transparency & the impact of beps
TRANSCRIPT
TRANSPARENCY & THE IMPACT OF BEPS
Omleen AjimalWim Ritz, Managing Director, Vistra Luxembourg
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International tax structuring - WHAT THE BEPS???
What is the OECD’s BEPS project and what does it mean for SMEs?
19 November 2015
Omleen Ajimal
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HOW DID WE GET HERE?
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THE “DOUBLE IRISH DUTCH” SANDWICH
DUTCH CO
IRISH CO
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THE BEPS ACTION PLAN
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THE BEPS ACTION PLAN (1)
• ACTION 1 – The tax challenges of the Digital Economy
• ACTION 2 – Neutralising Hybrid Mismatch Arrangements
• ACTION 3 – Strengthening Controlled Foreign Companies rules
• ACTION 4 – Interest Deductions & other Financial Payments
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THE BEPS ACTION PLAN (2)
• ACTION 5 – Countering Harmful Tax Practices
• ACTION 6 – Preventing Treaty Abuse
• ACTION 7 – Clarifying Permanent Establishments
• ACTIONS 8 – 10 and 13 – Transfer Pricing and Country-by-Country Reporting
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THE BEPS ACTION PLAN (3)
• ACTION 11 – Collecting BEPS data
• ACTION 12 – Disclosure of Tax Avoidance Schemes
• ACTION 14 – Effective Dispute Resolution
• ACTION 15 – Developing a Multilateral Instrument
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WHAT DOES THIS ALL MEAN FOR SMALL AND MEDIUM ENTERPRISES?
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THE SHORT ANSWER…
• NOTHING MUCH??
• SMEs ARE NOT ROUTINELY INVOLVED IN CROSS-BORDER TAX AVOIDANCE?
• THE PROPOSED CHANGES WILL NOT GENERALLY APPLY TO SMEs??
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THE CORRECT ANSWER…
THE CHANGES IN PUBLIC OPINION AND POLICY,
TOGETHER WITH THE TOUGHENED STANCES OF TAX AUTHORITIES,
– WHICH BOTH PRE-DATE, AND WILL OUTLAST, THE OECD’S WORK –
AFFECT EVERYONE
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International tax structuring - WHAT THE BEPS???
What is the OECD’s BEPS project and what does it mean for SMEs?
19 November 2015
Omleen Ajimal
www.istructuring.com
BEPS’ Countries score card A helicopter viewLondon, 18/11/2015
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Agenda :
0. The Frame1. Cyprus2. China - Hong Kong3. Ireland 4. Jersey5. Luxembourg6. Malta7. Netherlands8. Switzerland9. UK10.US11.CIT : race to the bottom ?12.CbC-reporting : expected implementation
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0. The Frame
Note text
OECDs BEPS deliverables : modernisation of the international tax scene as implemented 100 years ago, adapting to new economic realities
Past : material world <-> Today : digital world
Key : concerted actions from governments/avoiding unilateral actions
How will countries and businesses implement BEPS? What are the likely time frames and treaty amendments?
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0. The Frame : Planning, Avoidance & Evasion
Note text
Tax Planning Tax Avoidance Tax Evasion Investing in permissible
avenues eligible for deduction
Conversion of sole proprietorship to a company to enjoy beneficial tax rates
Under-declaring income earned
Selecting an appropriate business structure
Recharacterising an income to gain a better tax rate
Overstating expenses incurred
= Ok = To be tackled by OECD/Countries
= Criminal
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0. The Frame : OECD’s Issues, Actions & OutputIssue Action Output
1. Digital economy Adress challenges Report
2. Hybrids Neutralise Domestic law / model
3. CFCS Strengthen regimes Domestic law
4. Interest deductions Limit base erosion Domestic law / TPG
5. Harmfull tax practices Counter more effectively Identify and revise criteria
6. Treaty abuse Prevent Model / domestic law
7. Permanent establishment Prevent avoidance TPG/Model
8-10. Transfer Pricing Place of activity TPG/Model
11-13. Transparancy Disclosure Recommandations / TPG
14. Dispute resolution Make effective Model
15. Multilateral treaty Identify issues New treaty Note text
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1. Cyprus (Nick Terry)
Note text
(source : KPMG Luxembourg)
Current legislative position
Government & Beps
Actions 2015
No WHT on interest payments
Much consideration to the BEPS action plan by Cyprus Tax Commissioner and the Head of Tax Policy unit at the Ministry of Finance
Notional interest deduction on equity => effective tax rate to be as low as 2,5%,
But only for 1 CypCo
No regulations for tax deductibility of interest payments
Taxation of dividends anti-abuse, but not applicable to CypCo (in)directly owned by non-res or non-dom SH’s
>15 % WHT on license fee payments
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2. China - Hong Kong (John Aswood)
Note text
Current legislative position
Government & Beps
Actions 2015
GAAR Amazingly response time, China’s State Administration of Taxation (SAT) conference Beijing 10 October 2015 to support BEPS
Increased scrutiny on TP
TP-rules Review royalty structures for the past 10 years
CFC-rules Increased focus on offshore indirect transfers
Thin-cap Increased attention to « disguised dividends » = large retained earnings and no dividend payment
UBO-definition Focus on PE-establishment (« furnishing of services » = substance)
Rules on deductibility of outbound payments
Tax treaties will be renegotiated and domestic tax-law to be updated
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3. Ireland (Maguire @ Deloitte)
Current legislative position
Government & Beps
Actions 2015
No CFC rules Gov wish to perserve 12,5% CIT and Ireland’s reputation as competitive to attract investment
Looking to introduce an « onshore IP regime »
Thin-cap « Double Irish » : 01.01.15 : Irish Inc non-res are tax resident in Ireland, but 6 year transition
TP-rules
« Double Irish »
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4. Jersey (Jane Pearce)
Note text
Current legislative position Government & Beps
Actions 2015
No WHT Respectful, while committed to maintaining it current policies and expand DTA network
The Island is respectful of EU-law without being tied up in EU-regulation
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24Note text
5. Luxembourg (Wim Ritz)
Current legislative position
Government & Beps
Actions 2015
GAAR Intention to fully comply with OECD if compliant with EU law
Formalised ATA (tax-rulings)
Limits on intrest deductions Gov considering BEPS and potential impact on local economy
Draft tax law for 01.01.2017
TP-rules Improvement of participation exemption regime
Thin-cap rules Capping NWT
Tax consolidation vertical and horizontal
Reform IP-regime (grandfather 2021); indications thinking about renewed IP-box system (Nexus approach)
Modernisation company law
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25Note text
6. Malta (Marco Bugelli)
Current legislative position
Government & Beps
Actions 2015
No WHT on interest payments
Malta realises it might be impacted, but as a transparent jurisdiction we welcome the initiative
Budget 2016 : « fiscal consolidation » introduced (cfr CJ 12.06.14) : also between other EU co’s
No WHT on License fee payments
No limitations for tax deductibility of interest payment
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26Note text
7. Netherlands (Maaskant@PWC)
Current legislative position
Government & Beps
Actions 2015
No WHT on intrest payments « responsible tax debate » is high on the politcal agenda
DTA will be renegotiated
No WHT on License fee payments Gov states that to the extent BEPS results in undesired or unintended tax burdens for Dutch taxpayers, it will explore possible counter measures
Align existing GAAR with revised EU PSD
GAAR Anti-hybrid rule in Dutch participation exemption
Limits deduction of interest CbC reporting ; if not applicable than TP-rules
TP-rules IP-box might be renewed
Substance requirements in relation to intra-group structures
? Lower CIT and/or new WHT
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8. Switzerland (Ivo Hemelraad – Roger D’Allo @ taxand))
Current legislative position
Government & Beps
Actions 2015
GAAR Finance Minister declared that the new corporate tax reform should be fully aligned with BEPS
? Harmonized federal rules, abolishing existing tax regimes
Thin-cap ? Cantonal patent box
NID has been dropped and is expected to come back to the table
Parlimentary debate until spring 2016, expected implementation 01,01,2018; with cantons 2 years to adapt to changes, so likely 01.01.2020
Note text
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9. United Kingdom (David Rudge)
Current legislative position
Government & Beps
Actions 2015
CFC-provisions Gov is actively participating in OECD BEP’s initiative
Diverted Profit Tax (25%) : interaction with BEPS is unclear
TP-rules Update IP-box, grandfathering until june 2021
Anti-arbitrage rules to counter hybrids through purpose test
Consultation from Gov on « tax deductibility of corporate interest expense »
Mandatory disclosure scheme
« Worldwide debt cap »
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10. EU : own actionplan
Note text
What are the main elements of the Action Plan?
Re-launching the Common Consolidated Corporate Tax Base
Ensuring fair taxation where profits are generated
Creating a better business environment
Increasing transparency
Improving EU coordination
PSD – adpated : GAAR
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10. EU : Impact of the new GAAR
Note text
Based on the new rule, “Member States shall not grant the benefits of the PSD to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the PSD, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part.”
For the purposes of the GAAR, “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality,
However, the anti-abuse rule is subject to a limitation : according to the EU Council, the application of GAAR should be proportionate and should serve the specific purpose of tackling an arrangement or a series of arrangements which is not genuine, that is which does not reflect reality,
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10. EU / OECD
Note text
Member states have FISCAL SOVEREIGNTY in the field of direct taxation
If an EU / EEA Member State would have to disallow the interest on a hybrid loan as a deductible expense upon application of the primary rule because the corresponding interest income is not taxed by the State in which the recipient is tax-resident, a domestic law which provided for this could, it seems, in principle violate the EU fundamental freedoms. See, inter alia, Eurowings (C-294/97) and SIAT (C-318/10). Compare also Cadbury Schweppes, (C-196/04).
If the State of the investee applies the secondary rule, a difference in treatment arises, depending on whether the investor is resident in a Member State that takes into account the investee’s losses/ payments. In our view, EU Law makes clear that the fact that losses / payments are (possibly) also taken into account in another Member State cannot justify discriminatory treatment in the source Member State. Philips Electronics (C-18/11).
It remains to be seen, however, whether the nexus approach, as currently envisaged, would comply with EU Law, either on the basis of the fundamental freedoms (by possibly excluding R&D activity with nexus in other EU / EEA Member States) or State Aid (by possibly granting selective advantages to R&D-intensive undertakings by excluding internal sub-contracting (Source : pwc)
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32Note text
11. US (Sylvester Gooyers)
Current legislative position
Government & Beps
Actions 2015
CFC-rules US Gov believes there must be a return to capital as well as people functions,
Congress is not in favour as it strongly believes in its fiscal sovereignity and democratic deficit is to be avoided
LOB exceptions to the arm’s length standard should be few
Transfer pricing rules Physical presence should be required for taxing jurisdiction
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12. CIT : Race to the bottom ?
Note text
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12. CIT : Race to the bottom ?
Note text
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13. CbC Reporting Expectation
Note text
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Wim Ritz Managing Director
Vistra (Luxembourg) S.à r.l. Vistra Fund Services S.à r.l. 15, rue Edward Steichen, 4th Floor, L-2540 Luxembourg, G.D. Luxembourg [email protected]
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