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Dear CFO,
I’m going to spend large consulting and technology fees to change your ERP system and increase taxes. I look forward to discussing my bonus next time we meet…..
Tavin
Copyright © 2015 Veritas Corporation 3
BEPS (Base Erosion & Profit Shifting) Environment
Game changer: OECD
intent to increase
worldwide corporate taxes,
making entities pay what is
perceived as “fair”.
Globally coordinated
approach by countries that
increases regulatory
filings to provide countries
support for their position.
Copyright © 2015 Veritas Corporation 5
Path To Success in BEPS Environment
Lead and move first. Determine and dictate how much tax is “fair”, rather than reacting to other’s standards. This positively shapes perception and frames the discussion in an advantageous manner where tax authorities react to Veritas.
Copyright © 2015 Veritas Corporation 6
Goals of Project
Design a well-thought out, consistent, global narrative and structure which provides a framework for deciding how much tax is “fair” and creates a strong case tax authorities will have to overcome.
Create an automated value chain analysis global model which can be updated in-house as facts change.
Create a high level implementation plan. Next step will be country by country implementation.
Copyright © 2015 Veritas Corporation 7
Global Narrative & Structure Decision Making Criteria
Copyright © 2015 Veritas Corporation
1 Certainty
2 Tax Position Optimization
3 Simplicity & Process and Administrative Efficiencies
15
Action 1 – Addressing the Tax Challenges of the Digital Economy
• Governments have to adapt and change laws because of the digital economy.
• Hard to source and value
• “Artificial” shifting of income
• Significant economic presence (determined by facts and circumstances )
• Withholding on digital transactions
Copyright © 2015 Veritas Corporation 23
Action 2 – Neutralizing the Effects of Hybrid Mismatch Arrangements
• Gradual reduction of mismatches
• “Hybrid mismatches in aggressive tax planning”
• Idea – Want to have tax somewhere. Laws expected to be standardized, esp. with anti-abuse clauses.
• Thoughts – Build strong support for position or adjust.
• Will depend on exact wording of law and facts.
Copyright © 2015 Veritas Corporation 24
Action 3 – Designing Effective Controlled Foreign Company Rules
• Standardized laws of what is income between parent and CFC country. Definition of CFC.
• Use rules of parent country to calculate CFC income?
• Standardization and minimized profit shifting
• Thoughts – If every country applied the same tax rates and laws, there would be no issue! But because they don’t there are areas.
Copyright © 2015 Veritas Corporation 25
Action 4 – Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
• Interest income in low tax jurisdictions and interest expense in high tax jurisdictions. Both 3rd party and intercompany debt.
• Limit interest deductions to a percentage of EBITDA. Potential carryforward.
• Monitor and adjust – Move substance and/or change transaction.
Copyright © 2015 Veritas Corporation 26
Action 5 – Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
• In order for a regime to be considered preferential, it must offer some form of tax preference in comparison with the general principles of taxation in the relevant country. A preference offered by a regime may take a wide range of forms, including a reduction in the tax rate or tax base or preferential terms for the payment or repayment of taxes. Even a small amount of preference is sufficient for the regime to be considered preferential. The key point is that the regime must be preferential in comparison with the general principles of taxation in the relevant country.
• Get more transparency from preferential countries. European patent boxes.
• Ivory tower. Keep taxes high.
Copyright © 2015 VeritasCorporation 27
Action 6 – Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
• Treaty shopping
• Make sure income is taxed once.
• Letterbox companies to become resident of preferential treaty
• New treaty anti-abuse rules
Copyright © 2015 Veritas Corporation 28
Action 7 – Preventing the Artificial Avoidance of Permanent Establishment Status
• Change PE definition to establish PE if there is substance. Form v. Substance argument.
• Under current treaties where went to court, taxpayer generally won.
• Commissionaire arrangements targeted. Many companies going to buy/sell.
• Eliminate legal entities? Cost conversion.
• Really thought out and explicit changes recommended.
• Example: Preparatory or auxiliary in nature (stop fragmentation of supply chain)
Copyright © 2015 VeritasCorporation 29
Actions 8-10 – Aligning Transfer Pricing Outcomes with Value Creation
• Contractual allocations vs. substantive functions, assets, and risks to determine arm’s length
• Intangibles: development, maintenance, enhancement, protection, and exploitation. Not just legal ownership alone
• Funding: risk, not just contractual relationship alone
• Intergroup services (management fees, AP, AR, HR): substance?
Copyright © 2015 Veritas Corporation 30
Action 11– Measuring and Monitoring BEPS
• Government Theory: Mismatches and gaps in international tax rules separate taxable profits from the underlying value-creating activity.
• Governments to report and analyze more corporate tax statistics and present them in an internationally consistent way. This will allow better measurement and monitoring by governments of BEPS effects.
• Example: MNE overall tax rate is lower than average country rates.
• Takeaway: Ivory tower. They are trying to monitor and eliminate BEPS. Govt. expects domestic and international businesses to have same ETR.
Copyright © 2015 Veritas Corporation 31
Action 12 – Mandatory Disclosure Rules
• Provides a modular framework that enables countries without mandatory disclosure rules to design a regime that fits their need to obtain early information on potentially aggressive or abusive tax planning schemes and their users. Set up regime for mandatory disclosure and then sharing among countries.
• Monitor – Disclose minimum legally required unless helpful to disclose more.
Copyright © 2015 Veritas Corporation 32
Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting
• Can either give you what you ask for or give you what you need.
• Master File – Overview - Global business operations, org chart and transfer pricing policies, financial statement, APAs, etc.
• Local File – Detailed transfer pricing documentation
• Country-by-Country Report
Copyright © 2015 Veritas Corporation 33
Copyright © 2015 Veritas Corporation 34
BEPS Table 1 - Overview of allocation of income, taxes, and business activities by tax juristiction
Number of
Employees
Tangible Assets other
than Cash and Cash
Equivalents
Unrelated Party Related Party Total
Tax Juristiction
Name of the MNE Group:
Fiscal Year Concerned:
Currency Used:
Revenues Profit (Loss)
before
Income Tax
Income Tax
Paid (on Cash
Basis)
Income Tax
Accrued -
Current Year
Stated Capital Accumulated
Earnings
Copyright © 2015 Veritas Corporation 35
BEPS Table 2 - List of all the Constituent Entities of the MNE group included in each aggregation per tax juristiction
Oth
er
Fiscal Year Concerned:
Name of the MNE Group:
Tax Juristiction of
Organization or
Incorproation if
Different from Tax
Jurisdiction of
Residence
Tax Juristiction
Constituent Entities
Resident in the Tax
Jurisdiction
Main Business Activitiy(ies)
Pro
vis
ion
of
Se
rvic
es t
o
Un
rela
ted
Pa
rtie
s
Inte
rna
l G
rou
p F
ina
nce
Re
gu
late
d F
ina
ncia
l S
erv
ice
s
Insu
ran
ce
Ho
ldin
g S
ha
res o
r O
the
r E
qu
ity
Instr
um
en
ts
Do
rma
nt
Ad
min
istr
ati
ve
, M
an
ag
em
en
t,
or
Su
pp
ort
Se
rvic
es
Sa
les,
Ma
rke
tin
g,
or
Dis
trib
uti
on
Ma
nu
factu
rin
g o
r P
rod
ucti
on
Pu
rch
sin
g o
r P
rocu
rem
en
t
Re
se
arc
h a
nd
De
ve
lop
me
nt
Ho
ldin
g o
r M
an
ag
ing
Inte
lle
ctu
al P
rop
ert
y
CBC Table 3
• Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the compulsory information provided in the Country-by-Country Report.
• Put your story in here and let them know why Table 3 is relevant to the discussion compared to Table 1 & 2 (unless they are).
Copyright © 2015 Veritas Corporation 36
Action 14 – Making Dispute Resolution Mechanisms More Effective
• Timely and fair resolution of tax issues using Competent Authority, peer-reviewed and monitored by the Committee on Fiscal Affairs to the G20.
• Mandatory binding arbitration
• Certainty, predictability, and accessibility
• Average 24 month resolution
• Suggests bi-lateral APA programs
Copyright © 2015 Veritas Corporation 37
Action 15 – Developing a Multilateral Instrument to Modify Bilateral Tax Treaties
• Governments have agreed to explore the feasibility of a multilateral instrument that would have the same effect as a simultaneous renegotiation of thousands of bilateral treaties.
• Efficiency
• Provides recommendations, guidelines, and comments on how to put together a multilateral instrument.
Copyright © 2015 Veritas Corporation 38
Thank you!
Copyright © 2015 Symantec Corporation. All rights reserved. Veritas and the Veritas Logo are trademarks or registered trademarks of Symantec Corporation or its affiliates in the U.S. and other countries. Other names may be trademarks of their respective owners.
This document is provided for informational purposes only and is not intended as advertising. All warranties relating to the information in this document, either express or implied, are disclaimed to the maximum extent allowed by law. The information in this document is subject to change without notice.
Tavin Skoff
[email protected] 650-933-1849