GLOBAL TAX - Noerrnoerr.com/Mailings/Twitter/Edelmann_Financier_Worldwide.pdf · Another example is the international tax reform in President Obama’s ﬁscal year 2012 budget proposal

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Annual Review • December 2011Global Tax

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C O N T E N T S

UNITED STATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Charles River Associates

CANADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

PwC LLP

MEXICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Baker & McKenzie

BRAZIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Demarest e Almeida Advogados

UNITED KINGDOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

McGrigors

GERMANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Noerr LLP

SWEDEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Svalner Skatt & Transaktion

AUSTRALIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Clayton Utz

INDIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Lakshmikumaran & Sridharan

SOUTH AFRICA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Webber Wentzel

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U N I T E D S T A T E S

Nicole Bordeleau, Charles River Associates

Could you outline some of the key developments and changes relating to tax laws you have

seen in your region over the last 12-18 months?

Tax laws impacting transfer pricing have become increasingly prevalent in the United States

in today’s legislative environment. Examples include Schedule UTP (Uncertain Tax Position).

Beginning 1 January 2010, certain corporate taxpayers are required to file Schedule UTPs.

Schedule UTP filing is required if a taxpayer reserves against that position, that is, a Fin 48

reserve position. Another example is the international tax reform in President Obama’s fiscal year

2012 budget proposal. The president is presenting certain tax reform positions in an effort to

reduce the federal deficit. Some transfer pricing related aspects of the president’s plan include:

determining the foreign tax credit on a pooled basis; deferring deductions for interest expenses

related to deferred income; taxing excess returns that are currently associated with transfers

of intangibles offshore; and modifying the definition of intangible property. The July 2010

hearing on the topic of transfer pricing by the Committee on Ways and Means of the US House

of Representatives was to clarify the importance of the transfer pricing issue from the federal

government’s perspective and to discuss proposed solutions for the problem.

To what extent have recent tax reforms been driven by the political agenda or a perceived

need to counter tough financial conditions?

On 23 September 2011, the Obama Administration released a draft of Living Within Our Means

and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction.

The plan aims at cutting the deficit, in part, by using tax reforms. Consistent with the president’s

line of thinking, the IRS has been restructuring its Large Business & International Division (LB&I).

Now both the Advance Pricing and Mutual Agreement programs fall under the LB&I. The idea

behind the restructuring of LB&I is to: identify the highest compliance risks among our taxpayer

base; work cases more effectively and efficiently; and find more appropriate ways to resolve

cases as soon as possible. Speaking at the TEI conference about the IRS’s overall transfer pricing

strategy, Samuel Maruca, the new director of Transfer Pricing Operations, stressed the need to


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Andrés Arnaldos, Baker & McKenzie LLP

realign resources to key cases. “We need to upgrade our credibility in the transfer pricing area

to enforce compliance with the law,” he said. “The number one target, in my eyes, is the need to

develop the important cases and develop them well. Nothing changes taxpayer behaviour more

than a winning IRS position.” Director Maruca’s statement reflects the current tone at the IRS

regarding transfer pricing.

How would you describe the tax laws in your region as they relate to foreign entities? Are

you seeing more incentives designed to entice such entities or has there been an effort to

tighten laws and crack down on issues such as offshore tax jurisdictions?

There certainly is awareness in the US that changing tax laws could better protect the US tax

base. Current attempts at tax reforms are consistent with battling tough economic conditions

and the desire to amend or close tax loopholes for certain taxpayers. In July 2010, the

Committee on Ways and Means of the US House of Representatives held a hearing on the topic

of transfer pricing. Committee Chairman Senator Sander Levin (D-MI) cited various reports

demonstrating that multinational corporations are “potentially gaming the current system to shift

assets (to) foreign-based entities to avoid paying US taxes.” Such actions, according to Chairman

Levin, may imply that US jobs are also moving overseas along with taxable income, further

compounding the budgetary and employment challenges that the country currently faces.

To what extent is transfer pricing a key challenge for multinational enterprises? Are too many

companies underestimating the importance of compliance and risk management in this area?

In the current economic climate, companies may find themselves with fewer internal resources

to manage their transfer pricing. Further, budget constraints may reduce the amount of outside

consulting help a company is able to hire. These factors can certainly make managing global transfer

pricing requirements a significant challenge. What taxpayers do not want is to have the IRS decide

what the company’s transfer pricing should be. However, this is a potential consequence companies

face if they underestimate the importance of transfer pricing compliance and risk management.



Have you seen an increase in tax disputes and litigation in your region? What lessons can

companies learn from recent prosecutions, penalties, and court rulings?

Both the IRS director of transfer pricing and the LB&I deputy commissioner (international) have

commented numerous times on the increased scrutiny US taxpayers can expect with regard

to transfer pricing. In June 2011, the IRS director of transfer pricing Sam Maruca said the IRS

will “triage our inventory more effectively” when discussing the examination function of the

agency. He added that the IRS will improve early detection and evaluation of cases that are a

colossal waste of government and taxpayer resources and, in other cases, missed opportunities.

These comments set the stage for a more determined IRS. It is clear that the IRS is taking extra

measures to ensure that corporate tax revenue is not left on the table.

If a company does find itself the subject of a tax-related audit, investigation, or enquiry, what

steps should it take to manage its relationship with tax authorities?

Companies must be cooperative with the IRS and be willing to educate the agency about their

business as well as to provide them with reliable data. In the US, taxpayers are required to have

transfer pricing documentation completed contemporaneously with the tax return for the given

taxable year. Under audit, once the IRS requests the taxpayers’ transfer pricing documentation, a

taxpayer has 30 days to submit it. If a company does not have contemporaneous documentation,

it is still advisable for a company to prepare a transfer pricing study that sets out, for the IRS, its

intercompany transactions and details why the company believes these transactions are priced

at arm’s length. While a non-contemporaneous report may not provide protection from penalty,

the report may avoid possible adjustment by successfully outlining cross-border intercompany

transactions in which the taxpayer participates; detailing the company and providing an industry

overview; analysing the functions performed, assets employed, and risks assumed; and providing

an economic analysis that selects the best method to evaluate the arm’s length nature of the

taxpayer’s intercompany transactions. Despite not being contemporaneous, the report will

outline the taxpayer’s transfer pricing position to the IRS.

U N I T E D S T A T E S

Nicole Bordeleau, Charles River Associates

continued...



NICOLE BORDELEAU

Principal

Charles River Associates

+1 617 425 6450

[email protected]

Nicole Bordeleau is a transfer pricing expert with experience strategising, managing, and

implementing corporate transfer pricing policies that help clients mitigate risk, optimise

efficiency, and support business operations. She has provided transfer pricing consulting

services for national and multinational companies in a wide array of industries. Most

recently, she worked on implementing and managing historical and new cost sharing

arrangements pursuant to the temporary regulations section 4.82-7T. Prior to joining CRA,

Ms Bordeleau was director of transfer pricing at Covidien, a multi-national healthcare

products company. Before that, she was a senior manager with KPMG’s economic

consulting services group.

What general advice would you give to companies on effective tax planning? How

important is it to create tax-efficient structures and improve internal functions and

processes across the organisation?

Effective tax planning, implementation, and documentation are critical to minimising transfer

pricing exposure. Companies can develop a clear, corporate transfer pricing policy and

implementation procedures, and communicate these to managers overseeing intercompany

transactions. They can review intercompany pricing on a periodic basis to determine

if changes in market conditions, transaction volumes, costs structure, or other factors

necessitate a pricing change. They can also centralise the oversight of corporate transfer

pricing documentation to facilitate consistency and to leverage economic analyses. Effective

planning and administration can also reveal previously unknown information, including

opportunities for driving value through transfer pricing, and where current weaknesses lie. It

can also help to avoid a tax-related dispute.



C A N A D A

Nick Pantaleo, PwC LLP

Could you outline some of the key developments and changes relating to tax laws that you

have seen in your region over the last 12-18 months?

Recent tax initiatives have been directed at enhancing the competitiveness of Canada’s business

tax system and facilitating business investment to stimulate the economy, create jobs, and

increase government revenues. These initiatives include reducing the corporate income tax rate

to 25 percent; modernising and expanding Canada’s international tax treaties, tax information

exchange agreements and trade agreements; harmonising federal and provincial rules to reduce

business tax compliance burden; and initiating consultation for new rules governing outbound

investment by Canadian companies, the taxation of corporate groups, and government

assistance in respect of research and development, and innovation.



The government incurred approximately CDN$60bn of stimulus spending during the 2009/2010

economic downturn, and is now counting on Canadian business investment growth to stimulate

growth, create jobs, and increase government revenue. It intends to use its anticipated revenue

growth to eliminate government deficits, invest in key economic drivers and meet anticipated

new expenditure commitments. Recent base broadening measures are a response to reduced

revenue due to less than expected global and Canadian economic growth, and perceived

Canadian corporate tax avoidance. The resulting increase in government deficits could negatively

impact reforms directed at improving the competitiveness of the Canadian tax system. While a

government expenditure review is expected to produce significant savings, they are expected to

be offset by rising government pension and health care costs.





In Canada, transfer pricing is not only a key tax challenge and risk, but is also often one of the

greatest tax planning opportunities. Canada’s relative lack of safe harbours make it a challenge

to price intercompany transactions, its high documentation expectations make it a challenge to

explain why these prices are correct, and its transfer pricing penalty regime makes it costly to

get them wrong. Nonetheless, many Canadian taxpayers still have to assess their transfer pricing

risk and opportunity profile and take concrete steps to improve it. The Canada Revenue Agency

(CRA) is consistently perceived as one of the most aggressive transfer pricing tax authorities,

ranking with countries like India and China. Canadian taxpayers would be wise to direct a

commensurate level of attention to this area.


you seeing more incentives designed to entice such entities, or has there been an effort to


Attracting business investment is key to the government’s strategy for achieving economic

prosperity. However, Canadian growth is strongly affected by the global economy. Because the

economic performance of the US and Europe continues to lag, Canadian economic prospects are

uncertain at this time. The government is likely to stay the course and take measures to shore up

its corporate tax base, which could result in a delay of reform to its international tax rules and the

adoption of a new system of group taxation. New GST (VAT) rules for imported services require

self assessment on taxable services flowing between establishments of the same entity straddling

the border and on certain supplies between non-arms-length parties. The precise effect of these

rules is yet to be felt on audit, but they are a real concern for supplies such as reinsurance.


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companies learn from recent prosecutions, penalties and court rulings?

The CRA has become increasingly active and aggressive in tax audits, resulting in an increase

in the number of controversies and re-assessments. Their primary focus is on aggressive tax

planning, in particular cross-border transactions and transfer pricing. In this regard, the CRA

is actively engaged in sharing information with other revenue agencies. Corporations should

exercise caution when planning tax sensitive transactions, particularly if the tax consequences are

uncertain or if such plans are likely to attract attention from the CRA. The tax risk associated with

such transactions should be in line with the corporation’s broader corporate strategy. This will

require a sound corporate governance structure in respect of the tax function.

If a company does find itself the subject of a tax-related audit, investigation or enquiry, what


Managing the tax audit should begin before the tax auditor arrives on the company’s premises.

The company should develop sound policies and processes to provide a defensible model

and help safeguard against audits and disputes, including developing enhanced relationships

with revenue authorities. When faced with an audit, the company should request a meeting in

advance to discuss and understand the proposed audit plan and the auditor’s risk assessment;

suggest possible adjustments to the plan; and establish a protocol for carrying out the audit,

such as the procedures for receiving and responding to audit requests, including information

collection. The company should be open and transparent with the auditor. A contact person

should be designated to deal with queries, ensure the right people are available to provide

explanations, and supply documents and information as required.

C A N A D A

Nick Pantaleo, PwC LLP

continued...


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What general advice would you give to companies on effective tax planning? How important

is it to create tax efficient structures and improve internal functions and processes across the

organisation?

To be effective a tax plan must be able to withstand the scrutiny of the tax authority. Companies

should ensure that the plan is well supported in terms of documentation, application/

interpretation of the tax laws, tax policy, and jurisprudence. An advance ruling from the tax

authority should be requested where appropriate or possible. Tax efficient structures are very

important to a company’s success. Globalisation has become mandatory for many industries. It

is important that the company’s tax department is connected to and understands the company’s

business operations, and is involved early in transactions, particularly complex ones. Sound

internal functions and processes will result in better management of tax risk associated with

transaction planning.

NICK PANTALEO

PwC LLP

Tax Partner

+1 (416) 365 2701

[email protected]

Nick Pantaleo is the leader of PwC’s Canadian National Tax Services group. A former leader

of the firm’s International Tax Services group, he is recognised as one of Canada’s leading

tax advisors with over 25 years experience in providing corporate income tax advice to a

number of Canada’s largest corporations, including advising on various tax policy initiatives

and facilitating discussions with federal and provincial Finance officials and the Canada

Revenue Agency. In December 2007, Mr Pantaleo was appointed by the federal finance

minister to serve as a member of the Advisory Panel on Canada’s System of International

Taxation.



M E X I C O

Jorge Narvaez-Hasfura, Baker & McKenzie



Chief among the most relevant developments are the execution of Double Tax Conventions

and their corresponding protocols with Panama, Uruguay, Switzerland, South Africa and India;

and Tax Information Exchange Agreements with Bahamas, Barbados, Bermudas, Dutch Antilles,

Panama, and Uruguay. A number of interpretative tendencies advanced by the Mexican

tax authorities during their auditing processes have been reflected in the wording of these

conventions – for instance, new permanent establishment thresholds.



It is clear that the tax reforms currently in effect have been designed to increase tax collections

and reduce aggressive tax planning strategies used in connection with local and cross-border

transactions, rather than to counter tough financial conditions.



This topic has attracted the attention of Mexican taxpayers not only because of the statutory

obligation to comply with the corresponding rules, but also because of increased audit activities in

the area. This is a topic that cannot be, and is not, underestimated by Mexican taxpayers. On the

contrary, taxpayers allocate important resources not only to formally comply with Mexican transfer

pricing rules but also to design and implement long term transfer pricing policies.






Mexico, being a member of the OECD, is a tax-friendly country for foreign investment. With

a very extensive double tax treaty network, a qualified work force, and more than 110 million

inhabitants, Mexico is an attractive and viable alternative to foreign entities to conduct business

activities. Regarding preferential tax regimes, Mexico maintains a very strict policy to control

and prevent, to the furthest extent possible, questionable practices in connection with offshore

investments by Mexican residents.



Tax authorities have increased their auditing activities and thus tax litigation has also increased.

Differing from the past, during the last few years, audit activity has been focused on international

taxation with transfer pricing and cross-border tax planning being the main issues addressed.

There is a tendency to apply concepts like substance over form, business reasons, and economic

substance, during the audit and judicial processes.



Taxpayers must have all information and documentation related to their operations available for

the tax authorities to examine. In order to prevent, to the furthest extent possible, the issuance

of a tax assessment, taxpayers need to use their best efforts to address the tax questions posed

by the authorities prior to its conclusion. In most cases, it is advisable taxpayers are accompanied

by tax attorneys and accountants during the audit process to better address the issues raised at

the audit or court levels.





organisation?

Tax planning is always an appealing concept and there are always ways to achieve efficiencies;

however, in all cases, this must be done within the boundaries of the law and without losing sight

of the spirit and intention of the applicable tax provisions.

M E X I C O

Jorge Narvaez-Hasfura, Baker & McKenzie

continued...



JORGE NARVAEZ-HASFURA

Partner

Baker & McKenzie

+52 55 5279 2924

[email protected]

Jorge Narvaez-Hasfura is a partner at Baker & McKenzie, chair of the firm’s Latin America

Value Added Tax Practice Group, and also a member of the Global Value Added Tax

Steering Committee. His practice focuses on the legal aspects of corporate income tax,

transfer pricing, international tax planning, and corporate reorganisations. He also advises

clients on issues involving special taxes on products and services, single rate tax and

customs duties. Mr Narvaez-Hasfura has authored numerous publications on subjects

related to his field and is a frequent speaker at key seminars and conferences.



B R A Z I L

Eloisa Curi, Demarest e Almeida Advogados



Recent tax laws have been aimed at strengthening the industrial and development process

that Brazil has experienced over the last decade. In this sense, a plan was established (Plano

Brasil Maior) to be effective up to 2014 focusing on industrial innovation, production and

competitiveness, and the generation of employment and income. The plan includes the

reduction of excise tax on capital goods, building materials, and vehicles produced in the

country; the release of IT/ICT, textile, footwear, and furniture companies from social security

contributions on the payroll; the creation of a special tax recovery regime for exporters;

special credit on capital goods; and tax exemption for domestic producers of equipment

related to digital inclusion. In addition, a tax on exchange and credit transactions was

imposed to inhibit market speculation due to the strength of Brazil’s currency and high

interest rates.



The recent tax changes are directly driven by the industrial and development policies of the

Brazilian Government, as well as by its analysis of the proper legal measures in the tax and

regulatory fields to protect Brazil’s manufacturing industry, trade, and financial markets from

the current international financial conditions. It is also important to mention that recently some

special tax rules were issued concerning necessary investments and activities related to the

2014 FIFA World Cup and the 2016 Olympic Games, and also to the oil and gas area due to the

prospect of a significant growth in production from these sources.



To what extent is transfer pricing a key challenge for multinational enterprises? Are too

many companies underestimating the importance of compliance and risk management in

this area?

The Brazilian transfer pricing rules were issued in 1997. In their initial stages, many companies

did not pay the rules the attention they deserved. However, multinational companies have been

making considerable efforts to comply with the rules considering that currently they are required

to disclose in their annual tax returns the transactions made with related persons abroad, and

with persons located in tax havens, or subject to privileged tax regimes. Another important

reason is the fact that the respective penalties are very high and the Brazilian Tax Department

increasingly monitors compliance with these rules, with a specific group specialising in the

analysis.




The Brazilian tax laws regarding foreign capital investment in Brazilian companies could be seen

as attractive, considering that there is no levy of the Brazilian income tax on the repatriation of

invested capital – only on the remitted amount exceeding the invested capital – and that the

remittance of dividends is free of any taxation. The income tax on income obtained by a foreign

investor in the Brazilian capital market is generally more favourable than the tax applicable to

Brazilian residents, except if the investor is domiciled in a tax haven. For example, the capital

gain on a sale of stock in the Brazilian stock exchange is subject to zero income tax. On the other

hand, Brazilian tax laws usually impose a higher withholding income tax rate on income paid by a

Brazilian source to a beneficiary domiciled in a tax haven. Also, additional deductibility conditions

may be required in regard to such payments.





A good example of a lawsuit brought by the taxpayer concerns the applicability of the Treaty to

Avoid Double Taxation, especially regarding the non-taxation of the foreign company’s profits.

Many tax disputes are also taking place due to the issuance of several tax assessments related

to transfer pricing rules or to the interpretation of the possibility of obtaining credits from

social contributions – PIS and COFINS. Lately, the relevant lesson drawn from many decisions,

especially administrative ones, is the necessity of economic substance in any transaction for tax

purposes.



It is recommended that companies keep a very professional relationship with the tax agent. In

this sense, the information to be provided during a tax audit should be carefully analysed and

should be submitted to the tax agent through a formal petition. The information should be

accurate and objective and supported by the proper documentation in order to prevent any

misunderstanding of the facts by the tax agent. In addition, the requested information should

be provided to the tax agent within the legal time granted by him/her, and, should that not

be possible, then the company should apply for a term extension in order to avoid a possible

aggravation of penalties.



organisation?

Many elements have to be considered when tax planning is being prepared, such as the

economic substance of the tax planning; the appetite of the company’s board for tax savings;

B R A Z I L

Eloisa Curi, Demarest e Almeida Advogados

continued...



the judicial and administrative precedents related to the issues involved in the tax planning; the

tax authorities’ position in regard to situations similar to those involved in the tax planning; the

instruments and personnel necessary to properly implement the tax planning; and particular

features of the company, person or situation, and so on. Consequently each exercise of tax

planning is unique, however a general piece of advice is that good and experienced professionals

should be involved in its preparation. Implementation should also be carefully reviewed

and checked in order to avoid inconsistencies between the intended tax planning and the

implemented one.

ELOISA BARROS CURI

Partner

Demarest e Almeida Advogados

+55 11 33561806

[email protected]

Eloisa Barros Curi joined Demarest e Almeida Advogados in 2000. Before that, she worked

as a tax lawyer in one of the Big Four between 1990 and 1998, and in an international

bank from 1998 to 2000. She graduated in Law and Accounting and took specialisation in

Corporate Law. She has extensive experience in tax planning in M&A and in internal and

cross-border corporate reorganisations; tax consulting, involving a wide range of tax-

related affairs from simple daily activities to complex inbound and outbound transactions;

monitoring of tax bills; and in defence in administrative tax litigation.



U N I T E D K I N G D O M

Ray McCann, McGrigors



The UK Government has a stated aim of being the most competitive corporate tax regime in the

G20. This has been reflected in changes made to the UK tax code as they apply to corporates

and international entrepreneurs. For corporates these changes have included the exemption

of foreign dividends paid into the UK; the reform of CFC rules; proposals for a 10 percent rate

of tax on patent income; and reductions in the rate of corporation tax with further reductions

already planned. For international individuals, new rules will allow foreign investment in the UK

with no tax charged on any remittance into the UK.



The changes are entirely political and are a reaction to both the financial crisis and, as

importantly, the increasing dissatisfaction with the UK tax system on the part of both UK

companies and foreign entities. Some of the changes reflect the move by a number of UK

companies to re-domicile outside of the UK.


many companies underestimating the importance of compliance and risk management in this

area?

For larger concerns transfer pricing is the number one concern. The UK has significantly

increased the resources deployed on transfer pricing enquiries and is increasingly working with

foreign tax authorities and concluding exchange agreements with them. Despite this, many

companies face long, drawn-out, costly enquiries in situations where the tax rules in the UK are

not aligned with other jurisdictions, for example, the US. Significant new rules, including tougher

penalties, have also been introduced in the UK along with new powers to allow HMRC to obtain



information. Our experience is that many companies do not pay sufficient attention to the UK

Revenue’s attitude to transfer pricing and record keeping is often deficient leaving companies

exposed to penalties.




The UK tax code has no specific tax exemptions or relief specifically intended to attract foreign

entities to the UK. That said, in general the UK’s rules on debt are regarded as more favourable

than other countries, as is the overall scheme for the taxation of corporate capital gains. The UK

also provides a beneficial tax regime for the taxation of non-domiciled individuals so that only UK

source income and gains are specifically taxable. This means that senior foreign executives can be

located in the UK.



Yes, this is a specific objective of HMRC for both companies and economically mobile individuals.

For larger businesses the UK offers a bespoke customer relationship. In our experience

companies that engage with this process in general have a better relationship with HMRC leading

to a lighter touch compliance regime.



An entity facing an HMRC audit should seek advice on strategy at an early stage from advisers

experienced in how HMRC carries out its audit functions. As importantly, companies should

understand their internal processes for compiling tax returns, as this is a key area of focus for



HMRC. Larger concerns must provide an annual certificate to HMRC as to the adequacy of their

accounting system.



organisation?

HMRC has committed significant resources to tackling avoidance. Tax planning must be

commercially justifiable and HMRC will demand transparency in this respect. A number of

companies have been effectively named and shamed in the UK press. This carries risk for group

tax directors and others who have lost jobs as a result. Planning must be done in all cases on

the assumption that HMRC will see all of the planning advice and other documents. Above all

companies should ensure that implementation is robust and that all necessary disclosures are

made. A detailed record of the planning should be retained to prevent HMRC from inferring

purpose and so on.

U N I T E D K I N G D O M

Ray McCann, McGrigors

continued...



RAY MCCANN

Director, Tax

McGrigors LLP

+44 (0)20 7054 2715

[email protected]

Ray McCann is a director in the McGrigors Tax team. He has over 35 years experience

of UK and international tax issues and was formerly an assistant director of HMRC. He

currently advises on all areas of tax including corporation tax, income tax, and capital

gains tax and is expert in defending challenges to tax planning. He is a member of

both the CTA and ATT and sits on the Standards Committee of the CIOT and money

laundering working group.



G E R M A N Y

Georg Edelmann, Noerr LLP

Could you outline some of the key developments and changes relating to tax laws you have

seen in your region over the last 12-18 months?

Over the past two years, there have been no major tax law changes. This is because

previous administrations introduced measures both to stabilise the tax base and improve the

competitiveness of the German tax system. The interest barrier rule generally limits interest

deductions and the minimum taxation rule limits the utilisation of losses carried forward. The

corporate income tax rate was reduced to 15 percent. The trade tax burden ranges between

7 and 17 percent. In addition, due to economic growth and low unemployment, German tax

revenue is expected to surge by €135bn in the next four years to 2014. Therefore, the finance

minister has not been forced to further tighten tax law. In light of the financial crisis, the

government – apart from FDP representatives – is also unwilling to reduce the tax burden.



EU regulation and the European court is a key driver for German tax reforms. According to a

European Court judgement, the German Government is required to change the taxation of

dividends. Distributions to a German corporate are basically tax exempt – there is a refund

for the taxes withheld – while a European corporate will at least be charged with the German

withholding tax. German tax burdens on distributions are higher for foreign investors. Further,

there are discussions regarding new tax grouping rules as it is expected that the current

limitation on German corporations is not in line with European freedoms. The Austrian concept is

one of the ideas the German tax authorities look at. This all relates to the use of losses which are

subject to a number of ECJ judgements.




you seeing more incentives designed to entice such entities or has there been an effort to


There are no specific advantages for foreign entities. However, the German tax authorities are

suspicious of foreign entities. Consequently, the authorities have introduced regulations in recent

years to gain transparency and usually the burden of proof is effectively with the taxpayer. In

recent years, CFC legislation was amended several times: a clear transfer pricing regulation

was introduced, supported with extensive rulings; and at least the possibilities of cross-border

information exchange were increased, particularly in relation to tax haven jurisdictions such as

Guernsey and Jersey.



Due to the recent introduction of a transfer pricing regulation and official rulings, transfer pricing

is one of the top topics. Indeed, documentation requirements lead to a concentration on this

item. In their home countries, multinationals are of course aware of transfer pricing obligations.

However, it seems to me that they underestimate the rising needs for high quality documentation

abroad. Foreign jurisdictions, such as Russia and China, are in the process of implementing

transfer pricing rules. Some foreign jurisdictions have their tax authorities coached by Big

Four companies. As transfer pricing is not an exact science, companies stumble over formal

requirements, often believing that transfer pricing is rather more a matter for the controllers than

for the tax department.




companies learn from recent prosecutions, penalties, and court rulings?

The German tax authorities have increased their efforts in recent years to improve the

effectiveness of tax audits. Electronic data based tax audits allow the authorities a deeper

insight into the taxpayer’s business. As the tax authorities exchange information about structures

within Germany, and also with their colleagues abroad, they are more focused on aggressive tax

planning strategies, loss making structures and, again, transfer pricing. It is therefore necessary

for companies to build up their defences in advance and not when it is too late in the tax audit.

This means that tax opinions and other documentation have to be prepared in advance. Further,

mutual agreement procedures under tax treaties and arbitration procedures within the EU have

to be employed in order to avoid double taxation of income.

If a company does find itself the subject of a tax-related audit, investigation, or enquiry,

what steps should it take to manage its relationship with tax authorities?

The process for tax audits is regulated and there is a general audit cycle so that companies

in general are familiar with it. However, more often it is important to provide the authorities

with documentation so that they can follow the decisions within the company. An open and

transparent relationship with the tax auditor is helpful to achieve an efficient audit. It is also

imperative to have one contact person in the company who collects and passes on all required

information.


is it to create tax-efficient structures and improve internal functions and processes across the

organisation?

An effective tax plan is one well supported by documentation, tax policy, jurisprudence, and

the application and interpretation of tax laws. It must be able to withstand the scrutiny of the

G E R M A N Y

Georg Edelmann, Noerr LLP

continued...



tax authorities. Companies should request an advance ruling from the tax authorities where

appropriate and possible. It is essential to support an economic reason for a structure. This is

required due to general anti-abuse regulations. The introduction of general disclosure rules has

been discussed several times but they are not yet implemented. Finally, the setting up of reserves

for audit risks should be managed smoothly over the years in order to avoid a surprise which will

affect profitability in a particular business year. Shareholders may then ask questions in the annual

general meeting.

GEORG EDELMANN

Partner

Noerr LLP

T +49 89 28 628 169

[email protected]

Georg Edelmann is a partner at Noerr and heads the international tax practice. He is

responsible for the tax network with well known European and international partner

offices. Mr Edelmann has many years experience advising on the tax structuring of major

medium sized companies, internationally active companies, and financial institutions. His

main areas of concentration are group reorganisation, financing of groups with cross-

border activities, and the structuring of company acquisitions. An additional specialisation

is tax law advice on securitisation (nonperforming and performing loans and various

classes of securities), investment law, and supervisory law.



S W E D E N

Harald Steinbrecher, Svalner Skatt & Transaktion



There has been a lot of focus on interest deductions. Recently the Swedish Government

announced that the legislation that restricts interest deductions will be extended as a consequence

of what the government considers as aggressive tax planning with interest deductions, especially

in private equity owned Swedish tax funded welfare companies, such as in the health and care

sectors. Today there are very limited restrictions surrounding interest deductions. With the

exception of limitations on the possibility to deduct interest on loans between affiliated companies

related to inter-company transfers of shares, interest on loans is tax deductible as long as it is arm’s

length regardless of the purpose of the loan. There are no thin capitalisation restrictions and there

is no withholding tax on interest payments made to non-resident lenders. This, of course, has

made debt financed acquisition structures very attractive for foreign investors, particularly within

the private equity sector. The new rules are expected to be presented in Spring 2012 and become

effective as of 1 January 2013. It is a very hot political issue and you can not entirely rule out that

revised legislation may be introduced before 1 January.



Recently implemented or proposed changes to tax legislation have mainly been driven by the

political agenda. In the budget presented in September the government stated that Sweden

has stable public finances and considerable safety margins despite the current financial situation.

Rather than increased taxes as a consequence of the tougher financial conditions, we have seen

that tax and other reforms reducing taxes have been postponed. Recent tax cuts have also been

justified as measures to address the economic downturn.





Historically there have been very few cases where transfer prices have been successfully

challenged by the Swedish tax authorities. Things have developed, for example, through

documentation requirements and the introduction of advance pricing agreements, and the focus

on transfer pricing has increased. I do not, however, believe that transfer pricing constitutes a key

challenge for multinational companies operating in Sweden. Special attention should be taken

when determining an arm’s length interest on intra-group loans as a consequence of a ruling

of the Supreme Administrative Court in June 2010, regarding a loan from a parent company

to its subsidiary. The court said that a loan from a parent company to a subsidiary has special

features which affect the credit risk and, therefore, the interest, which does not exist in respect of

loans between unrelated parties. According to the court it is, in such situations, not possible to

automatically apply an interest rate which would have been arm’s length if the parties had been

unrelated.




Several features of the Swedish tax system are attractive for foreign entities investing in

Sweden or using Sweden as a holding company. The Swedish participation exemption rules, for

example, typically allow a Swedish limited liability company to receive tax exempt dividends

from a Swedish or foreign subsidiary. Provided the shares are not quoted there are no holding

requirements. Withholding tax on dividends paid to a foreign parent is also, in many cases,

reduced or waived under the participation exemption rules or tax treaties. The possibility of

making debt-financed acquisitions or investments, effectively reducing Swedish taxation, have,

of course, also been a significant opportunity for foreign investors. The rules reducing the

taxation of foreign experts are also about to become more favourable. We have seen measures



to counter the use of offshore jurisdictions by mainly Swedish tax residents. There has been less

focus on foreign investors.



The Tax Agency has, the last three to five years, had a greater focus on issues, such as the use

of certain types of tax planning schemes, and on specific businesses such as private equity.

Most recently, the government gave the Tax Agency directives to review the privately held and

publicly funded health and care sectors. The Tax Agency and the courts also more frequently

apply the Tax Avoidance Act, even on tax structures that have been more or less common

practice. This implies that companies may revisit the robustness of tax structures used and be

more diligent when implementing new structures in terms of business reasons and substance

requirements.



Take questions from the Tax Agency seriously and allocate proper resources from the start.

Channel all communication through one person at the company and, preferably, have all

communication in writing to be able to keep track. Be forthcoming, but carefully consider what

information and documentation is relevant.



organisation?

I think that it is important to focus on tax planning that has substance and can be supported by

business reasons. Careful implementation is, of course, also imperative. Robust planning ideas

S W E D E N

Harald Steinbrecher, Svalner Skatt & Transaktion

continued...



HARALD STEINBRECHER

Director

Svalner Skatt & Transaktion

+46 8 528 01 297

[email protected]

Harald Steinbrecher has almost 20 years of experience advising international corporate

tax matters. Mr Steinbrecher joined Svalner from the law firm Ashurst in 2011. Before

Ashurst he worked at PwC in Stockholm, China and the Baltic Region. Mr Steinbrecher

specialises in international tax structuring, mergers & acquisitions, and private equity. He

has an LLM in taxation from New York University School of Law and a law degree from

Stockholm University.

not properly implemented are likely to fail. One should also consider the reputational risk – how

will, for example, customers react to the press reporting on tax planning that involves low tax

jurisdictions or could otherwise be perceived as aggressive by the public?



A U S T R A L I A

Robyn Schofield, Clayton Utz



Australia has introduced a number of new legislative measures over the past 12-18 months.

First is a tax on carbon dioxide emitters which will be paid by Australia’s largest polluters from 1

July 2012. A fixed carbon price of $23 a tonne will initially apply, moving to a flexible price after

three years. A Minerals Resource Rent Tax (MRRT) has also been introduced. This is a tax on the

profits of iron ore and coal projects in Australia which will apply to new and existing projects

from 1 July 2012. This is accompanied by an extension of the petroleum resource rent tax to all

Australian onshore and offshore oil and gas projects (including coal seam gas). A final measure

is in relation to Managed Investment Trusts (MITs). Eligible MITs can apply the capital gains

tax provisions as the primary code for determining gains and losses on the disposal of eligible

assets allowing certain benefits – such as reduced rates of tax or an exemption – to be passed

through to investors. Other Australian income earned by foreign investors through an MIT may

be subject to lower rates of tax. In addition a number of reforms are being considered including

amendments to the taxation of certain interests held by Australian residents in controlled foreign

companies and foreign accumulation funds to narrow the operation of the existing rules. Also,

income from certain investments of a foreign fund, which has a permanent establishment in

Australia by virtue of having engaged an Australian based investment manager, will be exempt

from income tax under the Investment Manager Regime (IMR). A review of the taxation of trusts

and the phasing down of interest withholding tax for interest paid by financial institutions on

offshore borrowings is being considered also.



Some of these reforms have been introduced to address the current budget deficit and to

encourage economic activity in Australia more generally. For example, the MRRT is intended to

deliver major tax breaks for small businesses as well as a cut to the company tax rate; increase



superannuation savings and superannuation contributions for low paid workers; and fund critical

investment in infrastructure, especially in mining regions. Changes such as the MIT rules, IMR,

and the phasing down of interest withholding tax for financial institutions are also intended to

increase investment into Australia.



The OECD pricing methodologies are closely followed by the commissioner of taxation and

emphasis is placed on the need for contemporaneous documentation. A number of taxation

rulings have been issued by the commissioner of taxation, concerning the application of the

pricing methodologies. Notwithstanding the above, there have been a number of recent

cases which suggest that the courts are starting to move away from economic theory and are

instead focusing on the evidence available to establish arm’s length negotiations in determining

price. The government has released a consultation paper which outlines proposed changes to

the existing transfer pricing rules including the introduction of an arm’s length standard that

reflects the international norms; an interpretation of the new rules in a manner that best secures

consistency with OECD guidance; and the application of the new rules on a self-assessment basis.




Australia has a number of concessional tax regimes intended to increase foreign investment

in Australia. Foreign entities are exempt from capital gains tax on the disposal of assets, other

than direct or indirect interests in Australian real property or assets used in carrying on business

through a permanent establishment in Australia. In addition, new amendments to the tax

law prevent the commissioner of taxation from seeking to tax previously untaxed investment

income of foreign managed funds for the 2010-11 income year and previous income years.



This amendment is intended to address issues arising for US-based fund managers investing

in Australia due to the application of US accounting standard ‘FIN 48’. An extensive treaty

network protects business profits of foreign entities – other than business profits earned through

a permanent establishment in Australia. There is also tax relief for foreign income received by

foreign entities via an Australian corporate tax entity. There are reduced rates of tax for certain

income earned through MITs, a proposed phase down of interest withholding tax paid by

financial institutions on offshore borrowings and the proposed IMR.



As a result of the current budget deficit the commissioner of taxation has been reviewing past

transactions especially in the area of mergers and acquisitions. This has resulted in several cases

concerning Australia’s general anti-avoidance provisions.



organisation?

The critical factors for companies are good corporate governance and the implementation of

a good tax risk management model. Key tax aspects of a good tax risk management model

include having a clear view of the current and future tax risks of the enterprise, and certainty

around where in an organisation management of particular tax risks are located and the

corresponding acceptance of management responsibility for each, including providing any

necessary resourcing and careful development of processes and procedures that enable tax risk

issues to be escalated to appropriate levels within an organisation. Companies should avoid

seeing tax functions as intellectual black holes and maintain appropriate levels of monitoring of

compliance with the tax aspects of the general risk model.

A U S T R A L I A

Robyn Schofield, Clayton Utz

continued...



ROBYN SCHOFIELD

Partner

Clayton Utz

+61 2 9353 4649

[email protected]

Robyn Schofield is a taxation partner in the Sydney office of Clayton Utz. She joined

the Clayton Utz tax practice in 1999 and during her time at the firm has predominantly

acted for large corporate clients. She advises across all areas of Australian tax including

international tax, taxation of financial transactions, general corporate tax, and tax audits

and litigation.



I N D I A

B. L. Narasimhan, Lakshmikumaran & Sridharan



India has undergone several tax reforms over the last couple of years in both the direct and

indirect tax areas. In the direct tax area, the Direct Tax Code (DTC) remains the most important

change that India has proposed. The general anti-avoidance provisions have attracted the most

attention. In the area of indirect tax, the government wishes to implement a comprehensive

Goods and Services Tax (GST) regime that will ensure all transactions are covered by the tax

net.



The tax reforms are driven by both political agenda, as in the case of GST, and the perceived

need to counter tough financial conditions as in the case of the DTC.


many companies underestimating the importance of compliance and risk management in this

area?

Transfer pricing should be an important consideration for multinational enterprises. The Indian

tax authorities have traditionally assumed that transactions between associated enterprises are

not at arm’s length and hence transfer pricing comes under greater scrutiny. Therefore, it is

necessary that companies ensure that both the basis for justification and the underlying evidence

are robust and should not be underestimated.






The intention of the legislature is to balance both considerations – greater incentives for foreign

investment and curtailing abuse of such liberalised laws. In balancing these considerations, certain

benefits, which are likely to attract greater abuse, have been the target of the regime, while

incentives that can be enjoyed by genuine business are encouraged.



There has been a steady increase in tax disputes in India but that is also because of the

greater number of businesses that are operating in India as compared to a few years ago. All

multinational companies have well designed and planned processes for global implementation

but these are not customised enough for the peculiarities of Indian tax laws, leading to dispute.

Documentation is another area that remains a concern in such cases. Improvement in these two

aspects is most important for companies.



First and foremost, tax related audit and investigations can be a long drawn out processes,

spanning over several months and requiring enormous amounts of data. Therefore, it is necessary

to form a dedicated team, rather than a temporary team, for managing the process. Second,

complete cooperation with the authorities is a must and support from a dedicated team helps

greatly in this respect. Finally, it is necessary for a focal person or persons to engage with the tax

authorities to explain the data and information provided to customs. These three steps are the

key to success for managing relationship with the tax authorities.





organisation?

Long term tax planning is preferred over short term tax planning to ensure sustainability of the

tax model. Simplicity is preferred to complex structures. Spending more time planning upfront

reduces the chance of dispute in the future. Implementing good internal processes is the key to

success, but documenting why certain processes were implemented for reference at later stages

is imperative.

I N D I A

B. L. Narasimhan, Lakshmikumaran & Sridharan

continued...



B. L. NARASIMHAN

Partner

Lakshmikumaran & Sridharan

+91 11 4129 9877

[email protected]

B. L. Narasimhan is a tax litigator and partner at Lakshmikumaran & Sridharan. He has

practised before various tax tribunals and courts over the last 20 years in the areas of

direct and indirect taxes, and advises several multinational and Indian companies on

improved compliance and risk mitigation. Mr Narasimhan holds a bachelor’s degree in

mathematics and a law degree from University of Delhi. He is a prolific speaker and is an

active participant in several industry and professional associations.



S O U T H A F R I C A

Hennie Bester, Webber Wentzel

Could you outline some of the key developments and changes relating to tax laws that

you have seen in your region over the last 12-18 months?

A key development of 2011 was the introduction of strong and specific anti-avoidance

provisions in the South African merger and acquisition related ‘corporate provisions’. The

corporate provisions enable intra-group restructuring while the tax consequences are

deferred. Amalgamations and liquidations are also allowed within certain key requirements

with a deferment of the normal tax consequences. Intra-group provisions were suspended

and subsequently made subject to a formal approval process based on specified criteria.

This resulted in great uncertainty within the South African business sector and impacted on

normal business restructuring activity.

To what extent have recent tax reforms been driven by the political agenda or a

perceived need to counter tough financial conditions?

The South African economy largely escaped the direct impact of the global financial

crisis of 2008. This was primarily due to the fact that South African banks are subject

to exchange control regulations. The regulations prevented them from investing in

the offshore sub-prime market. Credit providers of all forms are also subject to strong

regulation domestically, limiting the scope for bad debt. South African banks are thus

highly rated in respect of their capitalisation and financial soundness. South African

economic policy is aimed to address structural inequality and a high unemployment

rate. The policy emphasis is therefore on the creation of employment. The political

agenda driving tax legislation is largely related to perceived tax avoidance.




many companies underestimating the importance of compliance and risk management in

this area?

The South African Revenue Service (SARS) has steadily increased its capacity in respect of

transfer pricing. However, it has not yet engaged in a broad transfer pricing compliance initiative,

although particular and significant tax assessments have been issued in this area. Transfer pricing

risks of current transactions may only be realised at some point in the future. Recently, significant

legislative amendments have been proposed to the transfer pricing rules, in particular a shift of

onus to determine the arm’s length nature of a transaction from the authorities to the taxpayer.

The new amendments will, in effect, create a potential non-disclosure offence and greatly

increase the tax consequences of an adjustment. Such an adjustment will be deemed to be a

loan, regardless of the nature of the original transaction.




South African economic policy recognises the need to make South Africa an investment friendly

destination, though it is not always seen as reflecting the basic requirements to achieve this.

For example, South African labour policies are often perceived to be inflexible. Combined with

issues such as exchange control and political factors, South Africa may be by-passed for direct

investment in preference for other jurisdictions. South Africa recently published a revised foreign

headquarter company tax regime which provides for certain benefits. Our assessment of the

foreign headquarter company regime is that it provides insufficient incentives, is far too complex,

and contains too great a degree of anti-avoidance provisions.





There has been a noticeable increase in the intensity of disputes between SARS and taxpayers. A

clear example is in the area of share option schemes extended by companies to their employees.

As the authorities have tried to close perceived loopholes in respect of alternative compensation,

the legislation has become more complex and difficult to implement. SARS has also taken a

more aggressive attitude in respect of the settlement of tax disputes, probably due to recent

judgements decided in its favour. Although it is difficult to claim an aggregate increase in tax

disputes and litigation in South Africa, the consensus of the taxpayer community appears to be

that SARS’ attitude has become more intransigent in this context.



Our advice to clients is to insist on a formal procedure when being subjected to tax-related

audit. The particular aim and authority for the audit needs to be established in clear terms

beforehand. One of the concerns clients often have is disclosing masses of information where

SARS is perceived to be engaged in a fishing expedition. The default approach of SARS appears

to be to frame the tax audit request in as broad terms as possible. In our view, the client’s tax

compliance and documentation requirement should be centred around the submission of its

documents under its income tax return. This will enable it to respond to any particular SARS’

inquiry with reference to the information already submitted. This will place the administrative

burden on SARS to state specifically which information is required and which has not been

submitted.

S O U T H A F R I C A

Hennie Bester, Webber Wentzel

continued...



HENNIE BESTER

Partner

Webber Wentzel

+27 21 431 7356

[email protected]

Hennie Bester is a partner in the Tax Practice at Webber Wentzel. He has specialised

experience in structured finance and cross-border transactions. Mr Bester has worked on

the development of legal and tax technology in areas such as preference share finance,

share loan transactions, derivatives, carbon credits (clean development mechanism) and

investment fund transitions. He also advises various multinational clients in the renewable

energy sector. The International Tax Review’s Global Report on Tax Advisors rates Mr

Bester as a leading advisor. He also sits on the SAICA Tax sub-Committee on carbon tax,

and has authored several articles on the subject.



organisation?

Companies must pay specific attention to their normal business activities to ensure that all

available tax allowances and deductions are captured in the tax system. An especially cautious

approach in respect of major corporate transactions, particularly where the corporate provisions

are to be used, should be followed. Tax efficiency remains a management objective and clients

value non-aggressive tax planning. However, the appetite for tax risks varies from taxpayer to

taxpayer. This appetite is often fed by tax professionals who throw caution to the wind and offer

aggressive schemes, often confusing to taxpayers. Not only does this highlight the importance of

backing tax advice that is contentious with a proper independent opinion, it also highlights the

need for taxpayers to consider carefully the kind of tax professionals they engage.

FWS U P P L E M E N T

www.fi nancierworldwide.com

A N N U A L R E V I E W


Documents

GLOBAL TAX - Noerrnoerr.com/Mailings/Twitter/Edelmann_Financier_Worldwide.pdf · Another example is the international tax reform in President Obama’s ﬁscal year 2012 budget proposal