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EBF Annual Tax Conference 2016 Wim Eynatten 2 February 2016 BEPS: impact for business and banks’ specificities

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15 Actions around 3 main pillars Transparency and Certainty Potential BEPS impact for banks 15 Actions around 3 main pillars Coherence Substance Transparency and Certainty Preventing Tax Treaty Abuse (6) Hybrid Mismatch Arrangements (2) Hybrid Mismatch Arrangements (2) Measuring BEPS (11) Hybrid Mismatch Arrangements (2) Avoidance of PE Status (7) Hybrid Mismatch Arrangements (2) Hybrid Mismatch Arrangements (2) CFC Rules (3) Disclosure Rules (12) TP Aspects of Intangibles (8) Hybrid Mismatch Arrangements (2) Hybrid Mismatch Arrangements (2) Interest Deductions (4) TP Documentation (13) Hybrid Mismatch Arrangements (2) TP/Risk and Capital (9) Hybrid Mismatch Arrangements (2) Harmful Tax Practices (5) Dispute Resolution (14) Hybrid Mismatch Arrangements (2) TP/High Risk Transactions (10) Digital Economy (1) Multilateral Instruments (15) Taken from OECD live webcast “The BEPS Package” – 5 October 2015

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EBF Annual Tax Conference 2016

Wim Eynatten

2 February 2016

BEPS: impact for business and banks’ specificities

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© 2015 Deloitte Touche Tohmatsu

Practically BEPS is structured around 15 actions with three main impacts for MNEs

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• Interest• Taxable presence

• Profit allocation

Increased Compliance

• TP documentation

• Disclosure of tax information

Uncertainty

• GAAR• MAP?• Harmful tax practices?

• Abuse of tax treaties?

Coherence

Substance

Transparency

1. Digital economy2. Hybrids3. CFC rules4. Interest deductions5. Harmful tax practices

6. Abuse of tax treaties7. Permanent establishment8 – 10 : Transfer Pricing

11. Data collection on profit shifting12. Disclosure of tax planning

arrangements13. TP Documentation 14. Arbitration15. Multilateral Instrument

BEPS Pillar Actions 3 main impacts

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Coherence

Potential BEPS impact for banks

Substance Transparency and Certainty

Hybrid Mismatch Arrangements (2)TP Documentation (13)

Hybrid Mismatch Arrangements (2)Measuring BEPS (11)

Hybrid Mismatch Arrangements (2)Disclosure Rules (12)

Hybrid Mismatch Arrangements (2)Dispute Resolution (14)

Digital Economy (1)

Multilateral Instruments (15)

Hybrid Mismatch Arrangements (2)CFC Rules (3)

Hybrid Mismatch Arrangements (2)

Hybrid Mismatch Arrangements (2)Interest Deductions (4)

Harmful Tax Practices (5)

Hybrid Mismatch Arrangements (2)Avoidance of PE Status (7)

Preventing Tax Treaty Abuse (6)

Hybrid Mismatch Arrangements (2)TP/Risk and Capital (9)

TP Aspects of Intangibles (8)

Hybrid Mismatch Arrangements (2)TP/High Risk Transactions (10)

15 Actions around 3 main pillars

Taken from OECD live webcast “The BEPS Package” – 5 October 2015

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© 2015 Deloitte Touche Tohmatsu

Key considerations

4

I.

II.

III.

VI.

Actions 2, 4 and 6

• The proposals will require changes to domestic legislation and are likely to take effect from 2017 or later.

• There is no grandfathering of existing arrangements, so taxpayers will need to consider whether their arrangements fall within the scope of the rules.

• Jurisdictions remain free to exclude hybrid regulatory capital from their hybrid mismatch rules / apply special rules, which could lead to increased complexity.

Hybrid mismatches

• Specific rules for banks and insurance companies are still awaited with final proposals to be released in 2016.

• There is no exclusion for securitisation issuers or SPVs.

Interest deductions

• The general proposed LOB rules broadly prevent treaty relief from applying unless an entity can show that its ultimate beneficial owner is entitled to equivalent treaty relief.

• Creates pressures for fund entities – some relief measures for CIVs.

• This leaves whole area of uncertainty around non-CIV, SPV’s, private funds, securitisation etc.

• Implications for equity trading businesses.

Preventing treaty abuse

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© 2015 Deloitte Touche Tohmatsu

Two key changes:Updating the dependent agent definition • “habitually concludes contracts, or habitually plays the principal role leading to the conclusion

of contracts that are routinely concluded without material modification by the enterprise and, these contracts are a) in the name of the enterprise, or b) for the transfer of ownership of […] property owned by that enterprise [… or] c) for the provision of services by that enterprise ”

• Independent agent exemption will not apply where the agent acts “exclusively or almost exclusively” for closely related enterprises

Tackling artificial avoidance of PE status through the specific activity exemptions• Are the activities ‘preparatory or auxiliary’ for the enterprise’s business as a whole?

• Further guidance on the meaning of ‘preparatory or auxiliary’

Action 7 - Permanent Establishments

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Action 7 - Permanent Establishments

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Examples of activities potentially caught by the widening of the PE definition

• Remote booking

• Asset management – marketing and distribution services

• Electronic platforms

• Short term visitors

• Private banking

• Corporate banking

• M&A advisory

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Action 7 - Permanent Establishments

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Example 1: Remote booking model

Critical new words in Article 5(6)

“… Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent”

• Contract concluding activities

• Reliance on independent agent status

Transaction booked onto BS

of the UK

Booking entityUK

Hong KongUS

Trader employing entity

Sales team employing entity

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Action 7 - Permanent Establishments

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Example 2: Short term visitor/Marketing and distribution

Principal

Third party customers

Country RCountry S

Critical new words in Article 5(5)

“or habitually concludes, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise”

Contract concluded

STV / M&D

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Action 7 - Permanent Establishments

Effect of recognising new PEs:• Different approaches to profit allocation in different jurisdictions• Increased compliance costs• Accounting consequences• Regulatory position could be affected• New tax reporting obligations• Other taxes: bank levy, indirect taxes, withholding taxes, exit taxes

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What should banks consider?

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4 key actions to be considered by banks

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Prepare for the new reporting

requirements

• Determine the data to gather and implement data collection process• Analyse and check the data • Back-test the results on the precedent fiscal years• Anticipate the possible analyses of tax authorities and test the compliance of

the TP policy with the economic substance of the Group

Adjust tax strategy

• Adjust tax strategy towards business strategy (more integrated vision and anticipation)

• Align profits with value creation (tax optimisation = business optimisation) • Transform the tax teams, towards a more business oriented activity

Prepare tax communication

strategy

• Define level of information to be disclosed• Define the communication packages by type of stakeholders (tax

administrations, shareholders, public opinion…): annual report, specific tax report…

• Brief and align the management (including business)

I

III

IV

Review the current tax positions

• Use of hybrids• Debt / interest policy• Use of commissionaires / agents• Booking models• Short term business traveller programs

II

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© 2015 Deloitte Touche Tohmatsu

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

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