hot topics treasury seminar - pwc...2015/06/18 · line with value creation (alignment of...

PwCPwC

Hot topics Treasury seminar

18 June 2015Discover and unlock your potential…

Treasury in a

transparent and

new tax world

PwC

Program

• Introduction on BEPS

• Potential implications for treasury

o Interest deduction

o Treaty abuse

o Hybrid mismatches

o Documentation

• Discussion

218 June 2015Hot topics treasury seminar

PwC

Introduction on BEPS

PwC

Global tax developmentsWhat is going on?

Vodafone's £84bn tax avoidance bonanza: Nothing for taxpayers in Verizon deal while bankers share £500m in fees.

OECD launches plan to stop firms 'abusing' tax rulesExisting tax rules need updating as they can be "abused" by multinational companies, according to the Organisation for Economic Co-operation and Development (OECD).

EU Launches Attack on Corporate Tax AvoidanceEuropean Commission Proposal Aims to Close Loophole for MultinationalsStarbucks, Amazon and Google

accused of being 'immoral'Amazon, Google and Starbucks were yesterday accused of being “immoral”, “manipulative” and of “practising tax avoidance on an industrial scale”.


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OECD BEPS action plan - Timing

July 2013

Release of Action Plan with 15 separate actions split over 2014 and 2015

(13) Recommendations on Country by country reporting and transfer pricing documentation template

G20 Finance Ministers sign off on actions:1 Digital economy 2 Hybrid mismatches 5 Harmful taxation (phase 1)6 Treaty abuse8 TP Intangibles (phase 1)13 Country by country reporting and transfer pricing documentation 15 Multilateral instrument (phase 1)

September 2014 January 2015

(9) Release of TP Discussion Draft re risk, recharacterisation and capital

December 2014

December 2015G20 sign of on actions:

4 Base erosion, interest / financial payments (phase 2)

5 Harmful taxation (phase 3)

15 Multilateral instrument

(phase 2)

September 2015

G20 sign of on actions:

3 Strengthen CFC

4 Base erosion, interest / financial payments (phase 1)

5 Harmful taxation (phase 2)

7 Permanent establishment avoidance

8 TP Intangibles (phase 2)9 TP value creation / risk and capital

10 TP value creation / high risk transactions 11 Methodology/data on BEPS

12 Disclosure of aggressive planning

14 Dispute mechanisms

June 2015

(8) Release of TP Discussion Draft hard-to-value intangibles(13) Country by country implantation package published

April 2015

(3) Release of TP Discussion Draft on Strengthening CFC rules(11) Release of TP Discussion Draft on Improving the Analysis of BEPS

Implementation


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Relevant BEPS action points

Action 1:Address the challenges of the digital economy1

Action 2:Neutralise the effect of hybrid mismatch arrangements1

Action 3:Strengthen CFC rules2

Action 4:Limit base erosion via interest deductions and other financial payments2

Action 5:Counter harmful tax practices more effectively1/2

Action 6:Prevent treaty abuse1

Action 7:Prevent the artificial avoidance of PE status2

Action 8:Assuring that TP outcomes are in line with value creation: Intangibles1/2

Action 9:Assuring that TP outcomes are in line with value creation: Risks & Capital2

Action 10:Assuring that TP outcomes are in line with value creation: Other high-risk transactions2

Action 11:Establish methodologies to collect and analyse data on BEPS and the actions to address it2

Action 12:Require taxpayers to disclose their aggressive tax planning arrangements2

Action 13:Re-examine transfer pricing documentation1

Action 14:Make dispute resolution mechanisms more effective2

Action 15:Develop a multilateral instrument1

1 2014 Deliverables

² 2015 Deliverables


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Limit base erosion via interest deductions and other financial payments

Action 4 and 9

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Objectives

• Develop recommendations regarding best practices in the design of rules

• To prevent base erosion through the use of interest expense.

Limitation of interest reductionDeveloping a best practice

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Fixed ratio ruleAllow a deduction for interest up to a specified proportion of an entity’s earnings or

assets

Group ratio ruleAllocation of the group’s actual net 3rd party interest expense across jurisdictions

based on a measure of economic activity (e.g. EBITDA)

If adopted, the rules should apply to:

• All forms of debt

• Payments equivalent to interest

• Expenses related to financing


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BEPS Action 4 assessment tool

• The PwC tool calculates the impact on the group ETR for three scenarios, whilst minimising inputs required by the user.

• It provides a tabular summary of the impact of the nine most impacted territories.

Understanding the impact

• Given the potential for these rules to significantly impact MNCs, it is important to understand:

- Potential impact on ETR.

- Territorities most likely to be impacted.

- Potential impact after any change in the

group’s debt profile.

Limitation of interest reductionMake sure you’re prepared


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Objective

• Develop rules to prevent BEPS by transferring risks among, or allocating excessive capital to, group members.

More concrete…?

• Adopting transfer pricing rules or special measures to ensure that inappropriate returns will not accrue to an entity solely because it has contractually assumed risks or has provided capital;

• Alignment of returns with value creation.

Examples

• Fatly capitalised companies would be subject to a predetermined ratio based on regulatory capital requirements (e.g. Basel) or a group/fixed ratio.

• Income arising from assets funded by capital above those thresholds would be characterised as a deemed interest payment.

• ‘Cash box’ lacking of substance.

Risk & CapitalAction 9


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Neutralize the effect of hybrid mismatch arrangements

Action 2

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Impact of BEPS – Hybrid entities and loans

• OECD has recommended domestic rules to neutralise the following results arising from hybrid mismatch arrangements:

- Deduction with no taxable inclusion (D/NI)

- Double deduction (DD)

- Indirect deduction with no taxable inclusion (imported mismatch)

Hybrid mismatchesImplications of fundamental and far-reaching reforms

Deductible

No Inclusion

Primary Rule

Defensive Rule

No Deduction

No Inclusion

Deductible

Inclusion


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Prevent treaty abuse

Action 6

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Main aspects:

• OECD Model Treaty to include a simplified LoB

Limitations of Benefit (“LoB”) clause.

• General anti-avoidance provision to be included in the

OECD model treaty; benefits should not be available

where one of the principal purposes is securing a

tax treaty benefit (principal purpose test or “PPT”);

Key messages in relation to treasury:

• Not meeting the LOB/PPT-requirements = No reduced

treaty rates = Increased source state withholding taxation on

interest income.

• Proper local operational presence (substance) required to

meet the LOB requirement

• Economic reasons (non-tax reasons) required to meet the

PPT requirement

Prevention of treaty abuseThe need for substance

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TopCo(Germany)

FinCo(Netherlands)

Capital Markets

OpCo(ROW)

Impact example


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Re-examine Transfer Pricing documentation

Action 13

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Local file CBC Report

Master file

Master File

=Country File

The country file provides more detailed information relating to the material intercompany transactions affecting a specific

jurisdiction .

+

Country -by-Country ReportThe country-by-country report provides aggregate tax

jurisdiction-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location

of economic activity among tax jurisdictions in which

operates.

+

The master file is intended to provide a high-level overview in order to place [Client name] tranfer pricing practices in

their global economic, legal, financial and tax context.

DocumentationA 3-tiered approach


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Local file CBC Report

Master file

Name of the MNE group:

Fiscal year concerned:

Tax Jurisdiction

Constituent Entities resident in the Tax

Jurisdiction

Tax Jurisdiction oforganization orincorporation if

different from TaxJurisdiction of

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Documentation: entity overviewCBC Report


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BEPS and the corporate treasury functionImpact analysis

Focus area BEPS response Impact on treasury function

Hybrid mismatch structures

Guidance on eliminating mismatches (Action 2)

Reduced tax benefits and increased effective tax rate; unwinding of existing arrangements; additional compliance/monitoring burden

Financecompanies with little or no substance

Avoid treaty abuse (Action 6) through anti-abuse rules in treaty (LOB and PPT).Assure transfer pricing outcomes are in line with value creation (alignment of risk/capital (Action 9)

Requirement for greater substance, real economic activity and oversight of key risks in treasury location. Fatcapitalisation issues. Potential additional tax costs (WHT).

High leveraging of group companies

Limit base erosion via interest deductions and other financial payments (Action 4)

Reduced tax benefits and increased effective tax rate; uncertainty over tax benefit on intra-group and third party financing

Transparency Transfer Pricing Documentation and Country-by-Country Reporting (Action 13)

Increase in reporting requirements. Uncertainty as to how the tax authorities will use the information provided?


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Key takeaways

A new era of Substance and Transparency…

• Treasury operations of MNCs can be significantly impacted by the OECD BEPS action plan

• The exact scope will crystallize over the next couple of months - with implementation envisaged per December 2015

• Treasury operations of MNCs are already impacted by unilateral tax measures

Towards a sustainable tax & treasury model…


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Questions…


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More information

Trainer:Michel van der BreggenPhone number: +31 88 792 75 23E-mail: [email protected]

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Trainer:Jasper van SchijndelPhone number:+31 88 792 68 07E-mail: [email protected]

Trainer:Chris DemetriusPhone number: +31 88 792 74 24E-mail: [email protected]

Trainer:Maxim LassallyPhone number: +31 88 792 64 84E-mail: [email protected]


mailto:[email protected]




hot topics treasury seminar - pwc...2015/06/18 · line with value creation (alignment of...

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