Commission modernises EU customs procedures

The European Commission has adopted today a legal act to create a simpler, more modern and integrated EU customs system to support cross-border trade and provide for more EU-wide cooperation in customs matters.

It builds on the Union Customs Code adopted in 2013, which sets out detailed rules for twenty-first century customs processes. Customs services play a central role in policing the EU’s external borders and in facilitating trade.

The customs union is the operational arm of much of the EU's commercial policy measures. In addition, a growing range of government agencies call on customs to enforce their policies at the border.

EU customs handle 16% of world trade, or over two billion tonnes of goods a year with a value of EUR 3,400 billion. Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, Taxation and Customs, said:

 “A modern and cost-effective customs system facilitates international trade and is conducive to growth. It also plays a vital role in defending the safety and security of European citizens and in protecting Member States' interests.” 

The Commission has been working for several years on a major overhaul of customs rules in the EU. The basic regulations were changed in 2013.

Detailed acts must subsequently be adopted so that the new rules can be applied as of 1 May 2016.

Today's decision takes the form of a delegated act. This kind of legal act, introduced by the Treaty of Lisbon in 2010, gives the Commission power to adopt the technical, non-essential elements of an existing legislation, in this case of the Union Customs Code.

The act adopted today covers a wide area of customs activity, including:

• Simplifications of the customs procedure inward processing which allows the processing of non-Union goods without payment of import duty and other charges to support creation of added value in the EU;
• Clearer rules to ensure equal treatment of economic operators in the EU;
• Wide-ranging provisions which will allow customs decisions and authorisations to be valid across the EU in the future;
• Establishing common data requirements as the basis for new IT systems linking Member States' customs administrations to ensure a seamless exchange of information;
• Improvements in risk management to reinforce the fight against trade in illicit and prohibited goods, terrorism and other criminal activities.

The delegated act will now be considered by the European Parliament and the Council. In accordance with Article 290 TFEU, both can raise their objections within two months. This period of scrutiny can be extended by a further two months.

Background

The EU customs union has provided a stable foundation for economic integration and growth in Europe for over four decades.Customs legislation is decided at EU level while the implementation of that legislation falls primarily on the Member States.

Efficient customs administrations are essential to ensure a level playing field for traders in different Member States and to police the EU’s external borders.

In 2012, the Commission outlined a course of action for a more robust and unified customs union by 2020 in its Communication on the State of the Customs Union.

The Communication provided for a reform of its legal framework as well as a vast shift towards digitisation.

The Union Customs Code (UCC) which came into force in 2013 enables customs to focus more on trade facilitation as well as on security, safety and the enforcement of intellectual property rights. It also improves cooperation between customs authorities and other services.

Today's delegated act builds on this by setting out the details of the rules which will apply as from 1 May 2016. It will be supplemented by an additional implementing act, which is being submitted to Member States at the same time and will set out procedural details.

The implementing act will be voted by the Customs Code Committee composed of representatives from Member States.

The Commission consulted extensively with Member States and trade interest groups to prepare the delegated act. The act was adopted well ahead of the 1 May 2016 deadline to allow stakeholders to adapt.

For more information Video: One minute in the life of the EU Customs Union

Source: European Commission - PRESS RELEASES - Press release - Commission modernises EU customs procedures

The Australian Tax Office (ATO) Practice Statement

Tax benefits/avoidance & GAAR

Australia's effort to change the international tax arena. This practice statement is a draft for consultation purposes only.  Interested parties should submit comments by 25 September.

When the final practice statement issues, it will have the following preamble: This practice statement is an internal ATO document, and is an instruction to ATO staff.

Taxpayers can rely on this practice statement to provide them with protection from interest and penalties in the following way.

If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith.

However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.

This practice statement is designed to assist Tax officers who are contemplating the application of Part IVA or other GAARs to an arrangement, including in a private ruling, Public Ruling (including a Product Ruling or a Class Ruling) or other document setting out the ATO view.

• Trends
• Audit Defense

Webcasts about Indirect Tax Function Effectiveness

Benchmark information, templates, modules and approaches are shared to support VAT process improvements and meet business objectives

The added value of benchmarking the VAT function against best practices in the market is to gain objective evidence to what has already been achieved but also what still needs to be done to get there.

Our 'free' community Global Indirect Tax Management (GITM) website shares benchmark information about the effective management of VAT. It shows the area where risk based controls are to be expected and in addition shares templates and methods for self assessments purposes.

'Why', 'What', and 'How' of Managing an Effective Indirect Tax function

The global tax environment is in a state of fast change. A shift to indirect taxes represents the global trend. Driving Indirect Tax Management therefore becomes more and more important. The key to success in the management is the ability to translate indirect tax knowledge into a workable business process.

In general the advisory sector may bring you a wealth of knowledge but in practice the translation gap to a process within the actual execution of the theory makes a business vulnerable for an endless increase in consulting cost and an ineffective approach in timely dealing with current indirect tax exposures. This may easily result in a financial disaster.

Tax authorities are continuing to pick up on the common weaknesses identified in the Indirect Tax function. The restyling of the indirect tax function in a business may have to be considered by a business in order to deal with the increasing number of indirect tax challenges or to benefit from indirect tax opportunities.

Enhance the indirect tax communication within the business functional hierarchy, increase business awareness of the current state of its indirect tax function and set the right priorities for in-house stakeholders/departments (AP, AR, Legal, Finance etc) to successfully move to a best-practice is our philosophy.

Our aim is to share our expertise with you through this website, to create and share current state benchmarking knowledge, to inspire and also challenge your department functions through offering modules that can be used to scope process gaps from an indirect tax perspective.

A mythological way to express our mission statement would be to compare the general Indirect Tax function with the fall or rise of the Phenix legend. 

Reinventing Performance Management

The current way of performance review apparently says more about the reviewer than the reviewed and takes a lot of time - 2 million hours annually at Deloitte (completing the forms, holding the meetings, and creating the ratings):

Objective as I may try to be in evaluating you on, say, strategic thinking, it turns out that how much strategic thinking I do, or how valuable I think strategic thinking is, or how tough a rater I am significantly affects my assessment of your strategic thinking.

It was time for Deloitte to redesign its performance management, realize process improvement and a better outcome. The simpler design for managing people’s performance brought it back to four  questions:

• Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus \[measures overall performance and unique value to the organization on a five-point scale from “strongly agree” to “strongly disagree”].
• Given what I know of this person’s performance, I would always want him or her on my team \[measures ability to work well with others on the same five-point scale].
• This person is at risk for low performance \[identifies problems that might harm the customer or the team on a yes-or-no basis].
• This person is ready for promotion today \[measures potential on a yes-or-no basis] From 

We ask leaders what they’d do with their team members, not what they think of them

Harvard Business Reviews

The above could also be used to measure the performance of the tax function and evaluate whether the right skill set from a teaming perspective is available on the long run:

• 'Structure the tax function'
• 'Pitfalls Of Actual To Budget Exercises Especially In The Downturn'

Developing a common framework for disclosing tax information

See the KPMG - Developing a common framework for disclosing tax information - executive summary and actions proposed and below quote:

"There can be little doubt that the debate around greater tax transparency by companies is becoming increasingly prominent. There are a growing number of calls from various parts of civil society for companies to be transparent about where they operate around the globe, where they make their profits, where they pay their taxes and how much tax they pay."

The above has a relation with the recent UK consultation request to publish company's tax strategy, sign off such strategy by the executive and the voluntary code of conduct as discussed earlier in a previous article "Improving large business compliance".

The impact goes beyond the UK when the company's tax strategy is actually published on either the business website or in the annual report.

Some quotes from consultation document:

• The strategy should set out the business’s attitude to tax risk, its appetite for tax planning and its approach to its relationship with HMRC.
• It may also cover the governance framework describing the way a business takes decisions on taxation. The research found that “businesses with a greater appetite for risk tend[ed] not to have written (or published) tax strategies, while those with lower risk-appetite tended to have more formalised strategies.
• Businesses will be required to inform HMRC as and when it is published.
• It also shows us that increased scrutiny of tax strategy by a business’s Board actively discourages aggressive tax planning, with businesses stating that tax was now of “particular concern for senior management.
• Building on this, the proposal is to include a requirement to have a named individual at Executive Board level who is responsible for owning and signing off the tax strategy. This will further encourage bringing responsibility for tax into the boardroom and align with the best practice many businesses already exhibit.
• The proposed requirement for Board-level oversight echoes the existing Senior Accounting Officer (SAO) regime, which provides assurance that a business has adequate tax accounting arrangements in place. The SAO regime does not, however, extend to a business’s tax strategy. It is our intention that this proposal is kept apart from the existing SAO regime.
• The consultation request is - when a company's tax strategy is in the end actually published - therefore in my view a 'tax trend beyond UK' also when you read this in combination with other (e.g. OECD) initiatives.

The consultation request  - when a company's tax strategy is in the end actually published and what currently proposed is in force - should be seen in my view as a 'tax trend beyond UK' also when this is read in combination with other (e.g. OECD) initiatives.

I gathered most relevant documents for quickly access in the chapters 'Audit Defense' and 'Tax Trends'. Those initiatives are or will be embraced by governments for establishing a good and effective tax audit practice (see also below performance review of tax administrations).

Understanding the bigger picture and how it all fits is therefore important.

I gave as example on the GITM website that certain countries have implemented Standard Audit File for Tax Purposes submission (also originated from OECD). In Europe: Austria, France, Luxembourg and Portugal have already implemented SAF-T. The SAF-T standard, originally created by the OECD, is intended to give tax authorities easy access to the relevant data in an easily readable format. This leads to much more efficient and effective tax inspections.

In line with SAF-T obligations, from 1 January 2016 registered businesses in the Czech Republic will be required to file a new VAT return which will have details of each taxable transaction made with other Czech registered business. The Slovak Republic and Hungary have also introduced similar VAT filing requirements in order to prevent VAT fraud.

Other countries such as Netherlands still have their own local methods, but that might change soon. The Dutch tax authorities announced on May 19, 2015 that 5,000 of its 30,000 employees will lose their current job, while at the same time 1,500 specialized data analysts will be hired as tax returns will be automatically assessed via data analysis.  The world how we know it is changing.

"A pending reorganization at the Dutch tax authority Belastingdienst will likely result in the elimination of 4,000 to 5,000 jobs. The staff cuts are due to improvements to computer systems that reduced the need for many spot checks done by workers, reports broadcaster NOS. 

Improvements to information technology infrastructure will lead to better data analysis, and thus more accurate tax assessments, sources told NOS. This should not only reduce the amount of tax evasion, but also increase the amount of tax revenue received by anywhere from hundreds of millions to billions of euros every year."

The documents gathered in chapters 'Audit Defense' and 'Tax Trends' - should give a clear view of that bigger picture - about trends and actions needed to manage CIT and VAT.

These documents and initiatives should also be read in combination with the latest surveys: the performance review of tax administrations 'OECD Tax Administration 2015' and 'OECD – Update on voluntary disclosure programmes'.

The tax world is changing fast and it is important to keep up:

1. From a direct tax and indirect tax perspective begin to think further about how this aspect of tax strategy will be articulated on both a UK and international basis
2. If the UK document is going to be published, as planned in the consultation, it will be accessible to other tax authorities of course and they will need to be considered when drafting even a purely UK strategy document
3. Make all the improvements possible in the time before such legislation comes into force so that the starting position is as strong as possible

OECD - Update on voluntary disclosure programmes

Executive summary: A pathway to tax compliance

In general terms, voluntary disclosure programmes are opportunities offered by tax administrations to allow previously non-compliant taxpayers to correct their tax affairs under specified terms.

When drafted carefully, voluntary disclosure programmes benefit everyone involved – taxpayers making the disclosure, compliant taxpayers, and governments.

Voluntary disclosure programmes complement the rapid improvement in exchange of information and the ability of governments to detect offshore evasion.

They are an integral part of a broader compliance strategy – they need to be considered as part of a variety of compliance actions that tax administrations and governments take in order to encourage all taxpayers to meet their obligations.

Section I explains how voluntary disclosure programmes fit into the overall compliance strategy of a tax administration. The design of a voluntary disclosure programme should be such that taxpayers who come forward voluntarily pay more than they would have done had they been fully compliant from the outset, but face less punitive sanctions than evaders who make no disclosure but are detected by their tax administration.

Voluntary disclosure programmes can generally be grouped into two categories – permanent programmes and temporary initiatives. The OECD’s Forum on Tax Administration (FTA) has developed a decision tree to assist administrations that are considering a voluntary disclosure programme.

The decision tree provides an overview of the factors that tax administrations need to take account of when designing and administering a voluntary disclosure programme – weather it be permanent in nature or established on a temporary basis. In particular, decision makers should:

i) establish a reason for the programme,
ii) determine the scope,
iii) establish the terms,
iv) establish the reporting requirements,
v) consider the opportunity for intelligence gathering, and
vi) develop a communication strategy.

Section III identifies principles on which a successful voluntary disclosure programme should be based. A successful programme will:

a)  be clear about its aims and terms,
b)  deliver demonstrable and cost-effective increases in current revenues;
c)  be consistent with the generally applicable compliance and enforcement regimes;
d)  help to deter non-compliance;
e)  improve levels of compliance among the population eligible for the programme; and
f)  complement the immediate yield from disclosures with measures that improve compliance in the longer-term.

In order to improve uptake in voluntary disclosure, section IV provides a list of topics on which it would be desirable to provide a greater level of certainty for taxpayers who are considering participating in voluntary disclosure programmes.

Taxpayers’ primary concern is to understand exactly what will happen if they make a full and accurate disclosure and whether criminal charges will be brought. Taxpayers are also concerned about the confidentiality of the information that is provided, both because of the reputational damage that might result from any publicity and for reasons of personal security.

Taxpayers want reassurance that the financial terms on which their liabilities will be settled will not be prohibitive. They also want reassurance that once the disclosure is complete, they will not be unduly targeted for enhanced scrutiny in the future.

Finally, the last section of this paper compares the key features of voluntary disclosure programmes in 47 countries.

Countries considering the introduction of measures in this area can use this information to compare different strategies.

They can also use the information to review their own measures with a view to redesigning or adapting them.

Read update

OECD Tax Administration 2015

Tax Administration 2015, produced under the auspices of the Forum on Tax Administration, is a unique and comprehensive survey of tax administration systems, practices and performance across 56 advanced and emerging economies (including all OECD, EU, and G20 members).

Its starting point is the premise that revenue bodies can be better informed and work more effectively together given a broad understanding of the administrative context in which each operates. However, its information content is also likely to be of interest to many external parties (e.g. academics, external audit agencies, regional tax bodies, and international bodies providing technical assistance).

The series identifies some of the fundamental elements of national tax system administration and uses data, analyses and country examples to identify key trends, comparative levels of performance, recent and planned developments, and good practices.

I have grouped together other key documents in ‘Audit defense strategy‘ and ‘Tax trends‘ for easy access.

SAP VAT Health Check

During a health check for VAT and GST we will verify the proper working of the company's VAT configuration. The deliverable will provide a clear understanding of how changes in the business model, master data or legislation will have an impact on the configuration at hand.

The European Parliament - tax avoidance and tax evasion as challenges for governance

The European Parliament adopted by 50 votes to 57, with 23 abstentions, a resolution on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries.

Parliament recalled that tax evasion and avoidance have been identified as major obstacles to the mobilisation of domestic revenue for development by all major international texts and conferences on financing for development.

It called on the Commission promptly to put forward an ambitious action plan, in the form of a communication, to support developing countries fighting tax evasion and tax avoidance.

Members insisted that effective mobilisation of domestic resources and a strengthening of tax systems will be an indispensable factor in achieving the post-2015 framework that will replace the Millennium Development Goals (MDGs).

It expressed as well concerns about the level of corruption and non-transparent public administration that hinder tax revenues from being invested in state-building, public services or public infrastructure.

According to Parliament, tax resources remain low as a proportion of GDP in most developing countries, making them particularly vulnerable to the tax evasion and avoidance activities of individual taxpayers and companies.

This represents a considerable financial loss for developing countries which needs to be addressed. 

Action plan to combat tax avoidance and tax evasion in developing countries: the Commission is urged to take concrete and effective measures to support developing countries and regional tax administration frameworks, such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations, in the fight against tax evasion and tax avoidance, in developing fair, well-balanced, efficient and transparent tax policies.

Parliament asked the Commission to give good governance in tax matters, and fair, well-balanced, efficient and transparent tax collection, a high place on the agenda in its policy dialogue (political, development and trade), and in all development cooperation agreements, with partner countries.

It also called for information on beneficial ownership of companies, trusts and other institutions to be made publicly available in open-data formats in order to prevent anonymous shell companies and comparable legal entities from being used to launder money, finance illegal or terrorist activities, conceal the identity of corrupt and criminal individuals, and hide the theft of public funds and profits from illegal traffic and illegal tax evasion.

It believes, furthermore, that all countries should at minimum adopt and fully implement the Financial Action Task Force’s (FAFT) anti-money laundering recommendations.

Publication of tax information: Parliament invited the European Union and its Member States to enforce the principle that listed or unlisted multinational companies of all countries and sectors, and especially those companies extracting natural resources, must adopt country-by-country reporting (CBCR) as a standard, requiring them to publish, as part of their annual reporting and on a country-by-country basis for each territory in which they operate, the names of all subsidiaries and their respective financial performance, relevant tax information, assets and number of employees, and to ensure that this information is made publicly available, while minimising administrative burdens by excluding micro-enterprises. 

The Commission is called upon to put forward a legislative proposal to amend the Accounting Directive accordingly.

Parliament recalled that public transparency is a vital step towards fixing the current tax system and building public trust.

It underlined that tax exemptions and advantages granted to foreign investors through bilateral tax treaties provide MNCs with an unfair competitive advantage relative to domestic firms, especially SMEs.

It also called for the fiscal conditions and regulations under which extractive industries operate to be revised.

Parliament called for the establishment, by the end of 2015, of an internationally agreed definition of tax havens, of penalties for operators making use of them and of a blacklist of countries, including those in the EU, that do not combat tax evasion or that accept it.

It called on the EU to support the economic reconversion of those developing countries that serve as tax havens. It also urged:

• Member States with dependencies and territories that are not part of the Union to work with the administrations of these areas towards the adoption of the principles of tax transparency and to ensure that none serve as tax havens;
• that, when negotiating tax and investment treaties with developing countries, income or profits resulting from cross-border activities should be taxed in the source country where value is extracted or created;
• that impact assessments of European tax policies on developing countries be conducted (Parliament welcomed the Commission’s revised Action Plan on tax evasion and tax avoidance, to be presented in 2015);
• the Member States to agree swiftly on a Common Consolidated Corporate Tax Base;
• for sanctions to be considered both for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
• the Commission and the Council, and on partner governments, to ensure that tax incentives do not constitute additional options for tax avoidance;
• the EIB and the EBRD, and on Member States’ development finance institutions, to monitor and ensure that companies or other legal entities that receive support do not participate in tax evasion and avoidance.

2015/2058(INI) - 08/07/2015 Text adopted by Parliament, single reading.