BEPS newsMultilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS On 7 June 2017, nearly 70 jurisdictions signed the Multilateral Instrument (BEPS Action 15). The MLI offers modifications of existing tax treaties in order to comply with BEPS minimum standard preventing treaty abuse and limiting the scope of hybrid mismatches. Currently following jurisdictions has signed the MLI: Andorra, Argentina, Armenia, Australia, Austria, Belgium, Bulgaria, Burkina Faso, Canada, Chile, China (People’s Republic), Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Gabon, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea (Rep.), Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Monaco, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, San Marino, Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, Uruguay. MLI in respective jurisdiction will enter into the force after domestic ratification process is completed. The first modifications to bilateral tax treaties are expected to enter into effect in early 2018. Gibraltar Gibraltar introduced regulations regarding country-by-country (CbC) reporting. CbC reports must be submitted by multinational groups with total consolidated group revenue of EUR 750 million or more. The reporting period for ultimate parent entities is 1 January 2016 and for constituent entities - 1 January 2017. The reports will have to be submitted within 12 month from the end of the relevant fiscal year. Notifications have to be submitted in writing by the date of filling the tax return (9 months after the end of an accounting period). Portugal On 29 May 2017, the Secretary of State for Fiscal Affairs announced that the country-by-country reporting deadline has been extended from 31 May 2017 to 31 October 2017. Local tax newsDenmark - New Withholding tax procedure on Dividends in Denmark On 12 June 2017, the Ministry of Finance announced that a new dividend withholding tax procedure will be introduced. The current refund system used for compensating the difference between 27% withholding tax on dividends and tax treaty rates will be abolished and replaced by immediate application of treaty rate if certain conditions are satisfied. Up to now, foreign investors have to apply for a refund of tax from Danish tax authorities. Further implementation of the procedure will be reported in the due course. Sweden - Ministry of Finance Proposes Changes on CIT The Ministry of Finance proposed changes on CIT which will be subject to consultation. According to the press release, the changes, if implemented, will be effective from 1 January 2018. The most important aspects are:
Treaty newsBelarus - Spain
On 14 June 2017, Belarus and Spain signed an income and capital tax treaty in Madrid. Once in force and effective, the new treaty will replace the former USSR - Spain Income and Capital Tax Treaty (1985), in relations between Belarus and Spain. Further developments will be reported as they occur. Jordan - United Arab Emirates On 10 January 2017, the Jordan - United Arab Emirates Income Tax Treaty (2016) entered into force. The treaty generally applies from 1 January 2018. Details of the treaty will be reported subsequently. If these subjects are something which you find interesting and would like to discuss further we are happy to be at your service. Contact us at sales@comtaxit.com. In this article we discuss how to manage increased global tax transparency requirements with a focus on Country by Country reporting and analysis.  Recently adopted legislation that requires the filing of Country by Country (CbC) data to tax authorities makes your group’s tax figures available for analysis by multiple jurisdictions where the group operates. This tax data must therefore be correct and analysed in detail in order for you to have a full understanding of whether the reported figures could attract a tax authority’s interest. Furthermore, there are indications that the current OECD guidelines for CbC reporting are only the first step to increased global tax transparency. There are also a number of countries that have introduced local tax transparency reporting that goes further than the OECD minimum requirements, which must also be considered. Although the filing of the CbC report is only required annually (in many cases within 12 months from the year end closing) a proper process for CbC reporting should include at least one dry run of the figures during the current income year, before the final year-end reporting. If this is not carefully thought through it could easily become a cumbersome process. And if the group also conducts business in countries that have introduced or will introduce requirements that go further than the OECD minimum requirements, it could be difficult to manage the reporting without a clear framework. It is therefore imperative to decide upon and implement a timely framework for CbC reporting (i.e. tax transparency reporting), in order to achieve an efficient management process and reasonable control of the Group’s information filed with the tax authorities. When creating such a framework, it is important to consider implementing processes to address the following points: 1. Updated and historical company information including for permanent establishments. 2. Being able to track changes in business activities for all entities over time. 3. A firm process for gathering tax figures both for forecast and actual figures. 4. A process for analysing your data to identify risks. 1. Updated company information A vital part of the CbC reporting is for the filing company to list all legal entities (including permanent establishments) in the group, together with the entity information specified by the OECD. Normally it is the companies that are part of the group at year-end that are listed. However, you must also include companies that have been disposed/liquidated during the income year. You also need to consider how to manage companies that have been dissolved as a result of a merger. An important part of the reporting processes is therefore to make sure that you can update the legal entity list with changes such as acquisitions and disposals. It is also of importance to have a full understanding of any mergers/liquidations and changes to your permanent establishments. To be able to perform dry runs and a final run it is necessary for the group to have put in place a process for updating company data several times per year. Since a comparison of data between years is an important part of the tax authority’s analysis, you should be able to keep track of historical entity data and be able to identify changes in the legal structure as part of any risk analysis. Disposals and acquisitions of a company or a business line (or starting/closing down a business line) could also lead to significant swings in the figures between the years which you must be able to explain. Any tool used for keeping track of the entity data must therefore have a function for searching and presenting historical entity data. In this respect, you need to determine whether the accounting system could be prepared for CbC reporting and to what extent the legal structure corresponds to the operational structure in the accounting system. If these structures do not match you will have to manually update the data and break up or merge accounting entities to match the legal structure. In many cases this information and other required entity information is only available on a local level. Furthermore, there is entity data that you might not find in the accounting system, such as permanent establishments and certain data linked to each company, e.g. country codes, TIN numbers etc. In addition, it is seldom possible for the accounting system to identify changes to a business line. This justifies implementing a local reporting process in order to gather relevant data that is not ad-hoc, i.e. that is clear, has an audit trial and contains a sign-off function. Establishing a separate process for gathering, structuring and sign-off on entity data that cannot be found in your accounting system is therefore something to investigate. 2. Business activities The next part of the CbC reporting is that each entity should be linked to a business activity. At a first glance it might seem trivial to gather information on business activities. However, if you have a large number of entities you may need a process for collecting and updating changes in the entities business activities. It is also necessary to keep track of historical business activities if you wish to analyse historical data or receive questions on a previous years´ filing. The knowledge of what business activity(ies) each entity conducts is often found on a local level. Thus you may have to reach out to local people to gather this information. In some cases, an entity conducts several business activities. If this is the case, you need to think about how to include this entity correctly in your analysis, i.e. you might need to gather more in depth information regarding an entity’s business activity than just their major business activity reported to you. This information is most likely to be found on a local level as well. The above also implies that you need to consider to have a process where local people report these changes to you on a current basis. 3. Figures for forecast and actual When you have completed your entity list and identified the business activities you need to gather the figures and link them to the right company. There are two main scenarios when it comes to gathering the figures. One scenario is where all figures could be gathered from the group accounting system. The other scenario is that only part of the figures could be gathered from the group accounting system or all figures used are local GAAP. Even if all the figures could be found in the group accounting system, you will most likely need to make manual adjustments such as adjusting reporting entities to the legal entity structure and for permanent establishments. If you cannot find all figures in the group accounting system, you need to consider implementing a reporting process to gather the required figures. Such a process could entail requesting local figures from the local source. In addition, some countries may request CbC filing earlier than the group filing (e.g. China). In this case, it is important to identify which countries that have this requirement and what figures you need to file. In order to avoid inconsistencies, you need to implement a process to control that the locally reported figures match the group figures which are filed later in the year. When all figures have been gathered, a firm process should be set up where you compile and structure all figures in the required format. Such a process includes securing the quality of data and that each separate figure is linked to the correct entity/tax jurisdiction. In a scenario where you would like to proactively work to avoid presenting CbC figures that could draw the attention of tax authorities, a “forecast run” of the figures should be put in place. Implementing a forecast process opens up the possibility to mitigate risk that would otherwise be too late to address if you only analyse the figures after the year end. The questions you need to ask yourself in this respect are; where could you find the forecast figures? Are they easily accessible from the accounting system or do you need to collect them from other sources? When you collect the CbC figures you may want to collect additional figures which could help you to calculate ratios and KPIs that could not be calculated by only using the CbC figures. This enables a deeper analysis and understanding of risks in different jurisdictions and on a company level. Furthermore, some of our clients have indicated that they are of the opinion that only presenting the CbC figures as such does not give an accurate picture of the group’s activities. An additional set of figures will help them to present a “fairer” picture and help them to dismiss and explain irregularities that do not constitute a risk, but which show up in an analysis of the reported CbC figures. 4. Country by Country analysis and identification of risks An analysis of the gathered data should give you a good understanding of any irregularities that may be identified by the tax authority and which may prompt them to ask detailed follow up questions. Since the CbC report contains both figures and business activities, the tax authority will analyse the connection between them. Some companies conduct business activities that may raise questions if they report certain CbC figures or ratios. This makes it important for you to pre-empt the authorities by performing the same analysis on a current basis in order to avoid a situation where your CbC report contains information that attracts attention. When conducting your analysis you may identify questions that you want to comment on in table 3 before you file. When creating your tool for analysing the CbC data you might want to consider, among other things, the following:
Summary
If you would like to mitigate risk and avoid a time-consuming process, the management of CbC-reporting is not something you should take lightly. Setting up a framework and clear guidelines is therefore something that you should consider now. Even though the gathering, analysis and filing is a responsibility with a head office function, a process for gathering and sign-off of relevant data, in many cases, must include a reporting process with local managers contributing at least part of the data. This is of course even more important if the group includes many subsidiaries, has a diversified business, or where the amount of current changes in the legal and operational structure is significant. Read more about this topic: Challenges when creating the OECD XML Schema for Country-by-Country reporting. If these subjects are something which you find interesting and would like to discuss further we are happy to be at your service. Contact us at sales@comtaxit.com. Amendments to transfer pricing and patent box regime in Italy, proposed reduction of CIT in Greece6/1/2017
BEPS newsItaly - New Corporate Tax Measures Law Decree No. 50 of 24 April 2017 will amend the existing patent box regime in order to comply with the recommendations of BEPS Action 5. The main change will be to exclude trademarks from qualifying IP assets that can benefit from deduction of corporate income tax. Taxpayers already enrolled into the previous patent box regime can benefit from it until 30 June 2021 under the grandfathering period. OECD - BEPS Action 13: OECD Releases CbCr Implementation Status On 4 May 2017, the OECD released the full list of automatic exchange information between 57 jurisdictions participating in exchange of country-by-country (CbC) reporting. The list of all participants can be found at: http://www.oecd.org/tax/beps/country-by-country-exchange-relationships.htm Additionally, information about "surrogate filing" and “voluntary surrogate filing” can also be found under the relevant document on OECD website. Local tax newsGreece - Draft Bill Amendment Income Tax Code On 17 May 2017, the amendments to Greek Income Tax Code were proposed. If the budgetary objectives and fiscal targets towards creditors will be met, the corporate income tax (CIT) rate will be reduced from 29% to 26% from 1 January 2019 and not from 1 January 2020 as previously reported. The assessment whether the budgetary objectives and targets are met will be jointly examined by the International Monetary Fund (IMF), the European Commission (EC), the European Stability Mechanism (ESM) and the Greek authorities. Italy - New Corporate Tax Measures Law Decree No. 50 of 24 April 2017 amends transfer pricing legislation which made reference to the concept of "normal value" which does not always correspond to the arm's length criterion. Under the amended legislation a formal reference is made to arm's length as defined by OECD Guidelines. Amended article 110(7) refers to “conditions and prices which would have been agreed between independent persons operating on an arm's length basis and in comparable circumstances”. Russia - Tax Incentive for Corporate Investments - Proposed In order to stimulate the economy and investment in high-tech industry, the government proposed the introduction of a corporate tax incentive that would reduce the corporate tax rate from 20% to 5%. The incentive will be available to companies investing their profits in long-term assets, for example, advanced technology machinery. If these subjects are something which you find interesting and would like to discuss further we are happy to be at your service. Contact us at sales@comtaxit.com.
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