ITR coverage and key takeaways from the Asia Tax Forum 2017:
08.45 Keynote Speaker: Achim Pross, Head, International Cooperation and Tax Administration Division, OECD Centre for Tax Policy and Administration
- BEPS is about transparency, substance and coherence
- Transparency, as far as BEPS is concerned, is about transparency between tax administrations, not public transparency, though EU favours public country-by-country reporting (CBCR)
- BEPS is really happening, eg exchange of rulings.
- Multilateral Instrument (MLI) will be signed in Paris on June 7 2017. Hard to say now how many jurisdictions will sign. The number is changing all the time.
- MAP is an indication of failure, though it’s better to get into MAP rather than litigation.
- If you have a low-risk tax strategy, then you should have few worries about BEPS.
09.10 Hot topics in Asia Pacific Taxation: National tax reforms after BEPS
- Tax treaties being negotiated with an eye on BEPS, eg, new Australia-Germany treaty includes amended PE clause; LoB principles and mandatory arbitration.
- MLI will be effective for pre-existing double tax agreements if both parties sign up
- Lot more information gathering now, eg, CBCR, CRS, EoI; Taxpayers have to think on a global basis about what information they will use.
- Digital supplies: Japan, Korea, Australia and Taiwan, for example, all tax them now. No reason to think this trend won’t continue.
- US: Move to a territorial tax system would be a major change.
- Singapore: may emerge stronger as a result of US tax reform because of stability and predictability - lower rate in US (15% under Trump plan) may not last for very long. It could be only four years, or eight years maximum.
- Tension between public face of government and private conversations between governments and taxpayers. Despite BEPS, there has been no reduction in the number of countries approaching MNCs to set up or increase their investment. Still opportunities for tax planning
- China: Coherence and certainty are not the focus. Transparency is all about transfer pricing. VAT reform continuing. An income tax cut is unlikely. CBCR: “We love it!”.
India: new thin capitalization rules. Formula One decision shows that permanent establishment is still a hot issue.
- Australia: Flags on the beach approach to avoidance by ATO; More guidance available on law, decisions; ATO recruiting from profession; Chris Jordan has been reappointed as commissioner until 2024; Focus on stapled securities, profit shifting; Chevron decision made the news around the world, but it was predictable.
- Hong Kong: increase in substance requirements by Inland Revenue Department.
10.55 South-East Asia: International tax developments
- Race to the bottom on corporate tax rates. Negotiation can bring your ETR right down.
- Vietnam, Cambodia and Myanmar are developing quickly, though a lot of capacity building is required before somewhere like Myanmar gets its tax system up to speed
- Thailand making strides to become rival to Singapore as regional hub
- Inter-Asean treaty network: Singapore has treaty with each other member, except Cambodia, which doesn’t have any with anyone, and Laos.
- BEPS not at the top of the list of priorities for Asean jurisdictions. More focus on strengthening local rules, eg TP
- Seven tests for who is a beneficial owner under Vietnam’s anti-avoidance rules
- Indirect transfer issues not seen in SE Asia until a Lao case, which, like Vodafone in India, also involved a telecoms company
- Future of tax in Asean: TP rules will come in everywhere; expansion of DTA network; focus on avoidance
1.15 BEPS: A look back at 2016 and look forward at 2017’s work programme
- BEPS has put a lot more tools in the hands of tax authorities
- “Australia is the nuclear power – it nukes anything that looks like avoidance”
- Mandatory arbitration doesn’t always work, especially if there is no penalty for not talking. Not a lot taxpayers can do.
- APA regime in India has been successful. c.88 APAs signed in FY16/17
- Sometimes not feasible to get an APA for every transaction you’re dealing with. You just have to go with your structuring.
- No benefit for Singapore to over-subscribe to MLI
- HK and Singapore are looking to do enough to avoid action by external organisations, e.g. blacklisting by EU
- 2017: tension will remain between authorities and taxpayers; more BEPS work to be done in the next two years, then we will see results of reporting
2.30 International Tax Updates: Taking the lead from BEPS
- BEPS is a political commitment; not aimed at harmonising rates and neither pro-residence or pro-source
- Hope but no guarantee that there won’t be DIY measures around BEPS with compliance implications and which aren’t susceptible to MAP
- BEPS-compliant (ie, modified nexus approach) Intellectual Property and Development Incentive takes effect from July 1 2017
- China’s TP regs arguably go beyond what is required under BEPS
- OECD believes VAT is a big part of the answer to the question about the taxation of digital economy. But how to make it work?
- Peer review of minimum standards will help to implement them consistently
- If you respect these principles, lots of sensible commercial tax planning to be done
- Sunny side to BEPS for those that want to be low risk
4.15 Tax Controversy Management: How to achieve the best results
- Importance of documentary evidence
- Lots more litigation in Indonesia than in Singapore and Malaysia
- Key tips; research; consult advisors; remember privilege; do not underestimate revenue authorities
08.20 The EU tax environment in 2017
- Not possible anymore to ignore a region just because you’re not responsible for it or are not based there. EU is a good example of this re the implications of some measures for third countries.
- Public CBCR, Common (Consolidated) Corporate Tax Base (CCCTB) and Anti-Tax Avoidance Directive (ATAD) are particularly relevant now
- May 22 and 23 are crunch time for the financial transactions tax (FTT), which also has non-EU implications. Can go ahead without unanimous agreement
- EU is composing a blacklist of non-cooperative tax jurisdictions, which will not include any EU member states. But what about UK if it becomes a tax haven after Brexit?
- After Brexit, withholding tax between the UK and other member states will become a potential issue. At the moment covered by Parent-Subsidiary Directive
- CCCTB: Impact will depend on whether you’re in the EU or outside; will apply to EU subs of groups headquartered outside EU
- Public CBCR aimed at increasing transparency. The EU sub of a multinational group headquartered outside the EU will have to report for the whole group
- ATAD has minimum rules that are compulsory for all EU member states. Incorporates BEPS rules on CFCs, interest and hybrids and two of the EU’s own rules: exit taxes and GAAR
09.00 India: New era for tax reform
- GST law passed in Parliament; more complex than original but much better than multiple laws that applied so far. Three new taxes: central, state and inter-state. Expected to be four or five rates for goods and three for services
- Treaties with Cyprus, Mauritius and Singapore amended
- GAAR – subjective, sweeping. Main purpose test; GAAR and SAAR to co-exist; in force from April 1 2017
- Anti-avoidance measures in India similar to those in rest of Asia-Pacific
- Final guidelines for POEM
- Secondary adjustments and thin capitalization rules in this year’s Finance Act
- 39 Ind AS (accounting standards) and 10 ICDS (Income Computation and Disclosure Standards) issued. AS are just the beginning. The first aim is to ensure digitalization and compliance, but compliance will be messy
10.45 US tax reform under president Trump: What we know so far
- Tax reform is just one of a number of legislative priorities, eg infrastructure, regulatory, immigration, trade
- Much uncertainty. At the moment, the Trump tax plan consists of one page of bullet points about high-level objectives, such as a 15% corporate tax rate, a territorial tax system and a one-time tax on money held overseas
- Deferred tax will apply whether companies bring the money back or not
- Territorial tax system may remove the need for strong CFC rules
- Aim of tax reform is to make US a more attractive place to invest in; to disrupt the global economy.
- State tax credits and incentives may form part of Trump’s aim for $1 trillion infrastructure investment
- Taxpayers should be modelling different scenarios; no-regrets planning
1.00 China: Further moves towards a world-class tax system
- Public Notice 42 on reporting related party transactions and TP documentation released in June 2016
- Public Notice 6 on “special tax investigation adjustments” and MAP released in March 2017
No more changes expected to TP rules now; all changes have been dealt with
- Guidance expected in near future on PE (still a hot issue in China); CFCs; FTCs; hybrid mismatches and GAAR (for individual income tax)
- MLI in place in China by the end of 2017
- National VAT greatest change to the tax system, with the merging of Business Tax and VAT, since 2008
- Demand for technology and automation of tax processes
2.15 Tax Transformation through technology in Asia: How tax authorities and taxpayers are using technology to achieve their goals
- To obtain, analyse and interpret data – Goals of tax technology and automation
- Productive / behavioural analytics becoming more important
- Restriction on headcount; repetitive transactional work; avoiding human error – three reasons why tax departments are looking to implement technology and automation, but automation only as good as how you set it up
- Tax function may not be just responsible for taxable items, but also for what the analytics mean
- Tax tech skills tax directors may require in the future: what technology is in the market? What can it do? What impact will it have on the tax function?
- E-filing for all taxpayers, real-time reporting seem to be goals of every tax authority, but real-time reporting could be 10 years away or more in this region
- Tax authorities leading the charge on technology; Not long before they will have technology similar to what the private sector is using
- Technology can help authorities identify those companies whose profits, revenue and tax paid fluctuate
- Race to develop tax technology is as likely to be won by an individual in their garage, as it is by taxpayers, tax authorities or the big four
4.00 Transfer Pricing: Developing a robust policy
- Robust can mean many different things
- Robust means knowing what’s in your documentation; Does it make sense? Does it comply with group policy?
- Easier to keep consistency in Europe, which already had the local file / master file concept. Asia is so much more diverse
- Common policy among taxpayers: master file is prepared according to where it will be filed
- Difficult for an adviser to know everything that is going on
- APA considerations: is the tax in the country? Can it be quantified? Is it worth going for an APA?
- Revenue authorities in Asia becoming more and more reluctant to agree unilateral APAs
- Not every taxpayer has tax people in every jurisdiction in which it has operations. Often the country CFO wants tax certainty
- Some companies file for an APA at the same time as in an audit, so outcome of an audit turns out to be an APA
- More tax authorities want to agree APAs under profit split, not cost plus
- Some countries accept regional comparables where local aren’t available
- Preference for local comparables in India, Australia and China. In Singapore, listed companies preferred
- Adjustments in India have come down in size in the last few years and there have been more MAPs and APAs
- Hope that implementation of MAP progresses
- TP has predominant place in tax litigation in India.
- A lot more TP litigation on the way
- Tax executives should ask their companies to share CBC reports