Where you are and where you want to go

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

The global tax environment is changing rapidly. How do you anticipate, prepare for and manage these changes? The thought leadership publications on the GITM website could support but also challenge you. You will get access to new views, templates and methods to translate your indirect tax knowledge into workable business processes. In addition, senior management has often competing priorities and indirect tax not always rank high on their priority list. How do you achieve a turnaround and realize their buy-in?

We share our views and best practices.

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

• A roadmap to indirect tax function effectiveness:
  • Why is management necessary and what needs to be done?
  • How to realize objectives via best practice approaches, tools and methodology
  • How to increase indirect tax function effectiveness
  • Realizing senior management buy-in
  • Writing a business case, problem statement and calculate Return on Investment
• Where you are and where you want to go
• Planning of non-routine transactions
• Indirect tax strategic plan
• Tax control framework
• Risk management
• Data and technology including VAT and SAP
• Reporting
• Fraud
• Training
• EU developments

Our forum and blogspot contain the latest tax news.

Press Release - Starbucks decision has negative impact on dutch investment climate | AmCham

"This decision is a staggering," says Arjan van der Linde, Chairman of AmCham’s Tax Committee and fiscal spokesman for The American Chamber of Commerce in the Netherlands (AmCham).

"By disregarding OECD rules, the European Commission is creating considerable uncertainty about the tax implications for foreign investment in the Netherlands. This has a direct effect on new investments and future employment. Uncertainty about such a fundamental component of an investment is unacceptable for many companies," predicts Van der Linde.

He also highlights the expertise of the Dutch tax authorities,

"The Dutch tax authorities have years of experience with the application of OECD rules and work thorough and carefully in considering transfer pricing requests.  A separate APA practice exists.  In addition, the Dutch tax authorities are consistent in their approach, with all sorts of coordination groups looking over the shoulder of the inspector. This thorough approach cannot simply be cast aside."

AmCham urges the Dutch government to appeal the decision of the European Commission. To prevent interim uncertainty regarding the application of the OECD rules in the Netherlands, AmCham also urges the Dutch government to enter into direct dialogue with the European Commission. Van der Linde:

"The starting point should be that the Commission commits to harmonization of direct taxation within the EU on the basis of an anti-BEPS-directive and not through a disruptive autonomous interpretation of the widely accepted OECD rules."

Read further: Press Release - Starbucks Decision Has Negative Impact on Dutch Investment Climate | AmCham

• EU Commission State Aid Starbucks Decision – low adjustment is a wash out
• A Mysterious Study in the Code of Conduct Report 1999 and a Rumoured French Connection

State aid or not - what about 'reputational tax risks'

Reputational risk is a key element in tax risk management as it is it not only considers individual tax risk but also sees how tax risk may influence the positions in other areas, negatively or positively

On June 2014, the European Commission said it had opened three in-depth investigations into tax decisions affecting Apple, Starbucks and Fiat Finance and Trade in Ireland, the Netherlands and Luxembourg respectively.

An U.S. Senate investigation has revealed that Apple, that, "under the agreement Apple has with Ireland", Apple paid a maximum tax rate of 2 percent or less. Apple's annual reports show that over the past three years, Apple paid taxes worth 2 percent of its $74 billion in overseas income.

On his 2008 Presidential campaign trail, Barack Obama made his hostility toward “offshore” jurisdictions very clear:

There’s a building in the Cayman Islands that houses supposedly 12,000 U.S.-based corporations. That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.

European Commission's decision

In the light of the foregoing considerations, the Commission's preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU [Treaty on the Functioning of the European Union]. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.

According to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), state aid which affects trade between Member States and distorts, or threatens to distort, competition by favoring certain undertakings, is incompatible with the EU Single Market.

The European Commission considers that advance pricing agreements (APAs) should not have the effect of granting taxpayers lower taxation than other taxpayers in a similar legal and factual situation.

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: ft.com]

The above, raises the question whether besides evaluating tax risks (level of tolerance) also reputational risks of the company - as part of proper tax risk management - should have been considered when such schemes were setup.

In Apple's defense lots of multinationals have been doing the same and I believed myself that change of the tax system - as those structures are often legally allowed - was the only way to close such gaps.

That changed a bit with the European Commission decision that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules: Fiat and Starbucks ruling.

About change and competencies

Effective tax advice by a tax professional should nowadays not only address the ways of how not paying more tax than necessary and evaluate associated tax risks of implementing such tax planning schemes (rate level of tolerance on a risk scale), but should also take in consideration the impact of such planning on the reputation of the company if it becomes public knowledge.

• What is the impact if the tax planning at hand becomes public knowledge?
• What are the consequences if a newspaper or politician picks it up to make statements about lack of 'tax morale' and the company is used as case study?

VAT reputational risks

VAT exposures associated with the wider impact on the company's that arises from a company's actions or errors and have become public knowledge, examples:

• Aggressive VAT planning / VAT non compliance becomes public knowledge
• Due to company's VAT failures vendors are not paid in time that might disrupt the business
• Due to company's VAT failures VAT deduction of clients are disputed and assessed by tax authorities
• Failure to drive the optimum relationship with the (indirect) Tax Authorities

A tax professional should contribute and give guidance to achieve that taxpayers do not pay more tax than necessary. Every opportunity had to be considered. At least that was the job description and actually how you could differentiate yourself among competition to make that happen for example via realizing beneficial tax rulings.

Has that - due to the Starbucks and Fiat ruling - now changed and to what extent?

In the indirect tax field, especially value added tax, similar aggressive tax structures were for a long time often approved by (national) case law. That has changed when the European Court of Justice ruled a couple of years ago (ECJ Halifax: February 21, 2006) that the tax advantage had to be revoked or denied.

The indirect tax profession had to change as well and reposition itself to 'manage the numbers of indirect tax' - focus more on risk management - and because of new trends relationships with tax authorities became more important to realize the taxpayer's tax objectives.

Will tax planning become more about ‘being in compliance’ planning?

The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries. OECD promotes ‘enhanced relationship’ (OECD report: Study into the Role of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode and using elements of this way of working might not only safe time and money, result in a good relationship but as well mitigate reputational VAT risks.

Further (new) information

• EU Commission State Aid Starbucks Decision – low adjustment is a wash out
• A Mysterious Study in the Code of Conduct Report 1999 and a Rumoured French Connection
• Tax advantages for Fiat and Starbucks are illegal under EU state aid rules
• Starbucks and Fiat Chrysler’s tax avoidance deals to be ruled illegal |The Guardian
• Anticipate, prepare for and lead change
• Tax rulings and other measures similar in nature or effect
• BEPS 2015 Final Reports
• BEPS and Indirect Tax

No VAT on Bitcoin, rules ECJ

Transactions of and for Bitcoin are transactions exempt from VAT,  the European Court of Justice (ECJ) has ruled in Case C‑264/14 today.

• Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that transactions such as those at issue in the main proceedings, which consist of the exchange of traditional currency for units of the ‘bitcoin’ virtual currency and vice versa, in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, constitute the supply of services for consideration within the meaning of that article.
• Article 135(1)(e) of Directive 2006/112 must be interpreted as meaning that the supply of services such as those at issue in the main proceedings, which consist of the exchange of traditional currencies for units of the ‘bitcoin’ virtual currency and vice versa, performed in return for payment of a sum equal to the difference between, on the one hand, the price paid by the operator to purchase the currency and, on the other hand, the price at which he sells that currency to his clients, are transactions exempt from VAT, within the meaning of that provision.
• Article 135(1)(d) and (f) of Directive 2006/112 must be interpreted as meaning that such a supply of services does not fall within the scope of application of those provisions.

Anticipate, prepare for and lead change

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. Let me explain.

Based on the recent UK consultation request it is proposed that large businesses publish their company's tax strategy, the executive signs off of the tax strategy and the business will practice 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.

More efficient and effective tax inspections

The SAF-T standard, originally created also 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.

Certain countries have already implemented Standard Audit File for Tax Purposes submission. In Europe: Austria, France, Luxembourg and Portugal.

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.

• Spain’s plans for VAT Immediate Supply of Information (SII)
• New VAT control ledger in Czech Republic
• Mexico: Everything you need to know about electronic accounting records

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 fast.

 "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."

Initiatives and views

• Final Reports BEPS
• State aid or not - what about 'reputational tax risks'
• Tax position exceeds external auditor's materiality
• Examples of public Fiscal Transparency statements
• The Indirect tax impact of BEPS
• Mandatory electronic audit files a worldwide trend
• Tax Compliance Consultation - UK
• UK’s Large Business Compliance Consultation: TEI’s comments
• iBestuur: Belastingdienst zoekt heil in datalaag

Tax advantages for Fiat and Starbucks are illegal under EU state aid rules

The European Commission has decided that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules.

Commissioner Margrethe Vestager, in charge of competition policy, stated:

"Tax rulings that artificially reduce a company's tax burden are not in line with EU state aid rules. They are illegal. I hope that, with today's decisions, this message will be heard by Member State governments and companies alike. All companies, big or small, multinational or not, should pay their fair share of tax."

Following in-depth investigations, which were launched in June 2014, the Commission has concluded that Luxembourg has granted selective tax advantages to Fiat's financing company and the Netherlands to Starbucks' coffee roasting company. In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company.

Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions. However, the two tax rulings under investigation endorsed artificial and complex methods to establish taxable profits for the companies. They do not reflect economic reality. This is done, in particular, by setting prices for goods and services sold between companies of the Fiat and Starbucks groups (so-called "transfer prices") that do not correspond to market conditions. As a result, most of the profits of Starbucks' coffee roasting company are shifted abroad, where they are also not taxed, and Fiat's financing company only paid taxes on underestimated profits.

This is illegal under EU state aid rules: Tax rulings cannot use methodologies, no matter how complex, to establish transfer prices with no economic justification and which unduly shift profits to reduce the taxes paid by the company. It would give that company an unfair competitive advantage over other companies (typically SMEs) that are taxed on their actual profits because they pay market prices for the goods and services they use.

Therefore, the Commission has ordered Luxembourg and the Netherlands to recover the unpaid tax from Fiat and Starbucks, respectively, in order to remove the unfair competitive advantage they have enjoyed and to restore equal treatment with other companies in similar situations. The amounts to recover are €20 - €30 million for each company. It also means that the companies can no longer continue to benefit from the advantageous tax treatment granted by these tax rulings. 

Furthermore, the Commission continues to pursue its inquiry into tax rulings practices in all EU Member States.

It cannot prejudge the opening of additional formal investigations into tax rulings if it has indications that EU state aid rules are not being complied with. Its existing formal investigations into tax rulings in Belgium, Ireland and Luxembourg are ongoing. Each of the cases is assessed on its merits and today's decisions do not prejudge the outcome of the Commission's ongoing probes.

Fiat

Fiat Finance and Trade, based in Luxembourg, provides financial services, such as intra-group loans, to other Fiat group car companies. It engages in many different transactions with Fiat group companies in Europe.

The Commission's investigation showed that a tax ruling issued by the Luxembourg authorities in 2012 gave a selective advantage to Fiat Finance and Trade, which has unduly reduced its tax burden since 2012 by €20 - €30 million.

Given that Fiat Finance and Trade's activities are comparable to those of a bank, the taxable profits for Fiat Finance and Trade can be determined in a similar way as for a bank, as a calculation of return on capital deployed by the company for its financing activities. However, the tax ruling endorses an artificial and extremely complex methodology that is not appropriate for the calculation of taxable profits reflecting market conditions. In particular, it artificially lowers taxes paid by Fiat Finance and Trade in two ways:

• Due to a number of economically unjustifiable assumptions and down-ward adjustments, the capital base approximated by the tax ruling is much lower than the company's actual capital.
• The estimated remuneration applied to this already much lower capital for tax purposes is also much lower compared to market rates.

As a result, Fiat Finance and Trade has only paid taxes on a small portion of its actual accounting capital at a very low remuneration. As a matter of principle, if the taxable profits are calculated based on capital, the level of capitalisation in the company has to be adequate compared to financial industry standards. Additionally, the remuneration applied has to correspond to market conditions. The Commission's assessment showed that in the case of Fiat Finance and Trade, if the estimations of capital and remuneration applied had corresponded to market conditions, the taxable profits declared in Luxembourg would have been 20 times higher.

Starbucks

Starbucks Manufacturing EMEA BV ("Starbucks Manufacturing"), based in the Netherlands, is the only coffee roasting company in the Starbucks group in Europe. It sells and distributes roasted coffee and coffee-related products (e.g. cups, packaged food, pastries) to Starbucks outlets in Europe, the Middle East and Africa.

The Commission's investigation showed that a tax ruling issued by the Dutch authorities in 2008 gave a selective advantage to Starbucks Manufacturing, which has unduly reduced Starbucks Manufacturing's tax burden since 2008 by €20 - €30 million. In particular, the ruling artificially lowered taxes paid by Starbucks Manufacturing in two ways:

• Starbucks Manufacturing pays a very substantial royalty to Alki (a UK-based company in the Starbucks group) for coffee-roasting know-how.
• It also pays an inflated price for green coffee beans to Switzerland-based Starbucks Coffee Trading SARL.

The Commission's investigation established that the royalty paid by Starbucks Manufacturing to Alki cannot be justified as it does not adequately reflect market value. In fact, only Starbucks Manufacturing is required to pay for using this know-how – no other Starbucks group company nor independent roasters to which roasting is outsourced are required to pay a royalty for using the same know-how in essentially the same situation. In the case of Starbucks Manufacturing, however, the existence and level of the royalty means that a large part of its taxable profits are unduly shifted to Alki, which is neither liable to pay corporate tax in the UK, nor in the Netherlands. 

Furthermore, the investigation revealed that Starbucks Manufacturing's tax base is also unduly reduced by the highly inflated price it pays for green coffee beans to a Swiss company, Starbucks Coffee Trading SARL. In fact, the margin on the beans has more than tripled since 2011. Due to this high key cost factor in coffee roasting,

Starbucks Manufacturing's coffee roasting activities alone would not actually generate sufficient profits to pay the royalty for coffee-roasting know-how to Alki. The royalty therefore mainly shifts to Alki profits generated from sales of other products sold to the Starbucks outlets, such as tea, pastries and cups, which represent most of the turnover of Starbucks Manufacturing. European Commission - Press release - Commission decides selective tax advantages for Fiat in Luxembourg and Starbucks in the Netherlands are illegal under EU state aid rules

Further information

• Could I Please Get a Fiat for the Price of my Frappuccino? 
• The changing tax world and taxpayer's impact
• Tax rulings and other measures similar in nature or effect
• Anticiperen op onze 'nieuwe' belastingwereld
• BEPS 2015 Final Reports
• UK - Improving large business compliance
• Developing a common framework for disclosing tax information
• Reputational risks

Bloomberg Business: Starbucks, Fiat Decisions Seen in First Wave of EU Tax Cases

Starbucks Corp. and a Fiat Chrysler Automobiles NV unit are set to be first in the firing line as European Union regulators issue a series of rulings over tax breaks for global companies, including Apple Inc.

The EU may issue decisions against Starbucks and Fiat as soon as next week following a two-year probe into how the companies may have gotten unfair tax treatment from Dutch and Luxembourgish authorities, people familiar with the cases said.

Speculation about the probes intensified this week as Margrethe Vestager, the EU’s competition chief, canceled a scheduled visit to China, citing pressing matters relating to her job. Decisions on whether iPhone maker Apple and Amazon.com Inc. got sweetheart tax deals from Ireland and Luxembourg are expected at a later date, said the people who asked not to be identified because the decision isn’t public.

Apple’s tax strategies were thrown in the spotlight in 2013 when U.S. Senate scrutiny showed that a unit incorporated in Ireland and controlled by a board in California didn’t pay taxes in either location despite having recorded $30 billion in profit since 2009.

The revelations set in motion the EU competition regulator, which opened probes into the iPhone maker, Starbucks’ relationship with the Netherlands, and Amazon.com Inc. and Fiat deals in Luxembourg within months.

Luxleaks

While the EU focused on those four companies, the widespread nature of corporate tax avoidance in Luxembourg was highlighted in late 2014 when thousands of pages of secret fiscal deals the tiny nation struck with companies from around the world, including PepsiCo Inc. and Walt Disney Co., were leaked by an international consortium of journalists.

Seattle-based Starbucks said in a statement that it complies with all relevant tax laws around the globe and pays an “effective tax rate of around 33 percent.” The company said it is cooperating with the EU probe.

Officials from Luxembourg, the Netherlands and the EU declined to immediately comment. Fiat declined to comment beyond previous statements.

The Wall Street Journal reported earlier today that the EU would issue rulings saying the tax deals were improper. Apple raised a flag in April about the potential cost if the company is required to pay past taxes to Ireland as part of the European Commission investigation.

 While Apple hasn’t been able to estimate the amount, it could be “material,” the Cupertino, California-based technology company said in a filing with the U.S. Securities and Exchange Commission.

Back Taxes

Any ruling from the EU is unlikely to resolve how much money national governments have to claw back from the companies. Commission officials have previously said the initial decisions will merely contain a formula for national officials to calculate how much back taxes are owed.

While Vestager has promised to move quickly to complete the investigations, she has vowed not to sacrifice quality for speed, as the regulator seeks to build legally sound cases that can fend off legal challenges.

Ireland’s Finance Minister Michael Noonan has vowed to go to court to fight any negative ruling in the Apple case. Whatever happens, “we don’t think it will be damaging,”

Noonan told reporters earlier this month. “If it’s adverse, we think it’s based on very thin legal grounds and we’ll have it before the European Court of Justice.”

In the Starbucks case, the commission said last year that a Dutch unit paid millions of euros to a U.K.-based arm of the company that isn’t taxed in Britain in exchange for a technique to roast coffee beans.

Exaggerated tax-deductible royalty payments for this technique may have allowed Starbucks to unfairly lower its Dutch taxes, the commission said.

In the Fiat case, the commission raised doubts over Luxembourg’s arrangement with Fiat Finance & Trade SA. Fiat said last year it didn’t request a ruling to obtain a tax exemption from Luxembourg and was surprised by the probe. Starbucks, Fiat Decisions Seen in First Wave of EU Tax Cases - Bloomberg Business

Further information

• The changing tax world and taxpayer's impact
• Tax rulings and other measures similar in nature or effect
• Anticiperen op onze 'nieuwe' belastingwereld
• BEPS 2015 Final Reports
• UK - Improving large business compliance
• Developing a common framework for disclosing tax information
• Reputational risks

Tax rulings and other measures similar in nature or effect

On 16.11.15 TAXE Committee will hold an extraordinary committee meeting with various multinational corporations - who have declined previous invitations - to hear their views on recent developments in the corporate taxation in the EU and beyond.

These include, among others, the OECD proposal on the Base Erosion and Profit Shifting (BEPS) Action Plan to the G20 and the ongoing Commission consultation on Common Consolidated Corporate Tax Base (CCCTB).

The Plenary vote is scheduled at Nov II session.

• Multinational corporations invited to appear in TAXE special committee meetings

Committee vote on TAXE report - 26.10.2015

Voting session

The committee vote on TAXE report will take place on 26.10.15 in Strasbourg. 1047 amendments were tabled to the draft TAXE report by co-rapporteurs Ms Ferreira (S&D) and Mr Theurer (ALDE) which cover inter alia recommendations on enhanced cooperation and coordination by Member States on tax issues, including tax rulings, a compulsory CCCTB, state aids rules, transparency, country-by-country reporting, tax advisers, protection of whistle blowers and the third country dimensions.

• Draft report and amendments

The next meeting of TAXE committee will take place on Monday, 26 October in Strasbourg, from 19.00 to 22.30 in meeting room Winston Churchill (WIC) 200. The vote on the committee's report is scheduled to take place during this meeting which will be webstreamed.

 

• TAXE committee - calendar of meetings
• Publications: press releases, presentations, speeches
• TAXE Commitee - Top story on Europarl News

Australia reacts to BEPS Action Plans

Australian Initiatives

In line with this directive, the Government of Australia has been working on measures to combat multinational tax avoidance by targeting core tax avoidance issues, whilst endeavouring to ensure that Australia remains an attractive and competitive place to do business.

The Australian Government has been very vocal in its intention to be at the forefront of tax integrity and the global fight against tax avoidance both from a local-country and multi-jurisdictional perspective.

Comment

The BEPS Actions will revolutionise international tax and transfer pricing practices. Governments all around the world need to act to protect their share of finite global revenues. Whether those governments can work in a cooperative and mutually beneficial manner remains to be seen.

However, Australia is determined to be one of the leaders in this area and to shoring up its share of that tax take is clearly its absolute priority. Read further: Quantera Global | Australia reacts to BEPS Action Plans

Relevant background information

• BEPS 2015 Final Reports
• The Australian Tax Office (ATO): Tax benefits/avoidance & GAAR
• Australia - Tax risk management and governance review guide
• Australia – GST Treatment of Cross-border transactions

'Nederlandse deal met Starbucks is onwettig'| Telegraaf.nl

De EU gaat waarschijnlijk volgende week woensdag beslissen dat Starbucks en Fiat Chrysler van illegale belastingvoordelen hebben geprofiteerd in Nederland en Luxemburg.

Bij de Commissie houdt iedereen de kaken op elkaar, maar duidelijk is inmiddels dat na een onderzoek van meer dan twee jaar de Europese antikartelautoriteit tot de slotsom is gekomen dat de 'tax rulings' die Starbucks en Fiat Chrysler met de Nederlandse en respectievelijk de Luxemburgse fiscus hebben gesloten, onwettig zijn.

Behalve Fiat en Starbucks heeft de Commissie ook Apple en Amazon op de korrel, die gebruik maken van Ierse belastingvoordelen.

(...)

Het grote verschil tussen wettige 'tax rulings' en onwettige is als een belastingdeal is opgezet louter en alleen om eigenlijk nergens belasting te betalen. In het geval van Starbucks zou een in Nederland gevestigd onderdeel van het wereldwijde concern miljoenen hebben doorgesluisd naar een Britse dochter in ruil voor de rechten op het branden van koffie.

(...)

Als de Commissie volgende week doorzet, waar het wel op lijkt, moeten beide bedrijven zich schrap zetten voor forse naheffingen. (...) Het onderzoek van de Commissie kreeg in 2014 een nieuwe impuls toen duizenden pagina’s met geheime belastingdeals in Luxemburg uitlekten, de zogeheten 'Luxleaks'.

Het onderzoek van de Commissie is mede bedoeld om tot 'jurisprudentie' te komen over het maximale belastingvoordeel dat EU-lidstaten aan een onderneming mogen toekennen. Lees verder: 'Nederlandse deal met Starbucks is onwettig'|Nieuws| Telegraaf.nl

Achtergrond info

• The changing tax world and taxpayer's impact
• Anticiperen op onze 'nieuwe' belastingwereld
• BEPS 2015 Final Reports
• UK - Improving large business compliance
• Developing a common framework for disclosing tax information

UK’s Large Business Compliance Consultation: TEI’s comments

Tax Executives Institute (TEI) has provided practical and insightful comments in response to UK’s Large Business Compliance Consultation by HMRC, which is far-reaching.  A link to TEI’s comments is provided for reference.

Keith Brockman's key points:

• The Consultation is focused on UK HQ companies, although the proposals also apply to non-UK based multinationals (MNE’s).
• The underlying principle is unclear, especially for non-UK based MNE’s, and should be amended accordingly.
• A separate UK tax strategy is an unrealistic expectation for most MNE’s, and will provide little relevance if enacted.
• A UK Code of Practice is also unrealistic for MNE’s.
• UK taxes, paid or accrued, generally bears little relevance to the global effective tax rate and is not relevant.
• UK’s current tools of general anti-avoidance rules (GAAR), Senior Accounting Officer (SAO) tax framework, newly enacted Diverted Profits Tax, a Customer Relationship Manager (CRM) and other anti-abuse rules are already in place and would seem to remedy HMRC’s concerns.
• Special measures are subjective and not subject to a formal independent panel for review prior to execution.
• Board-level accountability may not be practical, while the SAO framework may accommodate this proposal.
• Signing, or not signing, the Code of Practice should not be a trigger for public disclosure or risk assessment.
• The Code of Practice includes determinations that transactions meet the intent of Parliament, an inherently subjective test that may be applied at will regardless of the law.

The tax transparency see-saw has now tilted to a dangerous level, in that transparency objectives no longer seem to meet the needs of tax authorities. Information is being requested to satisfy presumed needs of the public and tax administrations, although similar efforts are not being made to have discussions with taxpayers to better understand tax risk and the relevant functions, assets and risks for which transfer pricing should be based in the relevant jurisdiction.

The UK proposal, and similar initiatives, may indeed erode the trust for which the tax authorities are seeking.  It would be a novel concept to include the business community in discussions around these proposals prior to drafting, a welcome initiative that would better represent a win-win opportunity.

Additionally, all audits should begin with a formal understanding of the transfer pricing practices of the MNE in that jurisdiction to focus tax queries accordingly and efficiently. As the UK Diverted Profits Tax model has strayed from the OECD’s intent re: the BEPS Action Items, it has nonetheless been followed by other countries.

This proposal may have a similar result, magnifying the concern of MNE’s and merits a detailed review by all MNE’s irrespective of UK business presence.  UK’s Large Business Compliance Consultation: TEI’s comments | Strategizing Multinational Tax Risks

Background information and views

• UK - Improving large business compliance
• EU - Public consultation on further corporate tax transparency
• Developing a common framework for disclosing tax information
• The changing tax world and taxpayer's impact

New VAT control ledger in Czech Republic

As from the first of January 2016, companies with a VAT registration in the Czech Republic will be obliged to submit a new VAT ledger statement electronically. This control ledger has to be submitted on a monthly basis by the 25th of the following month, the same deadline as the VAT return. The first control report has to be submitted by the 25th of February 2015. Penalties will apply if the report is not submitted within the relevant deadline.

The new report will provide details in respect of information already provided in the VAT return. These details will include invoice numbers, details on suppliers, customers etc. The report will be submitted on a monthly basis within the same deadlines as the VAT return.

Basically, all local purchases or sales would have to be included. Furthermore, for most invoices, also information on the counterparty, number of the invoice, VAT amount, VAT base and tax point would have to be included. Local sales or purchases below CZK 10,000 would be subject to less detailed reporting.

Furthermore, also information on acquisition of goods and/or services from foreign entities not established in the Czech Republic with a place of supply in the Czech Republic would have to be reported. Companies should verify whether the data required for this report is available in the existing IT or accounting system as the information required to be reported is much more detailed compared to what is required to be reported on the VAT returns.

The Czech authorities have recently disclosed the XML structure of the ledger enabling companies to adjust their internal systems in order to comply with this new reporting obligation. New VAT control ledger in Czech Republic | Pincvision

 Relevant information

• Tax authorities peeking at your data
• Mandatory electronic audit files a worldwide trend

Mexico: Everything you need to know about electronic accounting records

The use of information and communication technologies has grown in popularity in recent years, particularly in the field of tax administration, as it has served as a tool to assist governments in their mission of attracting resources.

The effective usage of such resources makes this a matter of great importance for control processes, in which the cross-checking of information is determinant for the detection of transactions and activities which cause tax base erosion.

The topic of filing electronic accounting records in Mexico was raised since the tax reform, and was materialised through article 28 of the 2014 Federal Tax Code. At first sight it might seem like just another requirement. However, it is necessary to consider that the accounting records cover a wide range of (complex) information, especially considering the specific characteristics that the Tax Administration Service has been requiring from taxpayers through several modifications to the Temporary Resolutions.

(...)

The requirement for submitting electronic accounting records will provide the Mexican tax authorities enough information about a taxpayer’s situation and activities; however, it will be also necessary to develop mechanisms that protect the proper use of this information in order to perform more efficient procedures.

It is important to mention the administrative burden that this new requirement represents for corporations, though this should result in a future benefit, as it will ensure transparency in the information exchange between taxpayers and tax authorities.

Through the establishment of requirements such as the filing of electronic accounting records, Mexico has positioned itself as a leader in the field of electronic procedures for tax purposes. Such measures have also demonstrated that Mexico is aligned with worldwide concerns, such as the OECD-led fight against base erosion and profit shifting (BEPS) and the problems for aggressive tax practices and governments’ lack of information.

Read more: Mexico: Everything you need to know about electronic accounting records | International Tax Review

Relevant information

• Tax authorities peeking at your data
• Mandatory electronic audit files a worldwide trend

Info

Spain's plans for VAT Immediate Supply of Information (SII)

According to recently-published European Commission studies, the VAT gap in Spain has been decreasing, although at more than EUR10bn the difference between VAT paid and VAT that should be paid is still significant compared to other EU Member States.

The Spanish government was urged to find a solution which will stop the VAT leakage from the financial system, and so tax authorities introduced a new strategy to modernise VAT administration through the new system of ‘Immediate Supply of Information’ (S.I.I.).

While the new rules are still at draft Royal Decree stage and pending approval, the authorities ideally want this to be effective in 2017, so taxpayers should start assessing all information related to implementation to ensure compliance with new VAT rules.

In essence, qualifying companies need to electronically supply data from Spanish VAT books within four working days; where third-party billing or customer self-billing is involved, the deadline is extended to eight days. The tax authorities believe this will improve tax control and assist taxpayers to obtain data for VAT returns and speed up the refund process. It will be compulsory for all taxpayers who:

• are part of a VAT group;
• are considered a large size company (invoicing over €6.01 million a year) or
• are applying the monthly refund scheme i.e. REDEME group

Any other taxpayer can also apply for SII on a voluntary basis, independent of the type of activity carried out or the VAT status as an established or non-established entity. For SII, taxpayers will need to provide:

• Invoices issued and received
• VAT calculations
• The application of the reverse charge
• Intra-community arrivals and dispatches
• Certain additional information which at present is not included in such books (like description of the transactions, the VAT Period, etc.)
• The method to rectify prior registry entries

This amendment is a first step to increased visibility of transactions in Spain; the next step would be to train tax officers in how to analyse such possessed data to prevent fraud more accurately.

It has to be emphasised that Spanish authorities are preparing some incentives for taxpayers, such as deadline extensions and faster refund proceedings, which should help to embrace this change. And while those advantages should not be belittled, they are more of a natural consequence of introducing this system than the good will of tax authorities.

This system should become fully operational from 2017 and it may sound like a distant future, but this amendment is significant one, so starting preparation soon should help to go through transition period smoothly. Spain's plans for VAT Immediate Supply of Information (SII) | TMF Group

Relevant information

• Tax authorities peeking at your data
• Mandatory electronic audit files a worldwide trend

Info

Maakt OESO internationale tax planning onmogelijk?

 Wim Wuyts:

Het grote probleem wordt evenwel de dubbele belasting van een zelfde winst. Eén van de 15 maatregelen voorziet dat elke multinational een rapportering zal moeten opstellen die per land een overzicht geeft van activa, tewerkstelling, winstgevendheid enz., de zogenaamde “Country by Country” rapportering.

Dit overzicht zal jaarlijks moeten opgesteld worden door het moederbedrijf en ingediend worden bij haar eigen fiscale administratie. Vervolgens zullen alle landen deze “Country by Country” rapportering spontaan met elkaar delen, maw elke fiscale overheid waar een multinational operationeel is zal op een zeer transparante manier zien wie hoeveel waar betaalt en zal zich zelf rijk kunnen rekenen door een groter stuk van de totale winst op te eisen.

Het spreekt van zelf dat geen enkel bedrijf zich bij deze vervormde realiteit zal neerleggen en dat we bijgevolg een exponentiële stijging van fiscale geschillen zullen krijgen die de fiscale autoriteiten uiteindelijk zelf in een onderlinge arbitrage-procedure zullen moeten oplossen daar dit alles grensoverschrijdende materie is.

Lees verder: Maakt OESO internationale tax planning onmogelijk? | Jubel: Wim Wuyts

Adapting to changing environments: BEPS and VAT

Source: PwC - The final recommendations from the OECD’s base erosion and profit shifting (BEPS) project were released on 5 October 2015. The recommendations were endorsed by the G20 Finance Ministers on 8 October 2015, and they renewed their commitment for rapid, wide-spread and consistent implementation of the measures.

Whilst the vast majority of the recommendations are focused on corporate tax and transfer pricing, there are also specific proposals in respect of indirect tax. Action 1 which focuses on the digital economy, contains specific references to BEPS issues arising with respect to indirect taxation, as follows:

1. B2C supplies;
2. remote digital supplies to exempt businesses / remote digital supplies to multi-location enterprises; and
3. VAT/GST on low value imports.

Recommendations to address these issues are as follows:

• The place of supply for B2C services should follow the destination principle, i.e. collection of VAT on B2C transactions in the customer location. To support this change, a simplified registration and compliance regime, similar to the EU Mini One Stop Shop, should be put in place for non-resident suppliers. This is likely to increase the number of local VAT registrations and VAT liabilities.
• For B2B ‘remote digital’ supplies, the place of supply should be where the customer’s business establishment is located (where a business is established in more than one jurisdiction, taxation should accrue where the establishment using the service is located), with a requirement to apply a reverse charge. PwC: Adapting to changing environments: BEPS & VAT - Tax

Relevant info

• Download PwC: BEPS - Adapting to a changing environment
• GITM: BEPS and Indirect Tax

Eight out of ten businesses still using spreadsheets for VAT compliance

 

More than 80% of businesses are still using spreadsheets to manage their VAT compliance in at least one jurisdiction in which they operate, despite tax authorities around the world investing in better tools. International Tax Review by Avalara as part of their VAT Automation Summit

Richard H. Cornelisse:

Many multinationals run various versions of ERP systems or legacy systems without harmonization. The ERP set-up is often per business unit and thus multiple set ups per country are possible. This could be the root cause that:

• running of system's exception reports to look for missed opportunities, under claimed VAT and potential fraudulent transactions is still a challenging exercise
• a lot of manual (re)work is often needed to file the VAT reporting and reconcile the VAT numbers due to the use of multiple spreadsheets and various data sources (divisions, different systems)

The latter is interesting as spreadsheets are usually found at critical points in the audit trail? And are often designed by non-specialists with no system expertise.

What should be considered from an audit defense?

The SAF-T standard, originally created by the OECD (similar as BEPS), is intended to give tax authorities easy access to the relevant data in an easily readable format for bot corporate income tax as VAT. This leads to much more efficient and effective tax inspections. Data analytics will become the most efficient and effective way of future tax auditing. From the articles: ERP systems and tax engines and Tax authorities peeking at your data.

Relevant chapters

1. When is standard SAP (in)sufficient?
2. Everything you always wanted to know about VAT in SAP * but were not aware to ask
3. Tax engines questions to ask before you commit
4. BEPS and Indirect Tax

Info

Werken bij de belastingdienst - Vacature Data Scientist

Vacature Data Scientist 

Door het slim toepassen van analytics en profiling moet de performance van de Belastingdienst aanmerkelijk slimmer, sneller en effectiever worden!

En dat is van invloed op alle burgers en bedrijven in Nederland.

• Ben jij de bèta die daaraan gaat bijdragen?
• Wil jij een rol van betekenis spelen in het ontmantelen en analyseren van zeer, zeer veel data die een geldstroom vertegenwoordigen van vele miljarden aan euro’s?

De afdeling business intelligence & analytics (BI&A) is het kloppend hart van de Belastingdienst en staat symbool voor de beweging en ingeslagen weg van de organisatie.

De invloed van automatisering op btw controles

De Nederlandse Belastingdienst heeft aangekondigd dat 5.000 van de 30.000 medewerkers hun huidige baan verliezen. Routinematige en arbeidsintensieve administratieve processen worden in steeds hogere mate geautomatiseerd.

Daarnaast bieden ontwikkelingen op het gebied van de inzet van moderne datamining- en data-analysetechnieken in de toezichts- en handhavingssfeer nieuwe mogelijkheden voor de Dienst, waardoor het profiel van de medewerkers verandert.

Deze hiervoor in het kort geschetste ontwikkelingen leiden tot een nieuwe manier van werken die zou moeten leiden tot een forse reductie van de inzet van administratief opgeleid personeel en de aankondiging dat er 1.500 nieuwe medewerkers zullen worden gezocht met een aangepast ‘IT’-profiel.

De ambities zijn duidelijk: IT lijkt een deel van de arbeidsintensieve werkzaamheden van de belastingcontroleur over te nemen. Door bijvoorbeeld het koppelen van informatiebronnen kunnen belastingcontroles efficiënter worden ingericht.

Een voorbeeld hiervan is bij sommigen de wel bekende aansluiting van zogeheten ‘kilometeradministraties’ met informatie van het Centraal Justitieel Incasso Bureau rondom snelheidsovertredingen.

Bronnen

• Data-analyse bij Belastingdienst: automatische controle gaat niet vanzelf
• Werken bij de belastingdienst - Vacature Data Scientist

Review of the content and format of the European Commission’s Mini One Stop Shop (MOSS) web portal

As part of the current efforts to support the smooth implementation of the 2015 Place of Supply rules (Council Directive 2008/8/EC) and the functioning of the MOSS portal, the Commission is looking for inputs and suggestions to improve the quality of the information presented on the MOSS web portal. 

This improvement could be twofold: In terms of content:

• the information that is regularly updated could be adapted to better fit the needs of the users (primarily the businesses but the national administrations as well);
• In terms of format: currently, the information is presented in an Excel file; we will look at more user-friendly ways of presenting the data to better fit the needs of the users.

In this survey we ask users to assess the relevance of the information currently provided and indicate which additional material would be useful for businesses, as well as which features would improve the user-friendliness and usability of the Commission’s MOSS web-portal.

We would appreciate your opinions on the current content of the web-portal and your suggestions on how to improve it in the future. The results of the survey will be presented and discussed during the stakeholders’ workshop to be held in Brussels in November.

Participation in the survey should not take more than 15 minutes.

Please provide us with your feedback by Friday 30th of October.

Source: EU Survey - Survey

Mandatory exchange of tax rulings proposal: a "missed opportunity” say MEPs

The EU Commission proposal to make it mandatory for EU member states to exchange information on their tax rulings received only a lukewarm welcome in Parliament’s Economic and Monetary Affairs Committee on Tuesday. However, the report by Markus Ferber (EPP, DE), voicing dismay at the directive’s limited scope and late entry into force, has already been overtaken by last week's ECOFIN Council deal, which watered down the Commission proposal even further. 

The report was approved by 49 votes in favour, 0 against and 6 abstentions.

  "Disappointed"

 Parliament’s rapporteur Markus Ferber is disappointed about the Council agreement:

"If this is the final text, member states will have missed a great opportunity to create more transparency in taxation. National budgets will continue to suffer.

We need an EU-wide systematic and mandatory procedure. For the moment, member states' tax authorities would not realise that tax ruling deals forged in other member states are undermining their own tax bases.

Tax authorities should be obliged to exchange information on tax rulings and make them available to a central database at the European Commission. There is also a competition side to tax rulings. This is why the Commission must be empowered to access and use the data to investigate tax avoidance and dumping practices and to assess whether they are in line with state-aid rules. 

Why are member states clearly denying the Commission access to these data? Are they hiding something?"

What MEPs want, compared to what the Council agreed

Limited scope

MEPs would prefer the directive to apply to all tax rulings, not just "cross border rulings and advance pricing arrangements", given that purely national transactions can also have cross-border effects. The Council made the directive’s scope "cross-border only".

Commission not in the loop

The Council also ensured that the European Commission is explicitly not allowed to do anything with the information - to which the Commission only has very limited access - other than overseeing that it conforms to the directive, and that the directive is properly applied.

 No retroactive effect

The Commission says that the mandatory exchange mechanism should apply to tax rulings issued in the ten years before it enters into force, whereas MEPs say it should apply to all rulings that are still valid on the day the directive enters into force. The Council agreed that the directive would apply only to rulings, amendments or renewals of rulings after 31 December 2016.

 Start sooner

MEPS want the automatic exchange of information to start as soon as possible, whereas the Commission proposes that it should start on 1 January 2016. The Council agreed on 1 January 2017.

Exchange faster

MEPs insist that the information should be communicated "promptly after the ruling or price arrangement is issued" rather than "within one month following the end of the quarter during which the ruling was issued" as the Commission proposes. The Council deal says that the information should be provided "within three months following the end of the half of the calendar year during which the ruling was issued". This means that if a ruling is issued in January, the mandatory exchange of information can take place until 30 September.

Next steps

The procedure for amending this Council directive is consultation. The Council struck its informal deal on the Commission proposal at the 6 October meeting of Economy and Finance (ECOFIN) ministers.

The directive is to be adopted at a forthcoming Council meeting, once the European Parliament has given its opinion and it has been finalised in all official languages. The new rules are to apply from 1 January 2017. Until then, existing obligations to exchange information among member states will stay in place.

Source: Mandatory exchange of tax rulings proposal: a "missed opportunity” say MEPs

BEPS and Indirect Tax

Final BEPS package for reform of the international tax system to tackle tax avoidance has been published. The final reports include recommendations for substantial direct tax change. Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant. G20 finance ministers endorse reforms to the international tax system for curbing avoidance by multinational enterprises – OECD

BEPS has an Indirect Tax impact too

Let's highlight for example action 7, 13 and 1:

• Prevent the artificial avoidance of PE status'
• Country-by country reporting (CbC)
• Deliverable on the subject of “Addressing the Tax Challenges of the Digital Economy”

Action 7 – prevent the artificial avoidance of PE status

The final BEPS report includes changes to the definition of PE for income taxes of Article 5 of the OECD Model Tax Convention. Action 7 broadens the threshold to determine when such PE status exists. Currently such a PE status does not exist for commissionaire arrangements and the specific activity exemptions in treaties, such as warehousing, purchasing and preparatory and auxiliary activities.

The indirect tax definition of a fixed establishment (FE) is different from a PE and has its foundation in EU VAT law and should therefore not be affected by the BEPS initiative or OECD definition. Some countries however do (still) not accept the absence of a FE once a PE has been established. Note that the amount of PEs will increase when "Action 7" is in force.

As businesses are facing global challenges it makes sense that the existing business model is reevaluated and amended when necessary to meet the new PE environment. That most likely means moving away from a commissionaire structure.

Action 13 – country-by country reporting (CbC)

Action 13 provides a template for multinationals to report on an annual basis and for each tax jurisdiction in which they operate revenue figures and other key figures should be reported. The data of these reports give direct tax authorities the possibility to audit the amount of direct tax paid.

However for indirect tax authorities it is useful data as well. From a custom perspective it could be supportive during auditing the valuation of the transactions when customs duties are due and for VAT cross border intercompany transactions have always qualified as a high risk area.

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 for both corporate income tax as VAT. This leads to much more efficient and effective tax inspections. Data analytics will become the most efficient and effective way of future tax auditing.

Action 1 deliverable on the subject of “Addressing the Tax Challenges of the Digital Economy”

The digital economy is changing fast. The international tax standards has to adapt accordingly: the tax system have to adjust to ensure tax collection and avoid that domestic and foreign non resident suppliers are treated differently.

The European Union (EU) and South Africa, have taken steps to manage their VAT bases by broadening the mandatory registration rules. The EU has implemented in 2015 the destination principle (i.e. where consumption takes place) as place of supply rule. Many other countries however have different indirect tax rules.

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to give effect to the 2015-16 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities. Australia – GST Treatment of Cross-border transactions

The area of attention are the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services: online sale, importation of low-value goods and in B2C (business-to-consumer) transactions that digital services supplied remotely by non-registered vendors.

Technical options to deal with the broader tax challenges such as nexus and data are discussed and further analyzed by the OECD and analyze data will become available in due time.

Read more about impact, challenges and background

• The changing tax world and taxpayer's impact
• Tax rulings and other measures similar in nature or effect
• Anticiperen op onze 'nieuwe' belastingwereld
• BEPS 2015 Final Reports
• UK - Improving large business compliance
• Developing a common framework for disclosing tax information
• Reputational risks