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ITR Asia Tax Forum 2016 - Key Takeaways

Key Takeaways

ITR coverage and key takeaways from the Asia Tax Forum 2016 Day 1 & 2:

Day One

Keynote speech
Achim Pross,
Head of International Cooperation and Tax Administration Division, Centre for Tax Policy and Administration, OECD

  • Country-by-country reporting (CBCR) is a long-term project to create a level playing field not based on tax secrecy.
  • Exchange of information and BEPS are two very different projects.
  • BEPS project was aimed at tackling a lack of transparency, lack of coherence and a lack of substance, or the artificial segregation of taxable income from the activities that generate it.
  • BEPS actions split into minimum standards (Actions 2 – 5); reinforced international standards (Action 6 – 10); common approaches and best practices (Actions 11 – 14) and analytical reports and measuring BEPS (Actions 1 and 15).
  • 62 countries now directly involved in work of OECD Committee on Fiscal Affairs.
  • BEPS work fast-paced, inclusive and transparent.
  • BEPS not finished. Still more work to be done, eg, interest deductibility; harmful tax practices; treaty abuse; avoidance of permanent establishment.
  • Common Reporting Standard: 98 jurisdictions now committed to exchange by 2017 or 2018; two not – Panama and Bahrain.
  • 80 have signed CRS Multilateral Competent Authority Agreement. 

Hot Topics in Asia Pacific Taxation: Is it all about BEPS? Really?

  • Tax function is a cost so you have to work closely with the company.
  • Asia tax environment changings; formerly based on tax incentives and the export of goods and services.
  • Important to understand business transaction and to be able to be explain this to the tax authorities.
  • More anti-avoidance measures, eg General Anti-Avoidance Rule (GAAR); specific anti-avoidance rules (SAAR) and Limitation on Benefits (LoB).
  • GAAR in India: knee-jerk reaction after last Vodafone case.
  • What skills do you need in your tax functions to manage changing relationship with tax authorities?
  • Remember, tax policy making is a political process, so you have to think of what will motivate the political decision-makers.

Hot Topics in International Tax (US, EU and OECD)

  • Inversions: Irish changes to residency rules.
  • Knowledge development / patent / innovation boxes on the increase.
  • Attraction of UK incl. generous participation exemption regime, low tax rate.
  • But anti-avoidance measures in UK too, eg, interest deductibility limit; criminal liability for company employees who facilitate tax evasion.
  • Regulatory more than tax concern about Brexit and the impact on passporting; US companies and banks like to come into Europe through London.
  • Difficult to think of substantive statutory change to US tax code in the last eight years.
  • “Silly season” as far as tax proposals of US presidential candidates are concerned. Donald Trump would slash rates but greatly add to the deficit; Hillary Clinton’s plans would broadly end up with the same tax burden as now. 

BEPS: Everything there is to know in 75 minutes

  • Not a surprise that mandatory disclosure was slower to be taken up as a minimum standard.
  • Mandatory arbitration not a minimum standard; it will be in multilateral instrument (MLI) so jurisdictions won’t be guilty of violating any commitments if they don’t accept it.
  • MLI is mechanism for a fast-track tool to get into treaties.
  • Questions to be answered: LoB or principal-purpose test; what type of arbitration? Scope of MLI.
  • Also questions about which accounting standards to use for CBCR;
  • Disparity between what is discussed in CBCR and how the authorities assess your value chain. Still traditional methods.
  • CBCR filed in country of parent and competent authority agreements with jurisdictions where you have subs or PE take care of the rest.
  • Discussions on-going with tax authorities about intelligent use of CBCR info.
  • BEPS proposals significantly lower the threshold for independent agent PE test.
  • Much tighter rules on profit attribution required.
  • Perplexing that headquarter charges thought of as base-eroding payments.
  • Very high risk of economic double taxation if current situation on HQ charges persists.

ENFORCEMENT IN SOUTH EAST ASIA: What's with the aggression, man?

  • No withholding tax on headquarter charges but still can be offset against corporation tax in local country.
  • Use of local comparables proving to be problematic.
  • No substitute for insight from your local team or adviser.
  • Move towards centralization, eg CBCR, but be careful to apply to local situation.
  • Preparation for meeting tax authorities – presentation of documentation, followed up by explanatory slides, is very useful.
  • China, Taiwan don’t recognise client-adviser privilege. Communication with lawyer privileged in Singapore.
  • Keep number of people involved  or who know about a transaction small.

CHINA: The only constant is change

  • Multiple-rate, VAT system in force from May 1 2016.
  • Foreign companies can’t register for VAT.
  • VAT occurs at branch level, not legal entity; no grouping.
  • No repayment of excess, VAT credit refunds.
  • VAT on financial services, one of the few jurisdictions worldwide to do so.
  • Some services zero-rated elsewhere are exempt in China.
  • Moving to self-assessment system for treaty benefits.
  • Announcement 7: indirect transfer of assets by a nonresident enterprise, replaces 698, though not entirely; expands scope of penalties for not reporting transaction that turns out to be taxable.
  • Can you take tax authorities to court in China? The answer depends on which tax adviser you ask!
  • Only the end of beginning of further tax policy and administrative changes.
  • Need for business to be more proactive.

Day Two 

INDIRECT TAXES: China and India - Who will win the race to complete their system?

  • China won! VAT system in effect from May 1 2016.
  • New prediction for GST introduction in India: October 1 2017.
  • How to operate the Interstate GST (IGST) system in India is big question.
  • VAT on financial services, consumer-to-consumer transactions in China.
  • New VAT system in China should be seen as a business change not a tax change.
  • Multiple decision-makers (central, provincial, local) on Chinese taxes, so be careful.
  • Need for real-time information systems that collect and credit the VAT at the same time.

 INDIA: Tax Trends and Developments

  • Budget 2016 developments: tax equalization levy; CBCR; patent box.
  • CBCR marks insatiable desire for information.
  • Penalty provisions for misreporting, underreporting.
  • Dispute resolution trends incl. mandatory stay where arrears paid; DRP decisions not appealable by tax authorities; more AAR benches; introduction of APA rollback.
  • APA – best thing to happen to TP in the last number of years.
  • Aim to eliminate interstate tax, which isn’t creditable.

DISPUTE RESOLUTION: I don't want to fight you but...

  • Offshore marketing hubs; supply chain restructuring: targets of NZ tax authorities.
  • Contract, conduct, control: key factors.
  • Treaty relief; unilateral tax relief; exemption: Singapore’s methods against double taxation.

KOREA: Still difficult to deal with?

  • Key amendments to Korean tax law in 2016 incl. foreign investment tax incentive; real property holding company status; VAT on electronic services; automatic exchange of information – Common Reporting Standard; CBCR.
  • Beneficial ownership; entity classification; Supreme Court cases; holding-company litigation.
  • Tax audit trends: taxpayers should always be prepared for a tax raid, which can involve non notification; seizure of books and records, both print and electronic; criminal prosecution
  • Tax appeal cases in tax tribunal have gone from c.7,200 in 2010 to 10,400 in 2015.
  • Tax revenue shortfall of W11 trillion ($10 billion) in 2014. Fewer audits but larger assessments. Net profit from tax collection in 2015 for the first time in four years.

TRANSFER PRICING: How to refine your policies on related-party transactions

  • 3 months after end of financial year to submit your local file in Korea, 12 months in Japan. These differences don’t help taxpayers.
  • Different levels of development in tax authorities in Asia-Pacific and not every tax administration is the fairest assessor.
  • Sometimes APAs can take so long, they become PPAs (Past Pricing Agreements!)
  • Managing APAs in Australia is time-consuming and costly.
  • Changing views of APAs because of change in how businesses are organised, eg vertically.
  • Diverted Profits Tax assessment almost a prerequisite in the UK before an APA application.
  • Check tested party, profit level indicators are correct before you get to comparables.
  • Nothing unusual about business restructuring, reorganisations so BEPS is a good time to look at how you do things.












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