tax administrations in a post beps environment 20 & 21 april 2015 jeffrey owens
TRANSCRIPT
Tax Administrationsin a post BEPS environment
20 & 21 April 2015 Jeffrey Owens
Table of Contents:
The Changing Relationship in taxpayer, tax administration and tax advisor interaction
Pressures vs Opportunities in the international tax world BEPS Exchange of Information Country by Country Reporting
The Role of Technology
How to benefit from a more transparent and cooperative environment
Moving Forward: What will tax administrations look like in 10 years
The taxpayer, tax administration and tax advisor: A changing relationship
The new cooperative way of building tax compliance: The old model:
Operating only by reference to legal requirements Limited disclosure and no signals of uncertainty Low levels of trust
Towards an enhanced cooperative relationship: Establishing and sustaining mutual trust Disclosure and transparency from taxpayers Revenue body approach based on commercial awareness,
openness and responsiveness.
The taxpayer, tax administration and tax advisor: A changing relationship
Trust and transparency are key in the relationship
Technical skills, commercial understanding, responsiveness and understanding are all key aspects of a successful relationship
Taxpayer confidentiality must be preserved
Business treated individually according to their profile and needs
Mutual sharing of information will inform relationship
Pressures vs opportunities in the international tax world
BEPS
Exchange of Information
Country by Country Reporting
Technology Development
Reflection Points: Are tax administrations geared up to use this information?
How could tax administrations benefit from a more cooperative environment?
BEPS
EMERGING NEW INTERNATIONAL STANDARDS: A CHALLENGE FOR MNES
Exchange of Information
Global Forum for Exchange of Information: Two standards: Exchange of Information on Request Automatic Exchange of Information
In a Treaty Context: Exchange of Information between tax authorities of the Contracting
States (Article 26);
Assistance by Contracting States in the collection of each other’s taxes (Article 27)
Articles 24, 25, 26 and 27 apply to “taxes of any kind” and therefore could cover other direct (not just on income and capital) and indirect taxes referenced in third agreements.
Country by Country (CbC)
Reporting
CbC reporting: getting a good look inside
What it is: Companies will have to provide tax authorities with country-specific allocation of profits, revenues, employees and assets; worldwide adoption expected by 2017, though specific adoption deadlines will vary by country.
What it is not: Not intended as a substitute for a full transfer pricing analysis, nor is it intended for use in formulary apportionment-based adjustments. But it will feed into tax audits.
Fully understand the requirements and how those requirements could be met with your current reporting efforts. Do a thorough analysis to understand what reporting gaps you might have and devise a strategic plan that allows enough time to ensure proper and accurate reporting.
Why this is an early focus: Because of the level of complexities involved with cross-border transactions, and data collection and management, many companies should begin preparing now, testing and validating processes and technologies. This will allow time to take mitigating steps – e.g., ensuring profit margin consistency (Inter-Company Effectiveness) and minimizing potential controversy..
Next steps:
TP Master file
TP Local file
CbC report
CbC Reporting
Country by Country (CbC) Reporting
Key considerations
How to source the data
Rapid flow of new reporting and disclosure requirements have left both tax departments and software houses rushing to catch up
Many companies approaching on a phased basis (Excel spreadsheet versus systems integration)
Vendor market will catch up
Moving from year 1 to sustainability – investment, integration, analytics
How to assess the data – the search for anomalies. For example:
Should parent company or local company GAAP be used as a basis for reporting?
How can the company avoid misinterpretation of data, such as reporting ordinary profits in addition to profits after extraordinary items?
Does the company have accurate information on global operations - including headcount, revenues and profits by country?
Has the company identified features listed as potentially indicative of transfer pricing risk?
Does the company have significant transactions with a low tax jurisdiction?
Does the company have transfers of IP to related parties?
Has the company experienced a business restructuring?
OECD CbC template – main reporting table
– country aggregated data
Tax jurisdiction
Revenues
Profit (loss) beforeincome tax
Cash tax paid (CIT and WHT)
Current year tax accrual
Stated capital
Accumulated earnings
Tangible assets other than cash and cash equivalents Number of
employees
Unrelated party
Related party Total
1.
2.
3.
4.
5.
6.
7.
Etc. Notes:► Aggregated rather than consolidated data► Flexibility in data sources allowed► Entity data aggregated on the basis of tax residence► Revenue defined to include turnover, royalties, property, interest► Revenue specifically excludes intercompany dividends► Profit/loss before income tax includes extraordinary items► Cash tax paid includes tax withheld by other parties on payments to the constituent entity► Current year tax accrual is tax on current year operations only► Number of employees may include external contractors
OECD CbC template – table 2
– entity details
Notes:► Constituent entities rather than legal entities► Multiple activities may be chosen
Tax jurisdiction
Constituent entities resident in the tax jurisdiction
Tax jurisdiction of organization or incorporation if different from tax jurisdiction of residence
Main business activity(ies)
R&D
Holding or managing IP
Purchasing or
procurement
Mfg or production
Sales, mktg or distribution
Admin., mgmt or support services
Provision of services to unrelated parties
Internal group finance
Regulated financial services
Insurance
Holding shares or other equity instruments
Dormant
Other
1.
2.
3.
1.
2.
3.
Etc.
Master file – information required
Organizational structure Business description Intangibles
Intercompany financial activities
Financial and tax positions
Structure chart:► Legal
ownership► Geographic
location
Important drivers of business profit
Overall strategy description
Financing arrangements for (related and unrelated) lenders
Annual consolidated financial statements
Supply chain of:► Five largest products/
services by turnover► Products/services generating
more than 5% of sales
List of important intangibles and legal owners
Identification of financing entities
List and description of existing unilateral APAs and other tax rulings
Main geographic markets of above products
List of important intangible agreements
Details of financial transfer pricing policies
List and brief description of important service arrangements
R&D and intangible transfer pricing policies
Functional analysis of principal contributions to value creation by individual entities
Details of important transfers
Business restructuring/ acquisitions/divestitures during fiscal year
Master file
Local file
CbC report
Other analysis
► Global footprint by business activity
► Comparison of profit margins
► Pie charts to illustrate “absolute amounts”
► Filters
► Income per head► Tax rate comparison► Related-party revenues
The role of technology
Technology can help obtain greater synergies
One single registry point to verify company’s substance and identify the members in a group?
Cloud computing: Data could be fed into a cloud to store MNE’s information;
New software base will have to be developed in order to support country files;
How to guarantee that all this data will be stored over a long-term period without any leak? Safety is the biggest concern
How to benefit from a more cooperative
and transparent environment?
► Main Advantage for Governments:► Transparency and disclosure by business► Willingness to go beyond respecting just the strict letter of the law► Volunteering information which may highlight significant differences of
opinion and interpretation► Willingness of business to educate tax administrations on the realities
of new business models► Cooperation in tax assessment
► Main advantage for business:► Greater certainty and predictability► Commercial and business awareness in tax administrations► Access to decision makers in tax administrations► Consultation on tax policy issues► Speedy conflict resolution system
Moving forward: What will tax administrations
look like in 10 years
Tax administrations will be stripped of policy functions; Leaner and flatter tax administrations by making use of technology; Assessment and collection functions will be outsourced Good taxpayer service Constructive and transparent dialogue between taxpayers, tax authorities and
their advisors Tax will focus on prevention rather than detection and non-compliance Move away from a tax-by-tax approach to a more taxpayer by taxpayer approach Special units to deal with groups of taxpayers i.e. large business units, SMEs, etc. More sophisticated approach to risk management, based on new technology
resources and segmentation Behavioural approach towards compliance (help taxpayers who want to be
compliant and target those who do not)
Moving forward: What will tax
administrations look like in 10 years
Financial institutions will become an integrated part of the tax assessment process
Pre-audit settlements will become the norm Joint multilateral audits will become the norm amongst different tax
administrations National fiscs will operate as global bodies Bilateral agreements will be substituted by multilateral agreements Global system of tax arbitration to resolve issues not handled by competent
authorities Non-revenue function of tax administrations will develop – they will raise to the
new role of global regulators.
Thank you!
Jeffrey Owens
Director WU Global Tax Policy Center
Institute for Austrian and International Tax Law
WU Vienna University of Economics and Business