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Nexia Ebner Stolz

International

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?

China

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.

India

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.

USA

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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