Knowledge sharing

Monday, September 28, 2015

Modernising VAT for cross-border e-commerce: Commission launches public consultation

The European Commission has launched a public consultation to help identify ways to simplify the Value-Added Tax (VAT) payments on cross-border e-commerce transactions in the EU.

The Commission is seeking to receive a wide range of views from business owners and other interested parties before it drafts its legislative proposals on the topic in 2016, as part of the Digital Single Market strategy.

Andrus Ansip, European Commission Vice-President for the Digital Single Market, said:
"We promised to support companies, and especially smaller ones, to reduce burdens arising from different VAT regimes. Today we ask businesses and other stakeholders to help find the most effective and meaningful ways of delivering on this promise. In the Digital Single Market Strategy we have already put forward some measures we would like to take, such as a VAT threshold for startups."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said:
"This consultation presents a real opportunity to ensure that future VAT revenues from the digital economy are distributed fairly and effectively. At the same time, we want to make it as easy as possible to comply with the rules. We also have an interest in ensuring that future legislation reflects the reality for businesses across the EU."
This consultation is also part of the ongoing assessment of the new rules for VAT payments on cross-border telecommunications, broadcasting and electronic services which came into force last January. 

The Commission is keen to garner feedback on the associated Mini-One Stop Shop (MOSS), the tool that allows businesses that sell digital services to customers in more than one EU country to declare and pay all their VAT in their own Member State.

The consultation will run for 12 weeks and end on 18 December 2015. The Digital Single Market Strategy In the context of the Digital Single Market, the Commission is working to minimise burdens attached to cross-border e-commerce arising from the different VAT regimes within the EU.

It wants to provide a level playing field for EU companies, big or small, and ensure that VAT revenues flow to the country where the consumer is based. The Commission will make a legislative proposal in 2016 to reduce the administrative burden on businesses arising from different VAT regimes.

The consultation launched today will feed into preparations for these important proposed measures. The Commission will propose simplification measures for small business including an appropriate threshold which can address the problems without causing further distortions to the single market or compliance challenges for tax administrations. Specifically, the Commission will propose reducing the administrative burden on businesses arising from different VAT regimes including:
  1. extending the current single electronic registration and payment mechanism to cover the sale of tangible goods;
  2. introducing a VAT threshold to help online start-ups and small businesses;
  3. allowing cross-border businesses to be audited only by their home country for VAT purposes;
  4. removing the VAT exemption for the import of small consignments from suppliers in third countries.

Current VAT rules for e-services

The new "place of supply" rules for businesses dealing in cross-border telecommunications, broadcasting and e-services came into effect on 1 January 2015. This meant that such goods and services would be taxed in the Member State of the customer buying the product.

VAT is a consumption tax, and these rules aim to ensure that the taxation of e-services reflect where consumption takes place. In this way, VAT goes to the treasury of the country where the buyer is based. As part of the changes, the Mini-One Stop Shop (MOSS) was set up to simplify cross-border VAT payment procedures for e-commerce.

For the first time, businesses could register and account for VAT payable to other Member States through a simplified quarterly online return, hosted by the tax administration in their own Member State. Preliminary data indicates that more than EUR 3 billion VAT will be paid through MOSS in 2015 representing approximately EUR 18 billion in sales. 

Despite the broad support for the new rules, some very small businesses have faced some difficulties, particularly in the UK where they were previously exempt from VAT up to a threshold. In its original proposal, the Commission had included a VAT threshold to exempt smaller businesses from the changes, but Member States rejected that option.

The Commission would like to put that option forward again in order to support the EU's start up and smallest companies. Link to public consultation 

Sunday, September 20, 2015

Is VAT knocking at the front door of the US?

Puerto Rico to fix its financial crisis introduces a VAT system per April 1, 2016 to replace its current sales and use tax system. A wide range of supply of goods and services occurring after March 31, 2016 will be subject to a 10.5% or 0% VAT.

Is VAT knocking at the front door of the US?

It is important to know that Puerto Rico is not a US state, but more a Commonwealth of the US. It has local autonomy, however, the government of Puerto Rico falls ultimately on the US Congress. 

The elected governor of Puerto Rico occupies the highest public office. Puerto Ricans are US citizens. However, only Puerto Ricans who live in the US can vote for the US President in the general elections. Its residents are subject to US laws and pay income taxes to the US government.

If raising revenue and combat of the deficit is successful, the rest of the US will take notice.

How to be ready in time

See below PowerPoint; it contains a roadmap, overview of SMEs needed and a Bahamas case study.

Bahamas' VAT introduction

Bahamas introduced a VAT system that was supposed to come into force on Juli, 2014, bit was delayed to January 1, 2015.

We provided support to the largest Telecom company on the Bahamas for system and process implementation including training. The go-live of the new VAT system was successful - see our case study, roadmap and core team in below PowerPoint:
  • VAT and systems new legislation: overview of important topics for a new VAT implementation related to systems and  checklist
  • Our Bahamas experience showed as well that a Caribbean Island requires a bit different approach than a mature EU VAT country
From the case study it follows that we have supported the largest Telecom company on the Bahamas (also a Caribbean Island) with the following items:
  • Review of the proposed legislation and impact on the business processes
  • Design of VAT logic in the various systems (Billing systems, Point of Sale System, Accounting system)
  • Communication with suppliers of the IT systems about requirements
  • Implementing VAT logic in some IT systems
  • Test design and actual testing
  • VAT training to key staff
  • Master data analyses, design and review
  • VAT return process and additional VAT controls
  • Communication with important customers/vendors
  • Design of new VAT compliant business processes
Richard CornelisseT:  +31 20 658 6344
M: +31 6 5399 4874

Friday, September 18, 2015

The IRS says Coke owes $3.3 billion

The Internal Revenue Service said on Friday that Coca-Cola owes them $3.3 billion.

Coke disclosed that on Thursday it had received a notice from the IRS seeking $3.3 billion, plus interest, after the service completed a five-year audit of its tax years running from 2007 to 2009.

Basically, the IRS is asserting that Coke should recognize some of this income in the US, rather than overseas, and now wants Coke to pay up. The IRS says Coke owes $3.3 billion

Relevant chapters

  1. Reputational risks
  2. Developing a common framework for disclosing tax information
  3. UK - public consultation on tax transparency
  4. Tax Transparency examples
  5. EU - public consultation on further corporate social responsibility in tax matters

Wednesday, September 16, 2015

BEPS - Country by Country report also implemented in the Netherlands

On the 15th of September 2015 the Dutch legislator announced new Dutch reporting standards for the Dutch Corporate Income Tax Act. The annual TP documentation package should consist of a master file and a local country file (Dutch or English language).

The report is used to assess material transfer pricing risks and other risks that relate to base erosion and profit shifting and monitor possible non-compliance to transfer pricing rules by members of the group.

The reporting standard is intended for intercompany transactions with more than €50 million annual revenues. Further Country by Country (CbC) reporting requirements are also included with an treshold of €750 million. A penalty is included as well.

The report will be mandatory per January 2016 due to obligations with OESO /G20.

The Dutch Ministry of Finance will issue a decree at a later stage that provides more detailed rules about form and content of the master file, local file and CbC-reporting.

Specific penalties for non-compliance

Not being compliant with submission the CbC report qualifies as a criminal offense. Non-compliance will lead to a monetary fine as of 1 January 2014: €8,100) or custody of six months at the most for the party involved.

In case non-compliance occurs intentionally, then a fine of the fourth category applies in addition to an imprisonment of four years at the most. The authority to levy an administrative penalty will expire five years after the end of the calendar year in which the requirement originated. Criminal prosecution will generally be reserved for the most serious cases.

Relevant chapters:
  1. The changing tax world and taxpayer's impact
  2. Developing a common framework for disclosing tax information
  3. Tax Trends

Sunday, September 13, 2015

The changing tax world and company's impact

The 'enhanced relationship' model in UK and new proposals will most likely be copied and implemented by other tax authorities. Penalties when the 'tax rulings' are considered State Aid exceed the external auditor's materiality (5% of turnover: Apple penalty might exceed $ 2.5 bn), impact shareholders value and a company's reputation.
Apple says EU probe of Irish tax policy could be 'material' on April 29, 2015: Apple Inc (AAPL.O) said the European Commission's investigation into Ireland's tax treatment of multinationals could have a "material" impact if it was determined that Dublin's tax policies represented unfair state aid. Apple has warned investors that it could face “material” financial penalties from the European Commission’s investigation into its tax deals with Ireland — the first time it has disclosed the potential consequences of the probe. Under US securities rules, a material event is usually defined as 5 per cent of a company’s average pre-tax earnings for the past three years. For Apple, which reported the highest quarterly profit ever for a US company in January, that could exceed $2.5bn, according to FT calculations. Source:
Tax assurance will become more and more important and included mandatory in the scope of work of an auditor. That will influence or have a direct impact on senior management's KPIs and (reevaluation of) tax priorities set.

When a company does not publish its tax principles, notify the authorities of publication or voluntarily implement and execute a 'Code of Practice on Taxation' the tax authorities' qualification of that company will be a 'High Risk' resulting in an increased risk of tax audits and/or litigation. Tax audits will likely be done via data analytics (OECD's SAF-T) and review of the company's Tax Control Framework.

As the trend is global this would likely apply country by country. There is therefore not really a choice whether or not to participate. This is strengthened as an individual at board level has to sign off the tax strategy published. It is not only about being in agreement but is focused on execution as well. That means a company should have a Tax Control Framework in place where tax material risks  (amount much lower than external auditor's materiality!) are properly managed and continuously monitored.

Essential is the own testing of tax controls as its outcome should be disclosed to the tax authorities to actually prove that the company is 'in control'. 

Although tax audit outcome in the past could have been at an acceptable level, the above is about anticipating the future and shows besides 'Tax Transparency' and 'sign off of Tax Strategy by the board', etc. also a different way how a tax audit will likely be performed in every country in the near future. SAF-T originates as well from the OECD and is developed to make tax audits for the tax authorities more efficient and effective.

A monthly mandatory submission of electronic audit files is a step closer to 'Big Brother is watching you' than the current 'as is' in many countries.

Is a tax risk assessment needed prior to submission? It highly recommended as you leave an audit trail behind with potential unforeseen risks.

In the Netherlands we know that the authorities are reorganizing and recruiting 1,500 people with IT skills. We also know that knowledge and experiences - e.g on tax risk management - are shared between tax authorities and that the governments are in a real need to optimize their tax revenue.
Is it therefore still wise to continu in the same way or is reevaluation of the company's overall 'Audit Defense' tax strategy in order? That is a question that an in-house tax function needs to answer first.

Triggers for substantial change and tone at the top

  • Tax Transparency and Code of Practice is high or should be high on the agenda of senior management / Head of Tax
  • Change management applies: business model change (e.g. due to State Aid discussion and risk), financial transformation, post merger integration or implementation of COSO ERM as business model, litigation due to aggressive tax planning or is or might be mentioned in public domain

Extraction from the article: Developing a common framework for disclosing tax information by Richard Cornelisse

Sunday, September 6, 2015

European Commission - VAT lost across the EU is estimated at €168 billion

Commission presses Member States on VAT revenue collection VAT revenue collection has failed to show significant improvement across EU Member States according to the latest figures released by the European Commission today. Based on VAT collection figures from 2013, the overall difference between the expected VAT revenue and the amount actually collected (the so-called "VAT Gap") did not improve on 2012.

While 15 Member States saw an improvement in their figures, 11 Member States saw deterioration.

The total amount of VAT lost across the EU is estimated at €168 billion, according to the report. This equates to 15.2% of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies and miscalculation in 26 Member States.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said:
"This important study highlights once again the need for further reform in VAT collection systems across the EU. I urge Member States to take the steps needed to fight tax evasion and tax fraud at all levels. This remains a burning issue and is at the top of this Commission's agenda." 
A press release is available online, along with a fact sheet which is available.
Press release
Fact sheet

Wednesday, September 2, 2015

Elements of GST Control Framework - Singapore

The Enhanced Taxpayer Relationship (ETR) Programme was introduced in 2008 as a service initiative and aims to build an open and collaborative taxpayer relationship through regular engagement with large companies, mutually benefitting IRAS and these companies.

The ETR Programme is designed to address the needs of large companies and help these companies manage their tax compliance. It offers large companies the benefits of finalising their tax assessments in a timely manner through a collaborative review process with IRAS, as well as tax certainty on significant current events through consultation with IRAS.
At the same time, IRAS gains a better understanding of the company's business operations and with the knowledge, IRAS is better able to identify and address revenue risk early.

Scope of the ETR Programme

Through the ETR Programme, IRAS and the company's senior management (Chief Financial Officer or equivalent) will meet regularly to address the company's current and emerging tax issues. The involvement of both IRAS' and the company's senior management, as well as the commitment of resources from both parties, will facilitate timely resolution of the company's tax matters.
Large companies with complex business models will benefit most from the ETR Programme as these companies are likely to have more complex tax issues. Currently, IRAS expects to have up to 200 companies on the ETR Programme.

Key Areas of Engagement

Under the ETR Programme, IRAS will engage the large company in one or more of the following key areas:
  • Specific issue resolution - IRAS and the company will work on a mutually agreed plan to achieve timely resolution of specific tax issues.
  • Generic issue resolution - Issues that are common to companies within a group are identified so that clear and consistent tax treatment can be applied on the same issue across the group.
  • Significant current events - IRAS or the company may request early discussion and resolution of an upcoming significant event before filing of the income tax return so that downstream difficulties in assessments and objections can be reduced.
  • Review of tax control system - IRAS and the company may work together to assess the adequacy of the company's tax accounting and reporting controls, identify existing and potential gaps and discuss the remedial actions.

How to Participate in the ETR Programme

Companies that contribute a significant amount of tax revenue may be invited to participate in the ETR Programme. These companies are strongly encouraged to participate in the programme, especially if their corporate tax assessments are not up-to-date.
Companies that have not been selected by IRAS to participate in the ETR Programme but wish to do so may apply to IRAS in writing. IRAS will review the application on a case-by-case basis, based on the following criteria:
  • Tax contribution from the company;
  • Complexity of the company's structure and operations;
  • Current state of tax affairs of the company; and
  • Company's willingness to commit resources to engage IRAS in the key areas, with the aim of bringing its tax affairs up-to-date.

Assisted Compliance Assurance Programme (ACAP)

GST ACAP is a compliance initiative for businesses that set up robust GST Control Framework as part of good corporate governance. Businesses may, on a voluntary basis, conduct a holistic risk-based review to endorse the effectiveness of their GST controls.
In the long run, a structure and a visible function properly set up to evaluate the impact of GST on the business transactions ensures the completeness and accuracy of GST reporting. In turn, a reduced risk of non-compliance with GST law ("GST risks") ultimately allows businesses to reap productivity gains - savings in both time and money.

Businesses Suited for ACAP

This programme is suited for businesses that:
  • Have complex structures and business models;
  • Engage in voluminous transactions;
  • Place emphasis on tax risk management as part of their corporate governance; and
  • Rely on extensive in-built controls in their systems and processes to generate timely and accurate data for financial and tax reporting.
Businesses that have established GST Control Framework at three critical levels (Entity Level, Transaction Level and GST Reporting Level) can undertake ACAP voluntarily.

Elements of GST Control Framework

Entity level

Senior Management - Incorporates GST risk management approach as part of the corporate governance. Senior Management and/or Boards of Directors- Maintains oversight of important GST matters. Control features pertaining to GST are established in:
  • Control Environment
  • Control Activities
  • System Controls
  • Change Management
  • Information and Communication
  • Monitoring and Review

Transactional level

Ensure the transactions are:
  • properly tax classified
  • accurately captured
Essential preventive and detective controls are established for Sales and Purchases Cycles to manage GST risks.
Two main GST risks are:
  • Compliance risk: risk that a transaction may not be correctly tax classified or comply with requirements under the GST law.
  • Processing risk: risk that the processes in capturing the transaction may not be effective in generating accurate data

GST Reporting level

Ensure data extracted and compiled for reporting in GST returns are accurate and complete. Control features are established at:
  • extraction of data
  • compilation of data (including making adjustments to comply with GST reporting rules)
  • filing of GST returns

Qualifying for ACAP

You are eligible for ACAP if you meet the following conditions:
  1. You have established acceptable GST Control Framework with key controls (listed in the 'Self-Review of GST Controls below') established at Entity, Transaction and GST Reporting levels.
  2. The auditor's opinion on your latest financial statements is unqualified.
  3. You are registered for GST for at least three years.
  4. You are currently not under any GST audit conducted by IRAS.
  5. You have good compliance records (including no tax outstanding with IRAS) for GST, Income Tax, Property Tax and with the Singapore Customs.
  6. You commit to engage a qualified ACAP Reviewer to conduct ACAP Review.
See for chapters 'Trends' and 'Audit Defense' for other intiatives.

BEPS TP and CbC reporting: EY Survey  / Keith Brockman

EY’s survey of nearly 100 jurisdictions provides timely insight into unilateral activities and required legislative efforts to implement OECD BEPS Actions 8-10, transfer pricing guidelines, and Action13, transfer pricing documentation / country-by-country (CbC) reporting.
A link to the survey Key observations:
  • OECD TP Guidelines:
  • 7 countries (including the UK) to adopt the changes without need for legislative/administrative action
  • 54 countries refer to OECD TP Guidelines by tax authorities/courts for interpretation, but are not binding
  • 21 countries refer to OECD TP Guidelines in domestic legislation
  • TP Guidelines are meant to be an extension of the Commentary to the arm’s length principle in Article 9; if the revised Guidelines go beyond such rules a change in existing treaties will be required for implementation, although the multilateral instrument in development under Action 15 may remedy this
  • Tax authorities have used BEPS initiatives for leverage in Australia, Spain, Hungary, New Zealand, Finland, Indonesia, France and India
  • TP and CbC documentation may be provided as an exchange of information if they are “foreseeably relevant”
  • Legislative action will be required in most countries with current TP legislation to implement Master / Local File requirements
  • Most countries will require a change in law for CbC reporting; 38 countries are/will have such implementation legislation, 49 countries are not yet known, while only 11 countries are not expected to implement in the short/medium term
  • CbC information will be widely exchanged via exchange of information articles in double-tax treaties, tax information exchange agreements or Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (and the corresponding Multilateral Competent Authority Agreement)
The survey is a “must read” for interested parties that will be affected by OECD Actions 8-10 and 13; it magnifies the imperative of collecting such information timely and is not dependent on which countries adopt certain provisions the first year (as information will be exchanged quickly around the world regardless of which jurisdiction the parent entity resides in).

Source: BEPS TP & CbC reporting: EY Survey ‹ Keith Brockman - Reader —