEPS, the

Ministry of Finance pledged to adopt the minimum standard, as provided

in Action 6 with respect to Treaty Shopping, pledged its commitment to

the exchange of income tax rulings with other participating countries,

pledged its commitment to the multilateral instrument and introduced

legislation to adopt country-by-country reporting. Indirectly, in addressing

BEPS, Canada has also introduced domestic anti-conduit rules that target

the use of intermediaries to achieve a reduced rate of treaty withholding

tax in respect of interest, royalties, rents and similar payments that could

not have otherwise been achieved directly. The anti-conduit rules also seek

to expand the scope of the thin capital limitation and prevent the use of

intermediaries to strip any surplus out of Canada through loans or other

deposit arrangements with the use of arm’s length third parties.

SMITH: Both the 2016 and recent 2017 federal budgets have pledged

significant resources to the expansion of the Canada Revenue Agency (CRA).

In particular, as part of the 2017 federal budget, the minister pledged an

investment of $529m over a four to five year period to expand the number

of auditors and audit investigations, develop a robust business intelligence

infrastructure and risk assessment system and to improve the quality of

investigative work. All of the above has resulted in an increase in the number

of audits, particularly with regard to transfer pricing, business restructuring

and corporate reorganisations and cross-border financing transactions.

On other fronts, the CRA has taken a coordinated approach to addressing

issues. For example, CRA reviews of cross-border business travellers coming

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN CANADA

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT ARE

TAX AUTHORITIES IN

CANADA INCREASING





CANADA • ALEX SMITH • GRANT THORNTON

into Canada have seen a coordinated approach with corporate income,

withholding, payroll withholding and indirect tax disciplines working as an

integrated unit as part of the audit review.

SMITH: The CRA has increased its focus on international tax and transfer

pricing audits in the mid-market segment. Audits are becoming more

frequent and more detailed than in previous years. The increased focus on

transfer pricing is reflected in the significantly growing case load of the

mutual agreement procedure at the Competent Authority. The 2014-2015

mutual agreement procedure programme report indicates case inventory is

rising, from 344 cases at the end of 2014 to 521 by 2015. While the 2015-

2016 report is still pending, an even greater backlog of cases is expected.

The average timeline for case resolution grew from 23 months for Canadian

initiated cases in 2014 to 26 months in 2015, and from 31 months for

foreign initiated cases in 2014 to 33 months in 2015. This increased

activity has raised some concerns from the practitioner community that

the Competent Authority MAP division will have difficulty keeping up with

the increase in the CRA’s transfer pricing enforcement focus.

SMITH: Generally, Canada has been very proactive in negotiating a very

broad treaty network which includes many countries in South America,

Africa, Europe and Asia. From a Canadian outbound investment perspective,

Canada has a very tax competitive regime which includes a participation

exemption for dividends derived from active business earnings of a foreign

affiliate and CFC re-characterisation rules to treat certain passive incomes

within a group as active business income. With regards to a foreign

multinational entering Canada, the Department of Finance has taken an

aggressive approach to address perceived taxpayer abuses related to surplus

stripping, and avoidance of withholding taxes. Since 2014, the Department

Q HOW WOULD YOU


CANADA AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?




of Finance has increased the scope of application of the thin capital

limitation, introduced anti-conduit rules with respect to withholding tax

planning and introduced rules that prevent synthetic dividend distributions

through long-term loans. While planning is still available for companies

coming into Canada, success has become more taxpayer dependent.

SMITH: The increased investment in CRA resources has resulted in

an increase in the number and scope of taxpayer audits. The CRA has

increasingly become more aggressive and combative in its approach, with a

tendency for auditors to issue assessments leaving the taxpayer to address

the issue at the appeals level. While the appeals process is intended to be

impartial, taxpayers are finding less accommodation in terms of considering

alternate positions and with the acceptance of additional submissions. From

a transfer pricing perspective, this has resulted in an increase in referrals to

the Competent Authority MAP programme and cases being put forth to the

tax court of Canada.

SMITH: Management of the audit process is, in many respects, a

management of communication and documentation flow with the

respective tax authorities. Taxpayers should insist on requests being put

in writing and wherever possible document responses back to the auditor

as information provided in all forms will be greatly scrutinised. As many

battles can be lost and won before they begin, the absence of adviser input

from the start could result in ramifications which are difficult to reverse,

particularly where information conflicts an established position, or is taken

out of context. It is strongly recommended that taxpayers seek professional

advice in the early stages of an audit during the CRA’s introduction and

information gathering phase. Waiting until the proposal letter has been

received is often too late as once the CRA has determined a position it

is usually very difficult to move an auditor off that position. It is far more

effective for the professional adviser and the CRA to work together to arrive

at a reasonable audit position at inception rather than after the issue has

come to light.

“ The increased investment in CRA resources has resulted in an increase in the number and scope of taxpayer audits.”


Q HAVE YOU SEEN AN


IN CANADA? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






SMITH: Best practices for a robust compliance process include the

preparation of tax returns as soon as possible after the year-end. Also,

taxpayers should document positions both closer to the taxable event

as well as having appropriate documentation when the returns are filed.

Having adequate support in respect of tax positions at the time of filing

protects the erosion of memory as time passes and with staff turnover

within the finance and executive group. While documentation includes

appropriate legal agreements and evidentiary support for positions, it can

also include policies and procedures that maintain the integrity of existing

tax positions through the passage of time. Transfer pricing compliance

should be undertaken during the budgeting process for the year at the

commencement of the fiscal year. As with core income tax, ensure robust

legal documentation, such as intra-group agreements, and penalty-

protection documentation, for example, a transfer pricing report should be

completed contemporaneously. Year-end transfer pricing adjustments are

seen as a CRA audit flag.

Alex Smith

Partner

Grant Thornton

+1 (416) 360 5042

[email protected]

www.grantthornton.com

Alex Smith is an international tax partner at Grant Thornton LLP in Canada with 19 years of experience specialising in providing international corporate tax services to multinational clients investing into and out of Canada. Mr Smith has experience in dealing with cross-border acquisitions and divestitures, structured financing, cash repatriation strategies and in assisting foreign based multinationals in worldwide tax minimisation strategies. He has worked with a variety of businesses including retail, automotive, media, mining, engineering, printing and software and technology industries.





MEXICOALEJANDRO BARRERABASHAM, RINGE Y CORREA

BARRERA: Some of the most relevant key developments relating to

corporate tax relate to outsourcing activities, tax incentives and oil &

gas. Insourcing and outsourcing activities have been strongly regulated

and are highly scrutinised by tax, labour and social security authorities.

The reason for this is that for the last decade, irregular outsourcing

companies have been used for evasion purposes. Unfortunately, the

measures taken have affected not only those unscrupulous outsourcing

companies but also respected and compliant companies. Since 2014, a

few tax incentives have been repealed in Mexico. However, since 2016,

several tax incentives have been granted to taxpayers. As of 2017,

there are tax incentives for electric station investment, research and

development, sports facilities and arts and entertainment. All these

programmes provide as a tax incentive a credit for the investor in those

activities. However, most of these incentives have a very limited budget,

so only a very few taxpayers would be able to access these tax benefits.

Before 2013, energy and oil and gas activities were government reserved,

but since then, these sectors have been open to private investment

and many statutes have been amended or introduced to provide a

reasonable business environment for private investment, including tax.

Recently, there have been some amendments to the income tax law to

provide certainty to capital depreciation to these activities and to their

reporting obligations.

BARRERA: Tax authorities have significantly increased their monitoring

activities due to a very aggressive collection budget. Also, taxpayers

have been required to comply with several new reporting obligations,

such as the need to fill out monthly electronic reports, in addition to all

the ordinary reporting information they file. As a result, tax authorities

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN MEXICO

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN MEXICO INCREASING





MEXICO • ALEJANDRO BARRERA • BASHAM, RINGE Y CORREA

can now immediately monitor taxpayers. Therefore, even a very small

deviation from what the tax authorities consider ‘normal operation’

will automatically trigger a tax audit.

BARRERA: A large amount of world economic activity is undertaken

between related parties. Based on this, tax authorities have been

empowering and providing enhanced abilities to the transfer pricing

department. It is clearly a key and strategic part of the Tax Authority

of Mexico’s (SAT) surveillance activities. In fact, SAT has increased its

transfer pricing audits by over 500 percent in the last few years. Due

to the increasing monitoring activity of this department, taxpayers are

becoming more aware of their obligations and are taking all necessary

steps to prevent a tax audit from the transfer pricing department, as it

is known for its aggressiveness.

BARRERA: Generally, foreign entities are scrutinised and observed by

tax authorities just like any other taxpayer. However, taxpayers that are

resident in low tax jurisdictions have two weaknesses in comparison

to other jurisdictions. First, by law, they are deemed to be undertaking

transactions with related parties in Mexico, and second, they are

deemed not at fair market value. In practice, low tax jurisdiction

taxpayers tend to be more scrutinised than any other ordinary foreign

or Mexican entity. So, from a practical perspective, it is advisable to try

to stay away from entities in low tax jurisdictions when doing business

in Mexico, unless there are strong business reasons for doing so.

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?

Q HOW WOULD YOU


MEXICO AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




BARRERA: Tax authorities are actively monitoring and scrutinising

taxpayers by increasing the number of audits and, as a result, their tax

assessments. Unfortunately, the tax authority’s criterion is habitually

aggressive and orientated only toward collection. For example, while

in the past tax refunds were considered to be an ordinary procedure,

especially on VAT favourable balances, since 2013, tax authorities have

changed their position. Now, refunds are not granted easily and in a

number of cases just after the opening of an audit. This practice has

become a strong deterrent against investment, due to the uncertainty

and the costs involved in getting refunds, which most of the time

taxpayers are entitled to by law. Unfortunately, the court system in

Mexico, including Supreme Court rulings, is biased in favour of the tax

authorities. For example, the former head of the SAT, as well as the

head of the Tax Prosecutor, were appointed as justices of the Supreme

Court, an inconsistent and irrational decision. The courts always seem

to sympathise with the collective activity of the government. Therefore,

besides the legal arguments, there is always this ‘political aspect’,

which could affect any case. This should not be so. Judges should be

objective and fair, but this is a quality which appears to be seldom seen

in Mexico.

BARRERA: It is difficult to prevent a tax audit. However, the chances of

success for a taxpayer increase dramatically if, from the beginning of

the process, they involve tax experts who are acquainted with the audit

process. Even a small request for information from the tax authorities

is part of a broader process and could affect a future defence. So by

involving experts, the chance of a comprehensive and stronger defence

increases. In addition, supporting evidence is vital in defending the

position of any taxpayer. Therefore, it is very important to organise

a company’s information, not only accounting records, but also

additional evidence such as email communications. Eventually, if an

audit is undertaken, there will be a considerable amount of information

which can be used to defend a case.

“ Unfortunately, the court system in Mexico, including Supreme Court rulings, is biased in favour of the tax authorities.”


Q HAVE YOU SEEN AN


IN MEXICO? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






BARRERA: There are several actions to take into consideration. First,

update information. Mexican tax criteria change constantly as do

binding and non-binding precedents. It is of the utmost importance

then to be updated as to any change in the law, regulations, rulings,

criteria or precedents. Second, involve experts. It is very important to

confirm any structure with tax experts. Some taxpayers retain a so-

called ‘expert’ in tax, when he or she is really an ordinary accountant

or lawyer with no expertise in tax. Finally, obtain legal opinion.

Unfortunately, some taxpayers are willing to retain any legal counsel,

even those with questionable reputation, just to have some type

of ‘written support’. The purpose of a legal opinion is to provide an

objective and accurate perspective of a transaction, otherwise it is

meaningless and worthless.

Alejandro Barrera

Partner

Basham, Ringe y Correa

+52 55 52 61 04 58

[email protected]

www.basham.com.mx

Alejandro Barrera focuses on tax planning, consulting and tax strategy, both nationally and internationally, including corporate and individual taxation. A member of and active participant in the Mexican Bar Association, the International Tax Committee of the College of Mexican Public Accountants, the National Association of Corporate Attorneys, Mexican Chapter of the International Fiscal Association and the Fulbright Scholars Association, he is also the author of various articles and essays on the topic of international taxation.





BRAZILALEXANDRE GLERIAASBZ ADVOGADOS

GLERIA: Brazil, despite not being a formal Organisation for Economic

Cooperation and Development (OECD) member, but rather a

collaborative country, has been adopting several of the organisation’s

recommended guidelines and practices for promoting tax transparency.

These include country-by-country reporting and the identification of

the final beneficial owner of some international corporate structures.

With respect to local initiatives, Brazil is currently discussing several

reforms, including a simplification of indirect taxation. After the

impeachment of the former president, in order to reduce the public

deficit, the Brazilian government has polarised the discussion into

two aspects, namely, raising the tax burden and cutting expenses.

Nevertheless, such measures are not effective in the short-term, nor

do they address the main Brazilian issue: tax bureaucracy. According to

a recent study, bureaucracy, in general, can cause a negative impact of

up to 17 percent of Brazilian GDP. If the government were to stimulate

an easier and friendlier environment for entrepreneurs, imagine how

fertile and attractive Brazil could be for investors.

GLERIA: Brazil is probably the country that has the highest number

of tax returns and ancillary obligations in the world. According to data

provided by the World Bank, Brazilian taxpayers, in a ranking system

comprising 176 countries, spend more time complying with tax

legislation than any others. All the information provided by the taxpayer

– by the financial system, by regulatory bodies and by foreign countries

– has been crosschecked by state-of-the-art computers since a few

years ago and tax authorities have continued to improve this process

each year. Still, some taxpayers feel comfortable even though they

have not complied in full with all tax requirements because they were

never challenged, especially as some of them had a solid experience in

a pre-tech era of the Brazilian Internal Revenue Service (IRS). However,

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN BRAZIL

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN BRAZIL INCREASING





BRAZIL • PETER FEROS • CLAYTON UTZ

they need to be aware that tax authorities are often focused on the

transactions of past years, those falling within the statute of limitation

period. From 2021 onwards, the technology used by the IRS is expected

to be more sophisticated and tax authorities would be entitled to

investigate transactions that occurred in 2017.

GLERIA: In Brazil, transfer pricing control has been in force since 1997

and represents one of the first ‘good global practices’ adopted by the

country to avoid international tax evasion. Since that time, transfer

pricing controls have developed, but in particular industries and with

respect to the control of goods. A lot has been done to improve on

legislation and control of intangibles and services, and based on

that scenario, service providers and intangible traders tended to

underestimate controls to a level which certain large companies never

discussed internally. The IRS is aware of this area of improvement

and in 2012, along with the Ministry of Development, Industry and

Commerce, released an ancillary obligation that focused on providing

statistics about service and intangible operations carried out with

foreign individuals and companies.

GLERIA: From a very general perspective, tax laws in Brazil are numerous

and complex, but there are many opportunities for foreign investors

that are largely unknown. In some cases, the total tax burden in Brazil,

with respect to certain businesses, may fall within rates much lower

than that of most other jurisdictions. On the negative side, Brazil has a

complex and bureaucratic environment. Successful companies, knowing

how to explore this scenario, may gain a huge competitive advantage

over their competitors and in several cases tax premises in Brazil have

played a game changing role.

Q HOW WOULD YOU


BRAZIL AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?




GLERIA: Brazil is one of the most litigious countries in the world. Some

foreign companies have had more litigation cases in Brazil than in any

other jurisdiction, which has helped create a litigation industry in the

country. To address this point in the most effective way, companies must

have a multidisciplinary overview, combining financial, mathematical,

statistical, reputational aspects, attorney’s fees, costs projection and

other legal analysis. For example, sometimes the biggest asset of a

litigation involving tax and competition law is an intangible gain to

the image of the company, the value of which can be greater than

the amount under dispute. In other cases, the reputational risk in a

dispute involving a Nasdaq company could be a real issue. We have also

discovered cases being treated as ‘tax cases’ for 10 years while they

could have been settled through a civil proceeding in three months.

Firms and companies should broaden their horizons when addressing a

possible tax issue.

GLERIA: Tax audits or similar procedures, especially those that are

unexpected, usually means a lack of appropriate tax compliance

controls. Therefore, implementing those controls is the number one

recommendation, as they may not only avoid bad tax consequences,

but also help find relevant tax opportunities.


Q HAVE YOU SEEN AN


IN BRAZIL? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






GLERIA: Tax compliance and efficiency are words that sometimes do

not match perfectly. Taking the steps to undertake this combination

work really depends on each case, but there are two principles that are

fundamental in this process: innovation with responsibility and making

it simple. Designing complex operations can make lawyers think and

reflect in broader terms.

“ Tax compliance and efficiency are words that sometimes do not match perfectly.”

Alexandre Gleria

Partner

ASBZ Advogados

+55 11 3145 6014

[email protected]

www.asbz.com.br

Alexandre Gleria is the lead partner of the tax practice at ASBZ Advogados. Mr Gleria has several post-graduation degrees, including a LL.M. from UC Berkeley, and is a tax professor and writer for a number of publications. Additionally he is an award-winning attorney and, in the last year, was nominated by Análise 500 as one of the most admired Brazilian lawyers in three categories: tax, aviation and state of São Paulo. He has also been named as a recommended lawyer by Legal 500.





CHILEJOSEPH COURANDDELOITTE CHILE

COURAND: In the past 18 months, several developments have taken

place, all of which relate to the extensive tax reform approved by

Congress in 2014. After the enactment of the 2014 Tax Reform, several

flaws and inconsistencies were detected which, if not corrected, would

jeopardise its actual and full implementation by 2017. As a result,

Congress approved a reform to the Tax Reform, with the objective of

simplifying and improving it. Also, the Chilean IRS has been issuing

several general rulings interpreting the new provisions. Therefore, a

strong recommendation for Chilean taxpayers, and for multinationals

operating in Chile, is to study and understand the new provisions in

order to avoid mistakes on the tax positions that they may take when

preparing their tax returns.

COURAND: We have noticed an increase in Chilean IRS audit activity

which seems to be derived mainly from the fact that the 2014 Tax

Reform is not meeting the revenues originally projected, which are

required to finance the government’s social expenditure. Also, the Tax

Reform provided the Chilean IRS with enhanced fiscalisation powers.

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN CHILE

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN CHILE INCREASING




APRIL 2017 • F INANCIER WORLDWIDE • 25

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?

8www.f inancierworldwide.com

CHILE • JOSEPH COURAND • DELOITTE CHILE

COURAND: Transfer pricing is something at which the Chilean IRS is

looking closely; therefore, an increase in the number of transfer pricing

audits is expected in the near future. Companies are aware of the risks

and challenges that they face on transfer pricing matters.

COURAND: Aside from Chile’s income tax law, in general, the Chilean

tax system is simple and straightforward. However, the 2014 Tax

Reform introduced complexity to our income tax law, increasing costs

associated with compliance and the exposure of risks.

Q HOW WOULD YOU

DESCRIBE TAX LAWS IN CHILE

AS THEY RELATE TO FOREIGN

ENTITIES? ARE THERE ANY

UNIQUE REGULATORY

ASPECTS, WHETHER POSITIVE

OR NEGATIVE, THAT NEED TO

BE CONSIDERED?




COURAND: We have not seen a notable increase in tax disputes, but it

is likely that in the short or medium term, tax disputes should rise due

to increasing Chilean IRS auditing activity. Obtaining advice in the early

stages of a tax audit is crucial in order to obtain a positive outcome in

court if the tax audit results in a tax assessment.

COURAND: Companies should look for sound legal and tax advice in

order to design a strategy that can be followed at both an administrative

and judicial level.

“ Taxpayers should look at their processes to ensure they have achieved standardisation and consistency.”


Q HAVE YOU SEEN AN


IN CHILE? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






COURAND: Taxpayers should look at their processes to ensure they

have achieved standardisation and consistency. Once processes have

been defined, a second step is their automation, in order to reduce costs

and risks and improve data analysis. This tax transformation process

should allow taxpayers to focus on activities that generate value and

reduce risks.

Joseph Courand

Lead Tax Partner

Deloitte Chile

+562 2729 8126

[email protected]

www2.deloitte.com/ie/en.html

Joseph Courand has worked for Deloitte Chile’s International Tax Group for more than 17 years. He has extensive experience in providing tax consulting services to foreign and Chilean clients on a large variety of international tax subjects, such as interpreting domestic tax law and tax treaties provisions to complex cross-border transactions, designing incoming and outgoing investment structures, developing tax efficient exit strategies, implementing reorganisations for large multinationals, and undertaking tax due diligence either for vendors or purchasers. From 2011 until 2013, Mr Courand opened and led the Chilean Desk at the International Core of Excellence Group in New York.





CURAÇAOBRYAN IRAUSQUINERNST & YOUNG DUTCH CARIBBEAN

IRAUSQUIN: Curaçao, historically, has been a financial centre with an

infrastructure that is favourable to attracting foreign investment. In

line with the worldwide trends for increased transparency and a base

erosion and profit shifting (BEPS)-proof tax regime, Curaçao has enacted

legislation that meets Organisation for Economic Co-operation and

Development (OECD) requirements, while maintaining an attractive

business environment. For example, transfer pricing documentation

requirements have been enacted into law, requiring companies to

maintain a minimum level of documentation in the administration

in the event of transactions and agreements between related parties.

Furthermore, the corporate tax rate has decreased gradually over the

last three years to 22 percent. At the same time, Curaçao has worked on

updating the tax regulation between the Netherlands and Curaçao and

has continued to expand its network of tax treaties. The tax regulation is

an important building block in the government’s strategy to transform

part of the island’s economy into a modern financial centre at the

heart of the American continents. It is based on the OECD Model Tax

Convention and is in compliance with the OECD’s views on substance

and prevention of treaty abuse.

IRAUSQUIN: The tax authorities are increasing their focus on greater

transparency, resulting in the adoption of transfer pricing documentation

legislation and the implementation of FATCA and CRS related legislation

to exchange financial information in line with the commitments made

by the government. Compliance is becoming more and more an area

of attention for the tax authorities and the digitalisation of the tax

system is also on the agenda.

Q COULD YOU OUTLINE

SOME OF THE KEY


TO CORPORATE TAX

THAT YOU HAVE SEEN IN

CURAÇAO OVER THE LAST

12-18 MONTHS?


TAX AUTHORITIES IN

CURAÇAO INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


CURAÇAO • BRYAN IRAUSQUIN • ERNST & YOUNG DUTCH CARIBBEAN

IRAUSQUIN: Since transfer pricing requirements were only recently

enacted, it is still virgin territory in principle and the tax authorities

still need to develop the policy on how to implement and enforce

it in practice. Our perception is that transfer pricing obligations are

currently – incorrectly – perceived by companies as mere statutory

obligations with limited consequences. Many companies underestimate

the importance of transfer pricing and related risk issues. They tend to

overlook the fact that views on transfer pricing are evolving globally

and that these new perspectives will ultimately affect their business

models. The world is changing and this is also happening in Curacao,

but not all taxpayers recognise this sufficiently yet.

IRAUSQUIN: Curaçao continues to look for ways to attract foreign

investment while maintaining a tax and legal framework that is in line

with international developments and standards. There are, for instance,

proposals to further incentivise substance in Curaçao with targeted

immigration laws and corresponding tax facilities, among which are

tax incentives for innovation and export.

Q HOW WOULD YOU


CURAÇAO AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




IRAUSQUIN: Recently, the tax court in Curaçao started treating tax

cases on a monthly basis instead of only twice a year, which puts

additional pressure on the limited resources of the tax authorities. But

the increased frequency, together with the addition of a tax court in

the second instance, has made the tax litigation process more robust.

IRAUSQUIN: Advice can differ on a case by case basis, but in general

it is recommended to have reputable tax advisers assist in the process,

preferably at an early stage. A proactive approach, whereby any positions

taken are documented and substantiated in a timely manner and which

can be presented to the tax authorities in advance, instead of reactive

if a company finds itself subject to a tax-related audit, investigation

or enquiry, is preferable. Furthermore, based on a derogated client-

attorney privilege principle, taxpayers need to separate any tax advice,

which does not need to be disclosed to the tax authorities, from their

administration and accounting records, which require disclosure to the

tax authorities.

IRAUSQUIN: A robust tax compliance mechanism is a must in order for

companies to have insight into their tax obligations and tax reporting

requirements and to manage their tax risks and capitalise on potential

tax savings and structuring alternatives. The data needed to ensure

accurate and timely compliance and reporting has grown in volume and

complexity, with different requirements and sources across jurisdictions,

more and more filing types and diverse corporate operating segments.

A centralisation of the tax function, an integrated overview of the


Q HAVE YOU SEEN

AN INCREASE IN TAX

DISPUTES IN CURAÇAO?

WHAT LESSONS CAN

COMPANIES LEARN FROM

RECENT SETTLEMENTS,


AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?

Q WHAT STEPS CAN








compliance status and overall management of reporting and filing due

dates are key to a successfully operating tax function. This successful

management of global compliance and reporting requirements,

combined with an appropriate tax planning strategy which considers

both existing tax legislation and global trends, such as transparency

and base erosion, should ensure that companies can be successful.

“ Taxpayers need to separate any tax advice, which does not need to be disclosed to the tax authorities, from their administration and accounting records.”

Bryan Irausquin

Tax & Country Managing Partner

Ernst & Young Dutch Caribbean

+599 9 430 5075

[email protected]

www.ey.com

Bryan Irausquin advises clients across the Caribbean, including Curaçao, St. Maarten, Bonaire, Saba, St. Eustatius, Aruba and Suriname, and also foreign multinational corporations, in planning and structuring their business operations. He has been involved in acquisition structuring, finance structuring, group restructuring, tax planning, estate planning, and coordinating international tax work for global clients. He has extensive experience with developing tax policies and public strategies in a public-private-partnership approach. He has a Master’s degree in Tax and Economics and has occupied various board membership positions in financial associations and governmental task forces.





UNITED KINGDOMVIMAL TILAKAPALAALLEN & OVERY

TILAKAPALA: There has been a series of changes, and proposed changes,

to core parts of the UK corporate tax system over the past year. The

volume of change has been enormous. Key changes include proposals to

limit the amount of interest – and similar financing costs – that can be

deducted in computing profit for corporation tax, proposals to restrict the

amount of tax losses that companies can carry forward to set off against

taxable profit for a period, and the introduction of measures effectively

targeting domestic and cross-border hybrid arrangements which, broadly,

give rise to tax deductions for one person but no corresponding taxable

income for another or more than one deduction for the same expense.

The interest limitation proposals and hybrid mismatch provisions are

driven by the recommendations of the Organisation for Economic Co-

operation and Development’s (OECD) base erosion and profit shifting

(BEPS) project – a major international project focusing on tax avoidance

strategies. Implementation of BEPS recommendations is a major theme

currently in UK tax legislation. The hybrid mismatch provisions came

into force on 1 January this year; the interest relief and loss measures

– as currently drafted – will, in general, apply from 1 April. Taxpayers and

advisers are still getting to grips with these new rules – which are complex

and give rise to considerable uncertainties.

TILAKAPALA: There has been a noticeable increase in both of these

areas – with Her Majesty’s Revenue & Customs (HMRC) focusing in

particular on corporations which have complex tax affairs or which have

been identified by HMRC as ‘high risk’ taxpayers. We have seen HMRC

allocate considerable time and resources to a number of taxpayers in

these categories. There has also been a drive by the UK government to

encourage taxpayers to share information with HMRC on a more ‘real

time basis’ – rather than relying on the tax return cycle to flush out

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN THE

UK OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN THE UK INCREASING





UNITED KINGDOM • VIMAL TILAKAPALA • ALLEN & OVERY

issues. This has contributed to a more active approach by HMRC than was

previously the case in raising tax concerns and enquiring into tax matters.

TILAKAPALA: As lawyers, we are not involved to a great extent with

transfer pricing queries. We have, however, seen HMRC raise transfer

pricing almost as a matter of course when investigating intra group

arrangements, whether domestic or cross-border. In our experience, the

larger corporate taxpayers tend to be relatively sophisticated on this point

and typically, if needed, a transfer pricing analysis will be commissioned

from an external provider or in some cases compiled in-house to support

the pricing or entry into transactions.

TILAKAPALA: The UK is keen to market itself as a tax friendly country for

business for both residents and non-residents, and there is, in general, no

discrimination against foreign entities, at least currently. Particular industry

sectors, such as asset management, benefit from specific exemptions.

For example, certain types of fund will not become UK resident simply

because they are managed in the UK, nor will investors have a UK taxable

presence simply because they use UK-based investment managers. There

have, however, been recent changes designed to ensure that non-residents

do not abuse or benefit unfairly from the UK tax system. A key change

here was the introduction in 2015 of the ‘diverted profits tax’ or ‘Google

tax’ – a new tax designed to impose a UK tax charge in circumstances in

which is it considered that taxable profits have been artificially diverted

from the UK, and so not otherwise subject to UK tax. The UK was the first

to introduce this type of measure – which again followed an OECD BEPS

recommendation. Australia has since implemented measures designed to

address a similar issue.

Q HOW WOULD YOU


THE UK AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?




TILAKAPALA: We have seen a real increase in disputes over the past two

years – both litigious and non-litigious. The high volume of litigation is

in part a function of HMRC’s historically aggressive approach – which

led to a large backlog of tax cases which are currently filtering through

the courts. Although the HMRC approach has softened – with official

policy favouring settlement rather than litigation – litigation does not

seem to be declining to any material extent. HMRC also sees litigation as

an effective deterrent for prospective avoiders and is quick to publicise

high profile wins. Non-litigious disputes and settlements are increasing.

Although preferable to litigation in many ways, not least because they

are private, they can, however, be very time consuming processes with

multiple HMRC stakeholders having to be satisfied before progress can

be made. The growth in the complexity of legislation alongside HMRC’s

desire to maximise collection and target what it perceives as avoidance,

means that disputes, whether litigious or not, between HMRC and

taxpayers will inevitably increase.

TILAKAPALA: It depends of course on the nature of the enquiry as not

all end up being significant. Generally though, it is important not to panic

or act hastily. Sometimes, HMRC requests can seem broadly targeted and

vague, and the information requested can seem daunting. In these cases

it is essential to seek clarity from HMRC, and in the case of information

requests, to agree what can be provided and by when. Advice should be

sought at an early stage, as the initial responses to HMRC will set the

scene for what is to come. Ideally, the process will be a collaborative one

with HMRC. But if this proves not to be the case, enquiry processes are

also subject to a range of taxpayer safeguards and an adviser will be able

to provide guidance on their relevance in the context of what HMRC is

seeking to do.

“ Disputes, whether litigious or not, between HMRC and taxpayers will inevitably increase.”


Q HAVE YOU SEEN AN


IN THE UK? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






TILAKAPALA: There is no easy answer to this. The tax climate has

changed fundamentally since the financial crisis and tax planning and

perceived tax avoidance has become a sensitive issue internationally. In

the UK, there has also been a trend toward greater focus on not only the

letter of the law but on the principles behind it, and the ‘spirit’ of what

it is intended to achieve. In some cases this is built into the legislation

itself. The other very important development is the exponential increase

in tax legislation and the fact that it is now a hugely complex task

just to manage compliance, let alone devise efficiencies. All of these

developments, combined with the new requirement for large companies

to publicly state their tax strategies, have had an inevitable effect on UK

corporate tax planning. Tax mitigation ideas that may have once seemed

mainstream and acceptable are now no longer likely to be. Ultimately, a

balancing exercise is needed between tax efficiencies on one hand and

what is judged to be an acceptable approach to taxation on the other.

Vimal Tilakapala

Partner

Allen & Overy

+44 (0)20 3088 3611

[email protected]

www.allenovery.com

Vimal Tilakapala is a partner and co-head of the UK tax practice. Mr Tilakapala advises on corporate tax generally, with an emphasis on finance-related tax and international tax matters. He is increasingly involved in disputes and is a CEDR qualified mediator. He “is accessible and provides good and measured commercial advice”, according to clients, while peers describe him as a “real technician who can be pragmatic”.





IRELANDLORRAINE GRIFFINDELOITTE IRELAND

GRIFFIN: Ireland’s most recent Finance Act was enacted on 25 December

2016. The effect of the change to the securitisation law brought about

by the Finance Act 2016 is to treat the holding and managing of assets

held by a securitisation vehicle that derive their value or the greater

part of their value directly or indirectly from Irish land and property as a

separate business within the vehicle. With certain exceptions applying, this

means apportioning income, profits, gains and expenses to that separate

business on a just and reasonable basis and restricting the deduction for

profit participating interest allocated to such business. The Finance Act

also amended the existing funds tax regime, broadly, to provide for a 20

percent withholding tax on payments to certain persons by an Irish real

estate fund (IREF). Previously, payments to non-Irish-resident unit-holders

were exempt and the unit-holder dealt with the taxation of the receipt

in their country of residence. An IREF is a fund or sub-fund of a fund that

derives 25 percent or more of its market value from Irish land and property

– or assets that derive their value from Irish land or property – or if the latter

is not applicable, where it would be reasonable to consider that one of the

main purposes of the fund was to acquire Irish land and property, or assets

that derive their value from Irish land or property. This brings additional

complexity to an already complex regime and effectively seeks to tax certain

rental profits and income from certain loans to tax which would not have

been the case previously.

GRIFFIN: Irish Revenue’s powers continue to evolve, and the Finance Act

brought about a provision with regard to offshore tax defaulters no longer

being able to avail of the qualifying disclosure regime after 1 May 2017. It

covers not only jurisdictions commonly regarded as offshore, but also any

country outside Ireland. Further, Revenue has recently confirmed that all

its rulings will expire after a period of five years where the ruling does not

specifically mention a shorter period. For rulings acquired by companies

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN IRELAND

OVER THE LAST 12-18

MONTHS?


TAX AUTHORITIES IN

IRELAND INCREASING





IRELAND • LORRAINE GRIFFIN • DELOITTE IRELAND

before 1 January 2012 this must be communicated to Revenue before 30

June if they are to continue; Revenue will respond after that date to confirm

the continued application – as is or with amendments – or not, of that

ruling from the date of communication.

GRIFFIN: The Finance Act 2016 introduced changes in respect of country-

by-country reporting in order to transpose Council Directive (EU) 2016/881

of 25 May 2016. Separately, regarding the automatic exchange of advance

cross-border rulings and advance pricing arrangements (APAs) by Revenue,

provision is made for the Irish competent authority to disclose certain

supplementary information with such advance cross-border rulings or APAs.

The supplemental information that can be provided in this regard includes:

main business activity, annual turnover, annual profits or losses and address

of the taxpayer. These changes will have an impact on multinational groups

with consolidated turnover in excess of €750m and other companies with

APAs or advance cross-border rulings that are subject to the automatic

exchange of information provisions. Tax directors of listed companies and

multinationals are clearly focused on a rapidly changing global tax landscape,

the ongoing complex sets of interacting new laws and the more challenging

tax audit and regulatory environment.

GRIFFIN: Foreign direct investment is regarded as important for economic

development and growth in Ireland. Many multinationals have set up their

European hubs here. Ireland has thriving pharma and technology industries

for example, offering access to Ireland’s young and highly educated

workforce. There are many pro-business and talent reasons which make

Ireland an attractive inbound investment location. Ireland’s tax laws seek

to complement these, offering a low corporate tax environment, providing

certainty with a stable tax regime. Ireland has developed a large tax treaty

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?

Q HOW WOULD YOU


IRELAND AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




network, with over 72 tax treaties in force. Ireland also offers a wide variety of

withholding tax exemptions and favourable double taxation relief measures,

which are of benefit to foreign entities establishing holding or treasury

companies in Ireland. With a competitive onshore IP regime and a base

erosion and profit shifting (BEPS) compliant Knowledge Development Box,

there are significant positives for both foreign and Irish owned businesses.

GRIFFIN: Tax audit activity is on the rise as tax authorities seek to ensure

enforcement of tax laws, enhance exchequer receipts, and respond to the

international focus on addressing aggressive tax practices. Where tax is

underpaid, then various penalties apply to include surcharges, interest and

possible publication of taxpayers. Given the financial and reputational

damage that can arise, taxpayers need to be cognisant of their tax

compliance and reporting obligations and perform consistent self-reviews

of tax. Where an error is identified, outside of a Revenue audit situation,

then the company has an opportunity to make an unprompted qualifying

disclosure to Irish Revenue which can reduce any penalties arising.

Taxpayers are not just focused on ensuring robust compliance processes

and procedures, but in terms of tax planning opportunities, there is now a

higher bar to apply in assessing the appropriateness of the tax approach

that could potentially apply. This is particularly relevant in Ireland given the

lower threshold set for our general anti-avoidance rules to apply.

GRIFFIN: When a company is notified by Revenue of an upcoming audit

then an internal review is necessary. That can be done by the company

or with its tax advisers. Matters may arise as part of that review process

and the company can then make a prompted qualifying disclosure to

Revenue which can set out matters arising. This disclosure, together with

cooperating with Revenue, should result in a reduction of penalties on

any identified underpayment of tax. Preparation for the Revenue audit is

key, and it is important that if there are issues of concern or which a tax

director or chief financial officer may not be certain about, companies

should seek advice in advance.


Q HAVE YOU SEEN AN


IN IRELAND? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






GRIFFIN: Ensuring that the tax affairs of a business are structured

remains a valid business and shareholder expectation, while also

ensuring compliance with relevant tax laws. Tax can often be one of the

most significant expense items of a business, so it is important, as with

any others costs, that taxes are managed efficiently for good business

management. The business and associated tax structure adopted should

be aligned with overall business objectives, and a substance based tax

approach should be adopted. BEPS is concerned with aligning taxing

rights with commercial substance. Tax functions should therefore possess

a governance framework with actual monitoring of activities to ensure

business’ full compliance with that framework.

“ The business and associated tax structure adopted should be aligned with overall business objectives.”

Lorraine Griffin

Head of Tax

Deloitte Ireland

+353 1 417 2992

[email protected]

www2.deloitte.com/ie/en.html

Lorraine Griffin is head of tax at Deloitte Ireland and an international and M&A tax partner in Deloitte’s Dublin office. She advises a broad range of indigenous Irish companies, private equity houses and multinational companies covering a wide variety of tax issues (both Irish and international). Ms Griffin has significant corporate tax and international tax experience. She specialises in international tax, advising multinationals on investing into Ireland and domestic groups on outward investments, and has significant expertise in the areas of intellectual property, corporate restructurings and M&A.





NETHERLANDSMARIO VAN DEN BROEKRSM NETHERLANDS

VAN DEN BROEK: The OECD Base Erosion and Profit Shifting (BEPS)

Action Plan has been very influential over the last 18 months. Exchange

of information has been an important development, and this theme has

been reflected in various ways. The most obvious theme parties have

been dealing with has been country-by-country reporting (CbCR), but

other outlets, such as as the exchange of advance tax rulings, have also

been fully on the radar of the Dutch tax authorities. The Dutch tax

authorities have been working hard to meet their deadlines but given

the large number of rulings issued, they have had to ask for a further

extension. Overall, it is clear that the Dutch government has embraced the

concept of exchange of information but it also wants to ensure that the

Netherlands is consistent with the progress to be made in other European

countries. Another theme that has been very important has been the

Anti-Tax Avoidance Directive II (ATAD II) and specifically the legislation

which has been proposed to counter the structuring that is focused on

utilising hybrid mismatches. However, it is not only Dutch structures

(CV-BV) which must be revised, the use of financial instruments, such as

Luxembourg CPECs, must also be revised. This creates more challenges

for tax departments of multinational companies.

VAN DEN BROEK: The Dutch tax authorities have been focusing on

the implementation of the CbCR regulations. The first real test came

with the filing of the notifications. The Netherlands ultimately provided

companies with an extension to the original filing date of 31 December

2016. This was also done because the Dutch authorities are still trying to

get up to speed with the CbCR regulations. However, this is something

that has been quite consistent with many European countries. Though

some countries did maintain the original deadline, most have chosen to

extend deadlines. Dutch politicians in particular have been very keen to

ensure that the exchange of information requirements are enforced.

Q COULD YOU OUTLINE

SOME OF THE KEY


TO CORPORATE TAX


NETHERLANDS OVER THE

LAST 12-18 MONTHS?


TAX AUTHORITIES IN

NETHERLANDS INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


NETHERLANDS • MARIO VAN DEN BROEK • RSM NETHERLANDS

VAN DEN BROEK: The Dutch tax authorities have developed a

lot of knowledge about transfer pricing over the past 10 years. This

steep learning curve was required if they were to get on par with

the sophisticated tax departments of Dutch companies or foreign

companies with operations in the Netherlands. There has been a clear

trend in the last 18 months that most companies realise that BEPS

is here to stay and it is our view that the both the CbCR regulations

and the master/local files have been taken very seriously. A lot of

companies are working hard to get updated. Although there has been a

lot of guidance, 2017 is the first year where the CbCR reports must be

submitted; this process is still new to everybody and it remains to be

seen how soon the Dutch tax authorities are fully up to speed in terms

of enforcing the new regulations. Having said that, there is some kind

of level playing field as companies are also trying to find their way in

the new regulations.

VAN DEN BROEK: The Netherlands has always tried to design its laws

to facilitate foreign direct investment. However, European Union (EU)

directives, of course, ensure that there is a similarity to be followed. In

that sense, most regulations in the Netherlands are consistent with

most EU countries. What does stand out, however, is the Dutch tax

ruling practice and the attitude of the Dutch tax authorities, which

have been trying to create an environment whereby there can be an

open dialogue between the taxpayer and tax authorities. Having said

that, the ruling practice is still bound to specific regulations influenced

by bodies such as the EU or the OECD. Under the influence of the trend

of more transparency, the Netherlands has been working hard to take

inventory of all issued rulings and certainly has displayed even more

effort to enforce the agreements. It is also interesting to monitor the

influence of state aid on concluded tax rulings.

Q HOW WOULD YOU


NETHERLANDS AS THEY

RELATE TO FOREIGN


UNIQUE REGULATORY



BE CONSIDERED?




VAN DEN BROEK: We have not seen an increase in tax disputes. This

can also be explained by the efforts of the Dutch tax authorities to try

and stay in a dialogue with the taxpayer. Of course, this cannot always

be maintained consistently, and while in the Netherlands many cases

are brought to the courts, there remains an open environment where

taxpayer and tax authorities try to seek alignment. Although it is not

really a recent development, enforcement of domestic tax legislation

has been greatly influenced by EU law.

VAN DEN BROEK: Depending on the facts and the type of taxes, there

are certainly possibilities to seek out the Dutch tax authorities to work

out a deal. That is not to say that the Dutch authorities have an easy

attitude but quite often a dialogue is possible which at least may have

a positive impact on, for instance, possible penalties involved. It must

be clear, however, that the Dutch tax authorities are quite sophisticated

in their knowledge and approach. As a result, despite operating in an

environment that is open to dialogue, this does not guarantee a positive

outcome for the taxpayer in the event of a dispute.

VAN DEN BROEK: It is certainly important to have a well-documented

position to ensure a good starting point. For instance, with transfer

pricing disputes, the burden of proof is a key item and in the event that

a taxpayer does not have the proper transfer pricing documentation

in place, a dispute may become lengthy and costly. Another approach

is to ensure that they have proper substance within implemented

legal structures. This is becoming particularly important in cross-

border situations since countries have really bought into the concept

of exchange of information under the influence of BEPS. It remains

to be seen whether tax competition within the EU will be reduced.

What does stand out is the fact that most countries, if not all, have

agreed to exchange much more information than before. On the other

“ The substance of a structure is expected to become even more important to establish, and more so to correctly maintain.”


Q HAVE YOU SEEN AN


IN NETHERLANDS?

WHAT LESSONS CAN


RECENT SETTLEMENTS,


AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?

Q WHAT STEPS CAN








hand, it is expected that tax authorities will struggle to handle all that

information that will become available due to a lack of resources. So, our

advice to taxpayers that are internationally active would be to create a

well-documented starting position and make sure that the tax reality

coincides with the economic reality. As governments still depend on

taxes as their main source of income, tax competition most likely will

still be around providing internationally active companies with plenty

of options to save taxes. However, with a highly-increased level of

transparency, the substance of a structure is expected to become even

more important to establish, and more so to correctly maintain.

Mario van den Broek

International Tax Partner

RSM Netherlands Belastingadviseurs N.V.

+31 6 158 355 00

[email protected]

www.rsmnl.com

Mario van den Broek is a partner at RSM with over 18 years of international tax experience. He heads up the international tax practice of RSM Netherlands. He has strong international tax knowledge and serves many foreign based corporate clients with global operations. He has extensive experience in designing and implementing international structures for multinational companies and has worked in different areas such as cross-border compliance projects, due diligence projects, transactions and company reorganisations. He is also a regular speaker at international conferences, a full member of the International Fiscal Association and the Dutch National Order of Tax Advisors.





GERMANYMARKO GRÜNDIGKPMG IN GERMANY

GRÜNDIG: First, the German tax authorities have made substantial

progress with digitisation. While it will be some time before compliance

processes go fully paperless, enterprises should take the time to examine

their own internal processes. Transitioning to digital will certainly improve

tax management, since it allows for better documentation, monitoring

and information exchange. Second, the level of transparency is steadily

increasing. As of this year, for example, Germany is taking part in the

automated exchange of tax rulings with other OECD member states. In

response to the ‘Panama Papers’ affair, the German government is also

looking to increase disclosure requirements for taxpayers and financial

institutions. Looking at corporate tax law, we can see some significant

changes resulting from the base erosion and profit shifting (BEPS) project,

such as the introduction of country-by-country reporting rules and stricter

anti-avoidance rules.

GRÜNDIG: There is a clear trend toward increased monitoring and

enforcement in Germany. For example, the automatic exchange of

information (AEOI) mechanism now requires financial institutions in a large

number of countries to report detailed information on its foreign customers.

The German tax authorities have also improved their technical capability

to screen large amounts of information in order to detect anomalies. With

regard to enforcement, it can be seen that tax authorities are becoming less

cooperative during tax audits. This is reflected by the increasing number

of cases where criminal law, as well as penalties and personal liability, are

becoming a concern.

Q COULD YOU OUTLINE

SOME OF THE KEY


TO CORPORATE TAX


GERMANY OVER THE LAST

12-18 MONTHS?


TAX AUTHORITIES IN

GERMANY INCREASING





GERMANY • MARKO GRÜNDIG • KPMG IN GERMANY

GRÜNDIG: Looking back on the last decade, transfer pricing has already

been a major issue for German tax authorities as well as taxpayers. The

tax authorities have continued to pool their transfer pricing expertise,

which has resulted in a more aggressive stance on challenging transfer

pricing approaches and documentation, including intangible and financial

intercompany transactions. This trend can only increase with enhanced

global transparency requirements and the corresponding introduction of

new documentation rules, including master file, local files and country-by-

country reporting. Transfer pricing will continue to be a focal point. Looking

at transfer pricing as a company, complying with these updated rules and

setting up new processes is demanding, but the benefits of good transfer

pricing management are obvious. Most companies are keeping on top of

things, as they should.

GRÜNDIG: German tax law generally treats foreign and domestic

taxpayers equally. Looking at inbound investment, I think the tax law here

is competitive. Extensive jurisprudence, tax guidance and a large number

of double taxation agreements mean that investors can anticipate tax

consequences. However, there are few tax incentives or other direct tax

benefits to attract foreign investors. There is certainly room for improvement

there. If tax-efficiency is the primary concern, Germany may also not be

the best location for a holding company, since the corporate and trade

tax rate is relatively high compared to a lot of our neighbouring countries.

However, investors should take into account that Germany is a steadfast

EU member with little risk of a ‘Dexit’. This entails a number of benefits,

most importantly with regard to interest, licence or dividend payments to

and from other EU entities.

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?

Q HOW WOULD YOU


GERMANY AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




GRÜNDIG: The number of tax disputes has been steadily increasing for

a variety of reasons. First, tax reforms have introduced new ambiguities

and points of contention into the tax law. Second, the increasing level of

transparency for taxpayers, as well as the information exchange between

different tax authorities leads to more frequent enquiries and subsequent

tax disputes. It is noticeable that taxpayers can be reluctant to challenge

an assessment, mainly in order to preserve good relations with the tax

authorities. In our experience, that concern is unjustified, but it may be

helpful to consult with tax and legal advisers first. Looking at recent tax

disputes, we can learn that the outcome of these proceedings often depends

on documentation and compliance first and legal issues second. This does

not mean that flawless compliance will avoid tax disputes, but that the

taxpayer will be in a much better position to achieve a positive result.

GRÜNDIG: Whenever the tax authorities confront a company, that

enterprise should exercise caution. This applies regardless of whether you

are looking at a routine audit or a more serious investigation. Good practice

for these situations is to be well prepared – having to explain missing or

bad documentation may have serious consequences, such as having the

tax authorities estimate income or impose penalties. If professional advice

is necessary, the company should reach out as early as possible. At the

beginning of an enquiry, we would advise companies to make sure that they

understand its scope and extent, since it can quickly become relevant what

period, taxes or business transactions are under review. During the enquiry,

the taxpayer should make certain to fully comply with its obligations and

cooperate with the tax authorities. However, it is not necessary to volunteer

any further information. At the end of an enquiry, the taxpayer should be

open to compromise. When the results are open to interpretation, it may

be better to negotiate a solution.

GRÜNDIG: Robust tax compliance should be a key focus for any enterprise.

What that entails, however, can differ significantly. Take payroll or VAT as

an example. In these areas, compliance will get much more complicated


Q HAVE YOU SEEN

AN INCREASE IN TAX

DISPUTES IN GERMANY?

WHAT LESSONS CAN


RECENT SETTLEMENTS,


AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?

Q WHAT STEPS CAN




once employees or goods leave and enter the country. Generally speaking,

good compliance requires good process management. As such, enterprises

should take care to ensure that the tax department receives all relevant

information, which necessitates close collaboration with other departments,

especially accounting and finance. Only then can the tax department draw

the right conclusions during the tax declaration process. Proper information

management will be even more important if compliance processes

are carried out externally, for example, by a tax adviser. Maximising tax

efficiency is a balancing act and, again, it depends on the specific enterprise.

A prudent first step would be for companies to determine which parts of

the compliance process the in-house tax department should carry out and

which parts should be outsourced. Secondly, they should scrutinise the

actual compliance processes. This can be a good opportunity to consult

with an external adviser. Finally, look at digitisation and automation as

tools that can help avoid errors and reduce costs.

“ At the end of an enquiry, the taxpayer should be open to compromise.”

Marko Gründig

Partner

KPMG

+49 89 9282 1193

[email protected]

home.kpmg.com

Marko Gründig specialises in international taxation, mergers and cross-border acquisitions and has over 10 years of experience serving many of KPMG’s multinational clients. After positions with KPMG’s German tax centre in New York, KPMG Germany’s national tax department in Frankfurt/Main and KPMG’s Munich international tax group, Mr Gründig headed the German tax centre in the US. In December 2014, he returned to the Munich office and became the area managing partner tax for the Southern Region in Germany. Since October 2015, he has been tax managing partner for Germany.









AUSTRIARUDOLF KRICKLPRICEWATERHOUSECOOPERS LIMITED

KRICKL: During the last 12-18 months, several tax measures were

published aiming at stimulating investments of mid-sized and large

companies in 2017 and 2018. For example, an investment premium of

15 percent for mid-sized and 10 percent for large companies. Also the

Austrian research and development (R&D) premium, which is based

on the international nexus approach, will be increased from 12 to 14

percent as of 2018. Furthermore, there have been a number of important

developments in the field of international tax law. As of 1 January 2016,

for the first time, explicit regulations on transfer pricing documentation

requiring multinational enterprises to prepare Master File, Local File and

CBCR, as defined by the OECDs Action Plan on Base Erosion and Profit

Shifting (BEPS), came into force. Furthermore, the implementation of the

EU’s Anti-Tax Avoidance Directive (ATAD) will result in tax regulations

which are completely new to the Austrian corporate tax regime, for

example, earnings based interest limitation rules and controlled foreign

companies regulations, and therefore will have far-reaching effects on the

Austrian corporate income tax regime. A first draft by the government is

expected in late 2017.

KRICKL: The overall quantity of enforcement activities by tax authorities

appears to remain constant. However, the ‘quality’ has changed

significantly. Tax audits are becoming increasingly complex and require

more time and increased capacities. Due to increased digitalisation, IT

experts have to be involved when it comes to the collection and processing

of financial data. Moreover, tax auditors are better trained and therefore

increasingly aware of international tax issues, especially with regard to

transfer pricing. In this context, monitoring procedures have become

more and more intense and the Austrian tax authorities are – more so

than in the past – prepared to ask foreign tax authorities for exchanges of

information. Further, in light of the recent BEPS recommendations, legal

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN AUSTRIA

OVER THE LAST 12-18

MONTHS?


TAX AUTHORITIES IN

AUSTRIA INCREASING





AUSTRIA • RUDOLF KRICKL • PRICEWATERHOUSECOOPERS LIMITED

tax planning is qualified as abusive and challenged more quickly than in the

past, which requires careful preparation and documentation of complex

business models. On the other side, Austrian tax authorities have initialised

an implementation programme to introduce ‘horizontal monitoring’ (HM)

as a standard operating tool by 2018. This will allow large companies to

align their transactions with the tax authority on an ongoing basis.

KRICKL: The Austrian tax authorities are increasing their resources

governing transfer pricing. This has become a focal topic during tax audits

while ‘standard points’ of discussion, such as non-deductible expenses, are

becoming less relevant. Influenced by BEPS, Austrian tax authorities are

questioning business models as a whole, much more so than in the past.

This new approach results in tax wise non-acceptance of intercompany

transactions and their holistic reclassifications, for example, short term

investments are reclassified into long term investments requiring a

higher profit margin. Furthermore, tax auditors more often challenge

the technical set up of benchmarking documentation provided. Austrian

companies are, in general, aware of the risks and challenges related to

transfer pricing. However, they often fail to meet the documentation

requirements in time.

KRICKL: Austria has always been well placed with regard to international

tax law. It has a broad network of double-tax treaties and is quick to

implement EU case law as well as directives. Austria has also implemented

attractive tax regimes, such as the tax group, where it is one of very few

countries allowing a temporary offset of domestic profits with losses from

foreign subsidiaries. Furthermore, there are currently no CFC rules or thin

cap rules in place and the legislator grants extensive R&D tax incentives

even to foreign R&D service providers. In light of recent changes and

Q HOW WOULD YOU


AUSTRIA AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?




developments, particularly in regard to BEPS and ATAD, it remains to be

seen how the Austrian government will implement and adapt its tax laws.

It has to be hoped for that the Austrian tax law changes will be designed

in such a way that the risk of double taxation is reduced to a minimum.

KRICKL: The number of tax disputes in Austrian companies has increased

constantly over the last few years and large companies are prone to a

higher frequency of tax audits, which are regularly fully audited by Austrian

tax authorities. Tax authorities increasingly screen tax audit findings for

fiscal penalty implications. Lately, criminal proceedings involving a fiscal

offence have even been implied in connection with just minor tax audit

adjustments. We advise companies in the process of a tax audit to clearly

show willingness to cooperate with the tax authorities, answer questions

as precisely as possible and pay close attention to the wording of the

minutes issued by the tax authorities. This is necessary so that no tax

audit adjustments are classified as an offence against fiscal penalty law

which might have significant consequences for the management of the

Austrian company, for example senior management may face personal

liability for taxes, penalties and being placed on the public fiscal penalty

register.

KRICKL: Companies should proactively, at the earliest possible stage in the

process, review in detail potential audit issues which may arise during the

process and analyse whether any tax adjustments are expected from these

issues. If a significant adjustment is expected the company should discuss

this with its tax adviser to analyse how this issue should proactively be

disclosed. Furthermore, companies should be well prepared and organised

so that the set-up during the audit fits. Consequently, adequate office

space should be provided to the auditors and the general staff should be

informed about the fact that an audit is carried out locally. Information

should be shared with the auditors exclusively by predefined individuals

so that the exchange of information can be appropriately managed.


Q HAVE YOU SEEN AN


IN AUSTRIA? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






KRICKL: Ensuring and maintaining robust tax compliance requires

ongoing attention, which should take the latest technological advances

into account. Current processes should therefore be regularly reviewed as

to whether they are up to date and whether there are new technological

advances, such as IT systems or functions that allow for automatisation. In

many cases we have learned that the knowhow of IT experts in corporate

tax departments is becoming increasingly important. Structures should

be analysed to determine whether they are still ‘state of the art’. They

should be reviewed with particular attention paid to potential risk issues

due to BEPS. It is crucial to align tax structures with the business model

and value chain of a group, and to ensure that appropriate economic

substance is in place. However, apart from the tax effects of a particular

structure and its interpretation by the tax authorities, due to the increased

level of transparency, the management of a group should also consider

how a particular planning approach might be received by consumers and

investors.

“ Ensuring and maintaining robust tax compliance requires ongoing attention, which should take the latest technological advances into account.”

Rudolf Krickl

Partner

PwC PricewaterhouseCoopers Wirtschaftsprüfung und Steuerberatung GmbH

+43 1 501 88 3420

[email protected]

www.pwc.com

Rudolf Krickl is a partner at PwC Austria. He has more than 21 years experience in advising national and multinational companies. His areas of expertise are international tax planning, M&A, transfer pricing, cash pooling, taxation of private foundations and business valuations for tax purposes. Mr Krickl is a member of the Austrian Chamber of Chartered Accountants as a tax adviser. He is a member of the Tax Expert Board of the Austrian Chamber of Chartered Accountants and several working groups thereof. He has had articles published in several professional journals and performs different lecture activities.





ITALYLUCA BOSCOSTUDIO TRIBUTARIO E SOCIETARIO

BOSCO: Italy has introduced significant legislative changes over the last 12-

18 months aimed at simplifying tax rules for cross-border business in both

inbound and outbound scenarios, as well as providing certainty of tax rules

to attract foreign investments. Generally, it is worth noting that from 2017

the corporate tax rate will be reduced to 24 percent, while the notional

income deduction will be set at 2.3 percent. Furthermore, a new set of tax

incentives has been implemented in order to stimulate the investments, as,

for instance, an extra 150 percent depreciation deduction for new assets

acquired to support the automation and technological transformation

of enterprises, or enhancement of the R&D tax credit, which is extended

through 31 December 2020 and increased up to 50 percent. Finally, Italy has

also introduced a flat tax for non-resident wealthy individuals on foreign-

source income – that were not tax residents in Italy for nine out of the 10

prior years – who transfer their tax residence to Italy.

BOSCO: Italy’s tax authorities are increasing monitoring and enforcement

activities, particularly toward small and medium enterprises. With respect

to large enterprises – so-called ‘large taxpayer’ corporations with turnover

higher than €100m – the approach seems to have changed in recent years

along the line of an abiding tutoring activity. Enforcement takes place

through frequent auditing activity; during 2016, about 40 percent of large

taxpayers were audited, compared to about 15 percent of medium sized

enterprises. Part of the enforcement is also pursued through moral suasion

mechanisms, such as advertising the result of a tax collection.

BOSCO: The trend shown by both tax authorities and taxpayers has

highlighted a material increase in awareness of the importance of transfer

pricing issues, though the scenario remains mixed, with some taxpayers and

tax inspectors more aware and prepared than others. Overall it is possible to

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN ITALY

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN ITALY INCREASING



Q HOW ARE TAX





ITALY • LUCA BOSCO • STUDIO TRIBUTARIO E SOCIETARIO

see a fast growing learning curve for taxpayers and the tax administration.

To date, the full impact of the base erosion and profit shifting (BEPS) action

plan has not yet been felt and it is supposed to take some time before the

above players reach a full alignment with the new rule. In the coming months,

growth in the number of challenges related to those situations in which

transfer pricing policies do not fully reflect the true value creation chain is

expected. Also, the operational aspects of transfer pricing are becoming an

increasingly hot topic. Tax inspectors are starting to aggressively challenge

the reliability of the managerial and segregated accounting data necessary

to support the arm’s length principle, especially in cases where transactional

profit methods are applied.

BOSCO: Investors have to face-up to a very complex regulatory system,

which has been significantly influenced by the stringent anti-abuse/GAARs

legislative framework and the implementation of new country by country

reporting obligations. However, over the last few years the Italian government

has begun to take serious steps to reboot the economy and introduce new

tax measures which are positively affecting foreign investment inflows.

In demonstrating this new environment, a specific desk of the Revenue

Agency has been created in order to help and provide information to foreign

investors, for whom a new form of ruling is available to provide them with a

framework of certain and stable tax treatment arising from their investment

plans. From a tax incentive perspective, it is worth mentioning the increase

in the innovative tax deduction in SMEs by incentivising financial investors

and attracting and retaining highly-qualified personnel, and the extension

of the tax exemption on revenues generated from non-leveraged funds only

to all kind of funds, operating in ‘white list’ countries and under banking

supervision. Additionally, Italy is now fine tuned on EU directives in terms of

tax consolidation.

Q HOW WOULD YOU

DESCRIBE TAX LAWS IN ITALY

AS THEY RELATE TO FOREIGN


UNIQUE REGULATORY



BE CONSIDERED?

PRICING? IN YOUR




IN THIS AREA?




BOSCO: For a number of different reasons, including an increase in

lodging expenses, tax disputes do not appear to be in an increasing trend.

Actually, based on the data released by the Revenue Agency, in 2016

appeals before the provincial tax courts decreased by 20 percent, while

over the same period seven out of 10 cases discussed before the different

tax courts were decided, partially or entirely, in favour of the Revenue

Agency. The possibility of applying for pre-judicial settlement tools and

getting a significant reduction in the penalties at stake, and the length

of the controversies before the various degrees of the courts involved, on

average, around seven to nine years, have played a role in this trend.

BOSCO: First, companies should collect all the relevant information

inside the company to react to enquiries from the tax authorities. This

means that the company should select an internal employee as a local

representative to liaise with tax inspectors in a cooperative way, inside the

framework of the authorised inspection. This means the company should

not release any information outside the objective and scope of the audit,

but it should be very careful to provide any information, subject to the

potential exclusion of further documents and information not provided

during the audit. Companies should also take their time to reply fully

to requests. Our usual suggestion is that it is better to take some time

and provide appropriate answers rather than partially reply on the spot.

From an administrative perspective, depending on the circumstances of

the case, it is convenient for a taxpayer to engage a professional who can

assist the company during the different stages of the audit in a proactive

and proficient way.

BOSCO: It is worth mentioning that compliance risks can only be

discerned within the business context and the tax legal framework in

which a company operates. Ever greater attention to the BEPS and anti-

abuse environment has brought increased focus on the economic reasons

behind any tax efficiency. Establishing a sound business purpose and

corroborative documental evidence of the management decisions would


Q HAVE YOU SEEN AN


IN ITALY? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?

Q WHAT STEPS CAN








lead to objectively assessing the relative size of compliance risks and enable

the implementation of proper mitigation or monitoring strategies in order

to better allocate resources and maximise tax savings. The introduction of

risk identification systems, both enabling technologies and organisational

commitment support through the effective interaction between the

finance and tax department, has an important role to play in ensuring

the sustainability of the tax structure adopted. In addition, the recent

standard measures setting forth operating procedures in relation to the

new cooperative compliance programme are proving a remarkable step

toward preventing tax disputes and fighting tax evasion. The regime is

now exclusively limited to large taxpayers, but there may be an extension

of its subjective scope to small and medium enterprises, in order to ensure

that the different categories of taxpayers benefit from a more systematic,

fair and transparent dialogue with the tax administration.

“ Ever greater attention to the BEPS and anti-abuse environment has brought increased focus on the economic reasons behind any tax efficiency.”

Luca Bosco

Equity Partner

Studio Tributario e Societario

+39 011 554 2918

[email protected]

www2.deloitte.com/it/it/pages/tax/solutions/servizi-sts-IT-tax.html

From 1994 to 1998, Luca Bosco worked for two Italian tax and legal firms: Studio Associato di Consulenza Legale e Tributaria (KPMG network) and Studio Fantozzi. He joined Andersen Legal in 1999 before moving to Deloitte in 2003. He was appointed as director in 2005 and in 2008 became a partner. He is the country leader of the International Tax Service line. He specialises in Italian domestic and international corporate tax and has more than 20 years of experience in cross-border services (in particular international tax and M&A) concerning international and domestic groups (with a special focus on the manufacturing industry).





JAPANJOACHIM STOBBSERNST & YOUNG TAX CO.

STOBBS: Japan is gradually shifting its tax burden from direct to indirect

taxes. Over the past 18 months, Japan’s corporate income tax rate

has decreased from 32.11 percent to 29.97 percent in certain cases,

along with more tax incentives and benefits for R&D and employment

expenses. The corporate tax rate had previously been over 35 percent.

Consumption tax is expected to increase from 8 to 10 percent in 2019.

Concurrently, there has also been an increase in compliance measures in

part due to the increase in regulatory investigations. Japan has started

implementing Base Erosion and Profit Shifting (BEPS) action items,

notably country-by-country reporting mechanisms, and is adding

income requirements to its controlled foreign corporation (CFC) rules,

which become effective 1 April 2018.

STOBBS: A few years ago, the number of tax audits conducted by the

National Tax Agency (NTA) was at its peak, but in recent years the

number of audits has declined, with a heavy focus on transfer pricing

and undeclared revenue on both domestic and overseas transactions.

With regard to transfer pricing, while the number of tax audits has

increased from 170 in 2013 to 240 in 2014, a 41 percent increase,

the amount of tax assessed has drastically decreased from ¥537bn

to ¥178bn, a fall of 72 percent. This decrease can be attributed to

companies proactively managing their tax profile with the tax bureaus,

which have recently started to more frequently request information

from overseas tax offices, through exchange of information provisions

in treaties, and also an increased permanent establishment focus.

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN JAPAN

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN JAPAN INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


JAPAN • JOACHIM STOBBS • ERNST & YOUNG TAX CO.

STOBBS: The advanced pricing agreements (APA) programme in Japan

is highly developed, with companies putting great value on up front

certainty. Bilateral APAs have averaged at 150 per year for the past

three years. Recently the NTA has given more focus to how companies

are accounting for transfer pricing, including support for methods

and calculations used to arrive at arm’s length standard. There have

also been a large amount of mutual agreement procedures in recent

years, averaging over 190 a year for the past three years, which is

indicative of increased controversy. Also in 2016, the NTA adopted the

authorised OECD attribution (AOA) which governs how branch profits

are attributed. There are also now contemporaneous documentation

requirements, so companies increasingly need to provide robust support

for their transfer pricing positions on a real time basis.

STOBBS: With regard to Japanese inbound businesses, the NTA appears

to be lowering permanent establishment thresholds, as evidenced by

the Japanese warehousing PE case which shows a lower preparatory

and auxiliary threshold. Concerning Japanese outbound structures,

changes to the Japanese CFC regime will become effective 1 April 2018.

The rules, which are already strict, are moving from targeting ‘low tax’

overseas affiliates with an ETR under 20 percent, to looking at entities

with a 20-30 percent ETR that are classified as a paper company, cash

box or blacklist company. Also, passive income of sub-20 percent ETR

companies is being expanded significantly to include interest, FOREX,

sub-25 percent shareholding dividends and gains, as well as some IP.

Q HOW WOULD YOU


JAPAN AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




STOBBS: Tax disputes have increased in certain areas, such as transfer

pricing and PE. One of the most significant landmark cases concerning

the use of losses made it clear that any tax benefits being received can

be denied where tax is a clear motive. Another PE case showed that

selling into Japan with some Japanese warehousing functions or a local

address, can give rise to tax risk, despite being traditionally considered

to be preparatory and auxiliary.

STOBBS: Companies need to always be sure that they have appropriate

and sufficient support for any transactions they execute, and understand

that there is no concept of materiality on tax audit. Companies also need

to be in front of any possible tax audit, making sure they are organised

and proactively engaging with the tax inspectors and addressing any of

their points of interest up front. Japanese tax audits can continue on

for multiple years without resolution if the information at the outset

is inadequate or faulty, so it is always best that companies are as well-

prepared as possible in order to resolve any tax disputes in a timely

fashion.

“ Japanese tax audits can continue on for multiple years without resolution if the information at the outset is inadequate or faulty.”


Q HAVE YOU SEEN AN


IN JAPAN? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






STOBBS: Japan applies a substance over form doctrine through anti-

avoidance rules, so efficient structures are limited to those that

manage tax leakage and benefit from incentives. The expectation on

the taxpayer is that it will be timely and efficient in managing its tax

affairs and responsive on tax audits, which are normally on a two to

three year audit cycle. If the company fails in this regard, it can expect a

tough, rigorous audit with tax costs, penalties and interest. Companies

need to have support for all transactions, especially those that generate

tax benefits, and ensure there is always a business purpose. As a best

practice, in areas of uncertainty companies should consider going

to their regional tax bureau to receive clearance on any significant

transactions or tax items in order to manage uncertainty up front,

rather than on a possible tax audit.

Joachim Stobbs

International Tax Services Partner

Ernst & Young Tax Co.

+81 3 3506 2670

[email protected]

www.ey.com

Joachim Stobbs has spent the past 17 years specialising in dealing with Japanese related tax matters for international clients and providing international tax compliance and advisory services to Japanese and international MNCs, including controversy support. He worked as the UK Desk in Tokyo from 2008-2011 and is ATT and CTA qualified. He has a Masters Degree from the University of Edinburgh.





AUSTRALIAPETER FEROSCLAYTON UTZ

FEROS: At the legislative level, we have seen the enactment of the

multinational anti-avoidance law (MAAL) and the diverted profits tax

(DPT). Both the MAAL and the DPT apply to groups with global revenue

of at least AU$1bn. Another example of this focus is the government’s

planned implementation of OECD hybrid mismatch rules. We have also

seen the Foreign Investment Review Board (FIRB)impose a standard set

of tax conditions which must be satisfied on applicable transactions, in

order for the investment to be approved. In this regard the Australian

Taxation Office (ATO) is consulted by FIRB in advance of such approval

being provided so that the involvement of the ATO on the largest cross-

border transactions is truly on a ‘real time’ basis.

FEROS: The ATO has been emboldened with the strong legislative tools

at its disposal – such as general anti-avoidance, MAAL, transfer pricing

– and a political climate which shows little tolerance for perceived profit

shifting. In particular, the ATO has been conducting audits in order to

determine whether a determination under the MAAL is appropriate.

These reviews are typically occurring in conjunction with, or in addition

to, comprehensive transfer pricing reviews. We are also seeing, through

the series of questions provided by FIRB on transaction structures, the

involvement of the ATO in the FIRB approval process. This involvement is

intended to identify potential transaction related tax risks, for example,

excessive gearing or overly aggressive acquisition structuring, but also

to establish a platform for ongoing engagement between acquirers and

the ATO.

Q COULD YOU OUTLINE

SOME OF THE KEY


TO CORPORATE TAX


AUSTRALIA OVER THE LAST

12-18 MONTHS?


TAX AUTHORITIES IN

AUSTRALIA INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


AUSTRALIA • PETER FEROS • CLAYTON UTZ

FEROS: The ATO has shifted its focus from one predominantly based

on economic analysis toward one which involves a comprehensive

assessment of the facts underpinning the economic analysis and

whether the assumptions made in that analysis are verifiable. In getting

to the bottom of the facts, the ATO’s expectations are very significant

both in terms of the quality of the data and the timeliness of providing

it to the ATO. Typically this will require documentation which may be

retained outside of Australia. The sheer breadth of information which

might be requested and the importance of the facts in any dispute is

something which is not always fully appreciated by taxpayers before

the dispute begins. With the recent rewriting of Australia’s transfer

pricing laws, there also exists uncertainty as to how a court might apply

the new laws, which have been strengthened, in practice.

FEROS: Traditionally, Australia has been a significant importer of capital.

Australian taxation laws have therefore evolved with this fact in mind.

Accordingly, inbound multinationals need to be cognisant of a regime

which is increasingly focused on intra-group pricing and structuring

which results in profits from Australian end-users falling outside the

Australian tax net. On the other hand we have seen, over the last 10

years or so, significant changes in the way passive investment is taxed

in Australia. For instance, exemptions exist for non-residents from

capital gains – subject to certain exceptions, such as real property

related gains – and concessional rates of withholding tax on certain

distributions from passive investment trusts. That said, the ATO is very

focused on structures which it considers to be designed to deliver tax

preferred outcomes to foreign investors and recent taxpayer alerts and

discussion papers on infrastructure investment are indicative of this.

Q HOW WOULD YOU


AUSTRALIA AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




FEROS: There has been a significant increase in scrutiny from the ATO

in transfer pricing matters, and in relation to anti-avoidance rules,

including the MAAL, but not necessarily an increase in the number of

litigated disputes. In fact, the ATO is trying to settle disputes outside

of court where possible. The real lesson for taxpayers is that the best

groundwork for a successful dispute defence is laid, not when the dispute

formally commences, but when the transactions which are in dispute

are being considered. For example, anti-avoidance disputes which look

to the objective purpose of why something was done the way it was,

will take into account evidence from the time the transaction was being

considered, for example, board minutes and emails. A focus on the facts

at the transaction inception phase can make a big difference when the

matter is being reviewed by the ATO or when it is ultimately litigated.

FEROS: The first task is to ensure that the appropriate stakeholders –

the board, legal, tax and accounting departments – have been properly

briefed on the issues so that appropriate action might be taken. Tax

audits, investigations and enquiries can be very time consuming to

manage and stakeholder engagement is very important to ensure that

information is appropriately reviewed and timelines are adhered to. If

the dispute is managed well on the taxpayer side, the ATO’s key concerns

can be quickly distilled and the taxpayer’s objectives can be achieved,

as far as possible, without compromising the ongoing relationship with

the ATO. Getting the right advice early is also very important. There is

no ‘one-size-fits-all’ approach. Sometimes it makes sense to engage the

incumbent advisers to assist. In other situations, a fresh perspective is

helpful and can provide a greater perception of objectivity around the

issues.


Q HAVE YOU SEEN

AN INCREASE IN TAX

DISPUTES IN AUSTRALIA?

WHAT LESSONS CAN


RECENT SETTLEMENTS,


AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






FEROS: The landscape has changed dramatically for taxpayers in

Australia. What was seen as acceptable tax planning 10 years ago now

may result in a protracted dispute with the ATO. The ‘politics of tax’

has also gained increased prominence in the press and in the public’s

imagination. The key lessons for companies should be, first, do not

disregard efficiency, but understand how the ATO is likely to react when

confronted with the facts and work out how you will respond to any

potential concerns. This requires more than just a technical assessment;

it requires careful analysis of the facts. Second, if in doubt, seek a second

opinion before embarking on a course of action. Finally, make sure that

the board is fully engaged on tax. It should have a broad view of the

position of the organisation in its marketplace and that broad view

may well inform the tax positions which the organisation ultimately

takes.

“ What was seen as acceptable tax planning 10 years ago now may result in a protracted dispute with the ATO.”

Peter Feros

Partner

Clayton Utz

+61 2 9353 4824

[email protected]

www.claytonutz.com

Peter Feros specialises in providing front-end strategic income tax advice to listed Australian and foreign corporates and domestic and foreign funds, with a particular focus on M&A and fund structuring. He is known for being technically excellent and has been instrumental in developing structures which make transactions ‘bankable’. He advises clients from many industries, including the technology and financial services sectors, and has a broad base of private equity, hedge fund and property fund clients. Mr Feros also advises many private clients and privately owned groups.





KENYAPETER KINUTHIAKPMG KENYA

KINUTHIA: One of the most important developments has been the

overhaul of income tax legislation in Kenya which began in 2016 and

is expected to end in 2018. The reform aims to simplify the tax code to

make it easier for taxpayers to comply and fulfil their tax obligations.

Other key developments in Kenya have included: the introduction of

an online tax filing and payment platform which covers all the major

taxes; the introduction of the Tax Procedures Act, which consolidates

all the procedural matters relating to filing of returns, assessment and

collection of taxes; the removal of the 5 percent capital gains tax on

listed securities; the introduction of a limitation of benefit clause in the

domestic tax legislation; and the creation of special economic zones with

lower income tax rates to spur growth in target sectors.

KINUTHIA: Across the East Africa region, countries are relying more

on domestic revenue to fund development activities. As a result, tax

authorities are under pressure to increase revenue collections. The online

tax filing system has provided the Kenya Revenue Authority (KRA) with

the capability to profile taxpayers and conduct targeted tax audits. One

example is the ability to match input VAT claimed by one taxpayer to the

output VAT declared by another on the same transaction. Where there are

inconsistencies, the taxpayers will often receive a call from the revenue

authority to provide clarifications or to prepare for an audit. Medium

and large taxpayers should expect to undergo a tax authority audit every

three to five years. However, through risk profiling the tax authorities

are becoming adept at utilising scarce resources to target those sectors

and industries where taxes are most at risk. Other measures include the

creation of dedicated teams to carry out tax audits and expanding training

programmes to help taxpayers prepare and file accurate returns.

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN KENYA

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN KENYA INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


KENYA • PETER KINUTHIA • KPMG KENYA

KINUTHIA: Specific transfer pricing legislation was introduced in Kenya

only 10 years ago, and more recently in the other East Africa countries of

Uganda and Tanzania. The number of transfer pricing audits has increased

over the years, making transfer pricing adjustments one of the key revenue

sources for governments. In particular, the KRA is seen as one of the more

aggressive revenue agencies in the region on transfer pricing matters.

There is a tendency for international organisations to assume that what

works in their home countries will be acceptable in the region. This is not

always the case as the tax authorities will often insist on localisation of

transfer pricing policies. Multinational companies face other challenges,

such as a lack of local or regional comparables for benchmarking

purposes, inadequate platforms and expertise for transfer pricing dispute

adjudication, complexities of country risk adjustments, secondary

adjustments and mismatches between customs and corporation tax

adjustments. Through participation in international forums, such as the

Organisation for Economic Co-operation and Development (OECD) and

the African Tax Administrators Forum (ATAF), countries like Kenya are at

the forefront of the adoption of new initiatives around Base Erosion and

Profit Shifting (BEPS) and the development of the multilateral instrument

on minimum standards for double tax agreements.

KINUTHIA: The substantive tax laws in the region have remained largely

as they were at independence over 50 years ago. In some countries,

there have been a number of legislative amendments to address urgent

concerns. Some of these amendments have resulted in legislation that

contains contradictory provisions, often a recipe for disputes between

taxpayers and the tax authority. This situation is bound to change as

the region undertakes reforms to improve the business environment.

Examples include Kenya which overhauled its Value Added Tax Act and

Excise Duty Act and has recently commenced a review of the income

Q HOW WOULD YOU


KENYA AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




tax legislation. As the competition for international investments grows,

there are instances where some countries, such as Rwanda and Kenya, are

offering incentives for international organisations to establish regional

headquarters in their countries. Unfortunately, there are a number of

concerns for foreign entities, such as high withholding taxes, particularly

on payments to non-resident persons, even in those instances where

such persons do not have permanent establishments locally, punitive

thin capitalisation and deemed interest provisions, and restrictions on

head office recharge deductions.

KINUTHIA: There has been a significant increase in tax assessments and

disputes within the region as tax authorities have struggled to increase

collections to meet growing government demands. In some countries,

there is a requirement to deposit a percentage of the tax assessed

before appealing against the assessment, which puts the taxpayers at a

disadvantage especially when the assessment is erroneous. For taxpayers,

it is important to engage a competent tax adviser to help them navigate the

tax provisions and assist in negotiations with the revenue authorities and

to mitigate against punitive penalties for non-compliance. Nevertheless,

there have been a number of positive developments in Kenya, such as the

establishment of an alternative dispute resolution process which allows

the tax authority and taxpayers to resolve their tax disputes outside the

judicial system. Through this process, a number of disputes have been

resolved amicably. In many countries, the judiciary has remained largely

independent in the determination of tax disputes. However, there are

not enough judges and advocates who are well versed in tax laws, which

often leads to delays in concluding tax appeals.

KINUTHIA: Many taxpayers find tax audits and investigations highly

disconcerting. However, with adequate preparation and assistance from

competent tax advisers, it is possible to have a smooth and bearable

audit. It is prudent to involve the company’s tax advisers from the start

of the audit to professionally manage the audit process and address any

“ Across the world, tax planning is under siege as civil society and governments promote the concept of tax morality and tax shaming.”


Q HAVE YOU SEEN AN


IN KENYA? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT FINDS

ITSELF SUBJECT TO A TAX-

RELATED AUDIT,



questions that arise. Further, it is good practice to resolve as many issues

as possible during the field review before the tax authority issues an

assessment, at which point the formal dispute resolution process takes

over.

KINUTHIA: Across the world, tax planning is under siege as civil society

and governments promote the concept of tax morality and tax shaming.

Taxpayers have to walk a tightrope between tax compliance and tax

optimisation. Many taxpayers only remember tax issues at the time

of filing tax returns and when they receive notifications for tax audits.

It is important to ensure that the employees who file tax returns have

access to training on relevant tax and regulatory provisions, and receive

continuous updates on changes to tax legislation. Further, taxpayers

should carry out independent tax reviews periodically to arrest instances

of non-compliance before the penalties spiral out of control.

Peter Kinuthia

Director and Partner

KPMG Kenya – Tax & Regulatory Services

+254 20 280 6000

[email protected]

home.kpmg.com

Peter Kinuthia is a certified public accountant of Kenya (CPA-K) and a certified public secretary (CPS-K). He has 15 years extensive experience in the provision of general and specialised tax compliance and health check reviews, strategic tax planning and tax advisory services in mergers, acquisitions and reorganisations, transfer pricing, investor tax advisory and due diligence reviews, computation of corporate and business tax liabilities, tax training, employee compensation structuring, corporation tax, WHT, personal tax and VAT reviews, and VAT refund audits and certification.


Q WHAT STEPS CAN






INVESTIGATION OR

ENQUIRY?




UGANDAPLAXEDA NAMIRIMUPRICEWATERHOUSECOOPERS LIMITED

NAMIRIMU: Uganda’s income tax rules previously restricted a non-resident

who sought to benefit from reduced rates provided by Double Taxation

Treaties (DTAs) where 50 percent or more of the underlying ownership was

held by residents outside of the treaty country. This restriction conflicted

with the concept of ‘beneficial ownership’ as applied in DTAs and posed

practical challenges in establishing the underlying ownership of companies

in treaty jurisdictions. The new rules effectively address the application

of treaty benefits to publically listed companies, entities with economic

substance in the treaty country and entities which have beneficial ownership

of the relevant income. In addition, the obligation to withhold tax has also

been widened to include rental income derived from Uganda by non-

residents. Furthermore, withholding tax is imposed on payments made by

residents to non-resident persons carrying on shipping, air transport and

transmittal of messages or internet connectivity services. Previously, the

obligation to pay tax was on the non-resident persons. The tax rates vary

based on the source of income earned by the non-resident. In addition, the

Tax Procedures Code Act (TPCA) 2014 came into force on 1 July 2016.

NAMIRIMU: The Uganda Revenue Authority (URA) has an ambitious

financial year 2017 revenue target, which is due to increase year-on-year

and has put in place several reforms to widen the taxpayer base and increase

its monitoring and enforcement activities. These include a fundamental

clean up exercise of the taxpayer register, taxpayer register expansion in

collaboration with the local city authority, Ministry of Local Government

and Uganda Registration Services Bureau, the introduction of electronic

fiscal devices such as the electronic fiscal printer (EFP), electronic tax

register (ETR) and electronic signature device (ESD) to simplify processes

by leveraging technology. Revenue teams have also been expanded and

strengthened through attachment, training and the purchase of enabling

equipment in a bid to build capacity. The URA carries out both desk

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN UGANDA

OVER THE LAST 12-18

MONTHS?


TAX AUTHORITIES IN

UGANDA INCREASING





UGANDA • PLAXEDA NAMIRIMU • PRICEWATERHOUSECOOPERS LIMITED

and comprehensive audits which examine the self-assessments filed by

taxpayers for different tax types.

NAMIRIMU: Since the introduction of transfer pricing regulations in July

2011, the URA has adopted an aggressive approach toward transfer pricing.

There has been an increasing number of transfer pricing audits, reviews

and inquiries over the last three years, coupled with increased exchange

of information mechanisms with other tax authorities. There is also more

collaboration and support, in terms of capacity building by international

bodies such as the Africa Tax Administrator’s Forum and the OECD. Over

the past couple of years, the URA has established a dedicated international

tax unit which is resourced with appropriately skilled transfer pricing

auditors. In addition, the government signed the Convention on Mutual

Administrative Assistance in Tax Matters which demonstrates that Uganda

is a key partner in the fight against tax evasion and tax avoidance. Taxpayers

are now required to furnish the URA with associated party disclosure forms

disclosing the activities and aggregate value of transactions with related

parties for specified periods.

NAMIRIMU: This area is closely monitored as the government continues to

introduce measures aimed at attracting more foreign related transactions in

order to limit the scope for tax avoidance on profit shifting. There have also

been attempts to subject more international payments to withholding tax.

Provisions relating to treaty shopping have been strengthened through the

introduction of the unilateral limitation of benefits clause in the Income

Tax Act. On the other hand, there have been efforts to attract or incentivise

foreign direct investment, for example, the government has offered tax

incentives, such as the waiver of VAT charged on goods and services

supplied to contractors of aid-funded projects effective 1 July 2016.

Q HOW WOULD YOU


UGANDA AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?

Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?




NAMIRIMU: There has been a clear increase in the number of tax disputes as

the URA has become bolder in upholding its tax assessments which, in most

cases, increase the tax self-assessed by taxpayers. The taxpayers have also

embraced the dispute process and do go through it in order to demonstrate

their case. At times, tax disputes arise because business transactions are

incorrectly documented or taxpayers are deemed by the tax authority to

have under-declared their tax position. Companies are encouraged to comply

with the tax laws as the interest and penalties for non-compliance, as laid out

in the TPCA, are onerous. Companies need to learn that the tax authorities

currently try to exhaust all available avenues in tax collection. These include

going to court. In addition, when the tax authority recognises a tax loophole,

it can address it through a tax amendment in the subsequent period.

NAMIRIMU: Tax audits are provided for in the tax law, though the method

used by the revenue authorities to select which taxpayers to audit is not

known. Therefore, even before a company is subjected to a tax related

audit, the company should ensure that its records are available and easy to

understand. These can be hard copy documents or electronic. The company

should be compliant with its tax filings. When a company finds itself subject

to a tax related audit, enquiry or investigation, it should ensure that it

communicates with the tax authority. The communication may take the

form of acknowledging the audit notification or commencement and letting

the URA know if the company will be ready within the suggested time. After

that, the documents requested for audit should be assembled, together with

a resource to provide clarity or information to the auditors. The company

should then ensure that an audit commencement meeting is held which is

intended to provide the tax auditors with an understanding of the company’s

business and structures. Similarly, an audit close out meeting should be held

so that the company is informed of the areas of exposure which the auditors

may have found. Any queries raised during the audit should be addressed as

soon as possible before the tax authority issues an audit report. In practice it

is easier to dispose of issues before a report is issued.


Q HAVE YOU SEEN AN


IN UGANDA? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



NAMIRIMU: Uganda has a self-assessment tax regime. Companies need

to be up-to-date with both existing tax laws and any amendments. The

amendments usually come into force on 1 July of every year. Companies

need to examine their operations or planned activities against the tax laws,

and ensure adherence to tax compliance. Further, companies which trade

with related parties need to adhere to the Transfer Pricing Regulations which

are based on the OECD guidelines. The revenue authority has automated

systems for tax compliance. Correspondence between the taxpayers and

the tax authority is mostly generated from tax systems; namely e-tax for

domestic taxes and ASYCUDA World for customs. Compliance is mainly

addressed through timely filing, payment of taxes and responding to

revenue authority queries.

“ Companies need to learn that the tax authorities currently try to exhaust all available avenues in tax collection.”

Plaxeda Namirimu

Associate Director

PricewaterhouseCoopers Limited

+256 312 354 400

[email protected]

www.pwc.com/ug

Plaxeda Namirimu is an associate director within the PwC Uganda Tax Line of Service. She has over 15 years’ experience in the taxation field. She provides tax compliance, tax advisory, compliance health check reviews, tax audit support and training to clients. Ms Namirimu is a Fellow of the Association of Chartered Certified Accountants (FCCA), a member of CPA (U) and holds a Post Graduate Diploma in Taxation and Revenue Administration from the Uganda Revenue Authority training school. She has contributed to the Doing Business Publication of the World Bank. She worked for six years with the URA before joining PricewaterhouseCoopers.


Q WHAT STEPS CAN









CONGOEMMANUEL LE BRASPRICEWATERHOUSECOOPERS TAX & LEGAL

LE BRAS: Since the takeover of operations by a number of high profile

telecoms companies a few years ago, provisions on indirect transfers

of shares have been introduced in the general tax code. Declared “tax

break year” by the Head of Tax himself, corporate tax legislation saw

little change in 2016. In a country where the economy relies almost

exclusively on oil production, there is an increasingly urgent need to

diversify the national economy. In order to attract investors, in 2015, the

government took measures to exempt corporation tax in the agriculture,

agro-pastoral and fish farming industries. In 2017, controversial new

measures were adopted which confirmed the taxpayers’ perception of

repressive and non-incentive tax legislation in Congo. Unwillingness to

translate accounting and other documents into French is punishable by

a fine of €3048 per document.

LE BRAS: The tax base services, which are able to receive taxpayers’

returns and related tax payments, have turned into a real audit service.

As a result, requests for information on every tax return filed and

threats to automatically tax those taxpayers that fail to respond within

30 days, have become part of their operations. However, by actively

chasing taxpayers, they often disrupt the operations of many companies’

financial services departments. Cross-checks with other companies or

other governmental services are now a permanent fixture. Since 2014,

taxpayers under tax audit have been obliged to provide tax auditors

with historic files of their accounting entries under a dematerialised

format. Going forward, tax jurisdictions will be able to share more

detailed data with one another as transparency initiatives increase.

Q COULD YOU OUTLINE

SOME OF THE KEY



YOU HAVE SEEN IN CONGO

OVER THE LAST 12-18

MONTHS?

Q TO WHAT EXTENT

ARE TAX AUTHORITIES

IN CONGO INCREASING





Q HOW ARE TAX



PRICING? IN YOUR




IN THIS AREA?


CONGO • EMMANUEL LE BRAS • PRICEWATERHOUSECOOPERS TAX & LEGAL

LE BRAS: Introduced in 2012, the requirement for transfer pricing

documentation first had to be commented on in enforcement regulations

before it became applicable. In fact, in recent tax audits, the tax authorities

surprised taxpayers by requiring them to produce such documentation

within 30 days from the starting date of the audit. Taxpayers are now

measuring the importance of complying with this requirement, especially

since the annual production of light documentation had been codified

early in the year. In the absence of appropriate training, the subject

matter is not known and little understood by all tax auditors at the

moment. Some of them systematically tend to refer to the profit split

method without performing functional, financial or economic analysis.

It was only in 2017 that the government abolished the application of

transfer pricing rules for transactions between companies of the same

group registered in Congo.

LE BRAS: Given the importance of the oil industry to Congo, a special

tax regime has been implemented for oil services companies. Widely

criticised, this regime provides for the automatic taxation of any

taxpayer that makes more than 70 percent of its turnover in the oil

industry, to a deemed profit tax, treated as a final corporate income tax,

and to a deemed dividend tax. These taxpayers are therefore subject to

the payment of taxes at a global effective tax rate close to 10 percent

on the turnover made. With such a tax treatment, these oil services

companies, victims of the oil crisis, and which are already suffering from

the non-refund of their VAT credits, are not able to use their losses. In

addition, since 2012, a 20 percent withholding tax on the payment, by a

Congolese debtor, of remuneration for services to a foreign vendor has

been extended to services rendered outside Congo. With a network of

tax treaties as poor as that of Congo, very few foreign vendors escape

this withholding tax in practice.

Q HOW WOULD YOU


CONGO AS THEY RELATE



REGULATORY ASPECTS,

WHETHER POSITIVE OR


CONSIDERED?




LE BRAS: The persistent economic crisis and the associated drop in tax

revenues quickly led to the adoption of a tax audit programme on non-

statute barred fiscal years, targeting primarily the largest taxpayers.

Auditors are particularly aggressive and imaginative. Some audits

result in exaggerated adjustments. This attitude is aimed at pushing

taxpayers into negotiation, now framed by legal provisions. In light of

the amounts at stake, the latter cannot offer the 10 percent guarantees,

payment required prior to the opening of any contentious procedure, the

outcome of which is uncertain. The absence of tax experts at the courts

explains the rarity of legal proceedings in tax matters. The verification

phase, prior to issuing the notification of adjustments, should not be

underestimated. Well managed, it avoids the assessment of unjustified

and onerous adjustments.

LE BRAS: During the audit operations, the taxpayer must cooperate with

and respect the auditors. At this stage of the procedure, it is essential to

ask inspectors to submit their requests for information in writing and

to ask them to acknowledge receipt of the documents sent to them.

It is important that the tax adviser assists the taxpayer at the opening

meeting, milestone meetings and at the closing meeting during the

audit operations. Well prepared, the audit operations phase is often

the key to overcoming a tax audit. Some companies wait until audits

and disputes are underway before developing documentation. That

approach generally consumes significant resources and time. Often

the requested information is not available. Instead, companies should

take a holistic view of how audits and controversies could impact the

tax function. Pre-emptive measures can now help companies avoid

surprises and better manage resources.

“ Pre-emptive measures can now help companies avoid surprises and better manage resources.”


Q HAVE YOU SEEN AN


IN CONGO? WHAT LESSONS

CAN COMPANIES LEARN



AND COURT RULINGS?


TO A COMPANY THAT



INVESTIGATION OR

ENQUIRY?



Q WHAT STEPS CAN






LE BRAS: Increased global compliance requirements, combined with

inefficient processes and over-reliance on spreadsheets, will increase risk and

drain already strained resources. The potential for unexpected cost can be

high. These can occur both ‘above the line’, due to increased tax, interest and

penalties for incorrect or incomplete tax return filings. A company’s reputation

can also be impacted due to unforeseen or misunderstood data arising

from global regulatory transparency. Most tax functions will need to make

significant changes to avoid potential financial statement errors, delayed

financial statements and returns submission and increased recruitment and

retention costs. Successful changes will require re-engineering ‘end to end’

processes, not just the final outputs. This should involve an assessment of

the current capabilities of the tax function against a tax maturity model,

followed by the development of a clear vision of the desired future state.

Companies can then develop a roadmap for successful change using the

central building blocks of governance, data, technology, process and people

within the context of the global regulatory and legislative landscape.

Emmanuel Le Bras

Partner

PricewaterhouseCoopers Tax & Legal

+242 05 557 76 76

[email protected]

www.pwc.com

Emmanuel Le Bras is a tax and legal partner based in Congo. With 20 years of professional experience, he has advised domestic and multinational companies in national and international tax and legal. He is a privileged contact for several locally based multinational clients due to his comprehensive knowledge of African countries. Mr Le Bras has been involved in numerous large investment, financing and infrastructure restructuring projects across Africa. With a particular interest in extractive industry investments projects and cross-border transactions, his practice focuses on acquisitions, divestments, trades and mergers.


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