Nexia Ebner Stolz

Trump, Brexit & Co. – A Turning Point in International Tax Policy

As part of the OECD project on avoiding base erosion and profit shifting (BEPS), many countries pledged to take steps to put a stop to tax evasion strategies and harmful profit shifting. Legislators in the individual countries are already hard at work on this. What is more, the first sets of guidelines on avoiding BEPS have already been adopted at EU level.

Howe­ver, while some coun­tries are imp­le­men­ting the BEPS pro­ject, others are see­king to streng­t­hen com­pa­nies wit­hin their own natio­nal bor­ders and attract new invest­ment by radi­cally redu­cing tax rates and offe­ring furt­her tax incen­ti­ves.

Trump, Brexit  Co. – A Turning Point in International Tax Policy © Thinkstock

The cur­rent chal­lenge of inter­na­tio­nal tax policy is the­re­fore to mediate bet­ween these two poles. To this end, part­ners from our Nexia net­work will give an insight into the tax policy trends in their respec­tive coun­tries at the event entit­led “Trump, Bre­xit & Co. – A Tur­ning Point in Inter­na­tio­nal Tax Policy” to be held in Cologne, Ger­many, on June 12, 2017. We asked them three ques­ti­ons before­hand:

  1. Which mea­su­res has your coun­try taken as part of the BEPS pro­ject to ensure taxa­tion of a share of the taxa­tion sub­st­ra­tum com­men­su­rate with the actual acti­vi­ties of the com­pa­nies in your natio­nal ter­ritory?
  2. What, in your opi­nion, will streng­t­hen a coun­try as a busi­ness loca­tion in the long term - new tax incen­ti­ves or con­sis­tent, relia­ble tax legis­la­tion?
  3. Which tax policy is your coun­try curr­ently pur­suing?


Dr. Gerald Neumann © Dr. Gerald Neumann
Dr. Gerald Neu­mann
Mana­ging Direc­tor, Fan, Chan & Dr. Neu­mann Busi­ness Advi­sory (Shang­hai) Co., Ltd, China

1. BEPS acti­ons already imp­le­men­ted in China

The tax aut­ho­ri­ties (State Admi­ni­s­t­ra­tion of Taxa­tion, SAT) have pro­gres­si­vely imp­le­men­ted the BEPS acti­ons in China. To date, the SAT has issued the fol­lo­wing gui­dance in connec­tion with the BEPS pro­ject:

  • Bul­le­tin on Mat­ters Rela­ted to Enhan­cing the Decla­ra­tion of Rela­ted Party Tran­sac­ti­ons and the Admi­ni­s­t­ra­tion of Con­tem­pora­neous Docu­men­ta­tion;
  • Bul­le­tin on Issues Rela­ted to Impro­ving the Admi­ni­s­t­ra­tion of Trans­fer Pri­cing Arran­ge­ments;
  • Bul­le­tin on Admi­ni­s­t­ra­tive Mea­su­res on Spe­cial Tax Har­mo­niza­tion, Adjust­ment and Mutual Agree­ment Pro­ce­du­res.

Through the above-men­tio­ned gui­dance, the Chi­nese govern­ment has imp­le­men­ted the BEPS pro­po­sals con­cer­ning docu­men­ta­tion requi­re­ments, coun­try-by-coun­try repor­ting, int­an­gi­ble assets, and ser­vices bet­ween rela­ted par­ties, etc. The last bul­le­tin in parti­cu­lar con­ta­ins exten­sive chan­ges regar­ding spe­ci­fic tax pro­bes, trans­fer pri­cing methods, com­pa­ra­bi­lity ana­ly­sis, and nego­tia­tion methods, etc. to give tax­pay­ers more con­c­rete gui­de­li­nes.

2. China’s tax policy for streng­t­he­ning China as a busi­ness loca­tion

Wit­hout con­sis­tent, relia­ble taxa­tion, I believe that even aggres­sive tax incen­ti­ves are not the key to attrac­ting inve­s­tors.

The Chi­nese govern­ment tried to make the tax laws more rea­sonable. The pro­mise of aggres­sive tax incen­ti­ves to attract invest­ment from abroad is no lon­ger sup­por­ted by the cen­tral govern­ment.

3. The tax policy China will pur­sue in the future 

On the one hand, the govern­ment is attemp­ting to reduce the tax bur­den on smal­ler com­pa­nies. On the other, there are spe­cial tax regu­la­ti­ons aimed at crea­ting incen­ti­ves for new and high-tech com­pa­nies with a view to stee­ring the natio­nal eco­nomy. Howe­ver, these are not desig­ned as a gene­ral means of attrac­ting as many inve­s­tors as pos­si­ble.

Uni­ted King­dom

John Voyez Partner, Business Tax Services, Smith  Williamson LLP, London, Großbritannien © John Voyez
John Voyez
Part­ner, Busi­ness Tax Ser­vices, Smith & Wil­liam­son LLP, Lon­don, Uni­ted King­dom

1. BEPS acti­ons already imp­le­men­ted in the UK
  • BEPS Action 2 - Hybrid Mis­match Arran­ge­ments: The Uni­ted King­dom has imp­le­men­ted the OECD’s recom­men­da­ti­ons with effect from January 1, 2017.
  • BEPS Action 4 - Inte­rest Deduc­ti­ons: In accor­dance with the OECD’s pro­po­sals, new inte­rest deduc­ti­bi­lity rules were intro­du­ced with effect from April 1, 2017. These set out that an inte­rest deduc­tion will be disal­lo­wed where net inte­rest expense exceeds GBP 2 mil­lion. The exis­ting gui­de­li­nes in the Uni­ted King­dom on inte­rest deduc­ti­bi­lity (world­wide debt cap pro­vi­si­ons) were res­cin­ded. In these, the qua­li­fying expen­di­ture had been GBP 500,000.
  • BEPS Action 5 - Harm­ful Tax Practi­ces: An amend­ment of the UK patent box regime ente­red into force with effect from July 1, 2016 to recon­cile this with the OECD’s BEPS Action 5.
  • BEPS Action 6 - Pre­vent Treaty Abuse in rela­tion to roy­alty with­hol­ding tax: The scope of gui­dance on roy­alty with­hol­ding tax has been exten­ded and mea­su­res to pre­vent abuse have been intro­du­ced.
  • BEPS Acti­ons 8 to 10 - Trans­fer Pri­cing: The trans­fer pri­cing gui­de­li­nes in the Uni­ted King­dom have been amen­ded to bring them into line with the OECD Trans­fer Pri­cing Gui­de­li­nes. These apply to acco­un­ting periods begin­ning on or after April 1, 2016.
  • BEPS Action 13 - Trans­fer Pri­cing Docu­men­ta­tion and Repor­ting: Coun­try-by-coun­try repor­ting has been intro­du­ced for cer­tain groups of com­pa­nies effec­tive for acco­un­ting periods begin­ning on or after January 1, 2016. In addi­tion, the tax stra­tegy for cer­tain groups of com­pa­nies is requi­red to be pub­lis­hed online.  

2. The Uni­ted King­dom is focu­sing on gran­ting tax relief, espe­cially:

  • a low cor­po­ra­tion tax rate that will be redu­ced from 19% at pre­sent to 17% from 2020;
  • tax incen­ti­ves and tax breaks for rese­arch and deve­lop­ment (R&D), as well as through the patent box regime;
  • nume­rous dou­ble taxa­tion trea­ties, advan­ta­geous regu­la­ti­ons for the hol­ding struc­ture: gene­rally no taxa­tion of divi­dends recei­ved, no with­hol­ding tax on divi­dends to be paid, advan­ta­geous regu­la­ti­ons for a con­trol­led for­eign regime, advan­ta­geous equity parti­ci­pa­tion scheme for share sales sub­ject to cer­tain cri­te­ria;
  • new rules which allow fle­xi­bi­lity in the use of los­ses incur­red after April 1, 2017;
  • fair tax aut­ho­ri­ties (HMRC);
  • spe­ci­fic disal­lo­wance of inte­rest deduc­tion where net inte­rest expense exceeds GBP 2 mil­lion, pos­si­bi­lity of cla­ri­fying the effects on trans­fer pri­ces with HMRC;
  • other advan­ta­ges that are not directly rela­ted to taxa­tion, for example a strong legal sys­tem and judi­ciary as well as rela­tive relia­bi­lity of Bri­tish legis­la­tion.

3. The tax policy the Uni­ted King­dom will pur­sue in the future

Obviously, eve­r­yone is curr­ently focu­sed on Bre­xit and the out­come of the nego­tia­ti­ons with the EU. Howe­ver, the aim is to con­ti­nue to attract invest­ment and busi­ness from abroad. This requi­res an active, gro­wing eco­nomy sup­por­ted by low cor­po­rate taxa­tion and legal cer­tainty – some­t­hing that could be dif­fi­cult in the next two years.


Maulik Doshi Chartered Accountant, Partner, SKP Group, Mumbai, Indien © Maulik Doshi
Mau­lik Doshi
Char­te­red Acco­un­tant, Part­ner, SKP Group, Mum­bai, India

1. BEPS acti­ons already imp­le­men­ted in India

The Indian govern­ment has ushe­red in a whole series of steps in accor­dance with the BEPS Action Plan to pre­vent pro­fit shif­ting and ero­sion of the tax base:

  • coun­try-by-coun­try repor­ting – the trans­fer pri­cing docu­men­ta­tion requi­re­ments have been streng­t­he­ned and now include CbCR in accor­dance with BEPS Action 13;
  • intro­duc­tion of an equa­liza­tion levy – a 6% tax on online adver­ti­sing, which will effec­ti­vely over­ride the pro­vi­si­ons of the dou­ble taxa­tion trea­ties;
  • limi­ta­tion of the inte­rest deduc­tion to 30% of EBITDA as regards inte­rest paid to rela­ted par­ties or in the case of debt secu­red by rela­ted par­ties;
  • rene­go­tia­tion of dou­ble taxa­tion trea­ties with Sin­g­a­pore, Mau­ri­tius, and Cyprus – cap­ping of treaty bene­fits in com­p­li­ance with the prin­ci­pal pur­pose test;
  • intro­duc­tion of a license box sys­tem;
  • intro­duc­tion of gui­de­li­nes on the loca­tion of the actual exe­cu­tive board (com­pa­ra­ble with the con­trol­led for­eign com­pany gui­de­li­nes).

2. India’s tax policy for streng­t­he­ning the coun­try as a busi­ness loca­tion

I believe that con­sis­tent, relia­ble, extra­ju­di­cial tax posi­ti­ons and their admi­ni­s­t­ra­tion are important to make India more attrac­tive to for­eign inve­s­tors. The new govern­ment has also taken several steps to reduce the num­ber of legal dis­pu­tes.

3. The tax policy India will pur­sue in the future 

The govern­ment is cra­cking down on illi­cit funds and illi­cit enrich­ment. In addi­tion, inter­na­tio­nal best practi­ces are being app­lied and tax rates are being made more com­pe­ti­tive. As men­tio­ned above, the govern­ment is also taking several steps to reduce the num­ber of legal dis­pu­tes.


John C. Berens CPA, NE Regional Tax Partner, Global Tax Leader, CliftonLarsonAllen LLP, Charlotte, USA
John C. Berens
CPA, NE Regio­nal Tax Part­ner, Glo­bal Tax Lea­der, Clif­ton­Lar­so­nAl­len LLP, Char­lotte, USA

1. BEPS acti­ons already imp­le­men­ted in the USA

In res­ponse to the pres­sure exer­ted by the OECD for inc­rea­sed tran­s­pa­rency bet­ween mem­ber sta­tes, the Uni­ted Sta­tes Depart­ment of the Trea­sury and the Inter­nal Reve­nue Ser­vice (IRS) relea­sed final regu­la­ti­ons in 2016 that require coun­try-by-coun­try repor­ting (CbCR) by enti­ties that are the ulti­mate parent entity of a mul­ti­na­tio­nal enter­prise with annual reve­nue of USD 850 mil­lion or more in the imme­dia­tely pre­ce­ding repor­ting period. The form for the CbC report, which is still being deve­lo­ped, must be atta­ched to the parent entity’s income tax return and filed with the IRS by the due date for that return, inclu­ding any exten­si­ons. Failure to com­ply with the regu­la­ti­ons on dis­c­lo­sure of the report could lead to sanc­ti­ons being impo­sed, spe­ci­fi­cally fines of up to USD 10,000 for each annual repor­ting period in which the report is not filed.

Also in 2016, the Trea­sury Depart­ment and the IRS relea­sed final regu­la­ti­ons that could have serious reper­cus­si­ons for the tax tre­at­ment of tran­sac­ti­ons in the Uni­ted Sta­tes. The new regu­la­ti­ons allow the IRS to reclas­sify debt as equity in cases in which cer­tain stan­dards for docu­men­ta­tion of loans are not met or debt secu­ri­ties are used in cer­tain types of tran­sac­ti­ons that are clas­si­fied by the govern­ment as abu­sive. Such a reclas­si­fi­ca­tion means inte­rest expense is no lon­ger deduc­ti­ble. The regu­la­ti­ons are highly com­plex.

2. USA focu­sing on tax relief
We believe that lower cor­po­rate tax rates and the tran­si­tion from glo­bal taxa­tion to a ter­ri­to­rial tax sys­tem would make the Uni­ted Sta­tes a more attrac­tive busi­ness loca­tion.

3. The tax policy the Uni­ted Sta­tes will pur­sue in the future 

The politi­cal environ­ment in Was­hing­ton, D.C. is chaotic at the moment. Alt­hough the White House and both hou­ses of Con­gress are con­trol­led by the Repu­b­li­cans, there is a tre­men­dous amo­unt of disa­g­ree­ment bet­ween the mode­rate groups in the party and the more con­ser­va­tive mem­bers of the Free­dom Cau­cus, as evi­den­ced by the recent failure to abo­lish and replace Oba­ma­care. Both hou­ses of Con­gress and Pre­si­dent Trump have pre­sen­ted tax pro­po­sals with the aims of redu­cing cor­po­rate taxa­tion, intro­du­cing a redu­ced tax rate for the repa­tria­tion of for­eign income, repea­ling the alter­na­tive mini­mum tax (AMT) for com­pa­nies and indi­vi­duals, and lowe­ring per­so­nal income tax rates. These mea­su­res would pro­bably give the U.S. eco­nomy a much-nee­ded boost. Yet it is very unli­kely that tax laws will be pas­sed in 2017 owing to the con­ten­tious mood inside the Belt­way. In addi­tion, there has been dis­cus­sion of a bor­der tax on cer­tain impor­ted goods manu­fac­tu­red out­side the Uni­ted Sta­tes. Several pro­po­sals for this have been sub­mit­ted that could coun­ter­act an eco­no­mic boost stem­ming from lower tax rates, howe­ver.

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