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What to look out for at IBA 2011

The breadth of tax topics to be debated at the International Bar Association (IBA) annual conference in Dubai next week ranges from the use of partnerships and tax groups to the taxation of foreign currency gains and losses and taxation in the Gulf Cooperation Council (GCC) countries.

Here is a brief look ahead to some of the highlights delegates will be treated to during the week-long event.

Will taxpayers and tax administrators soon be sharing the same bed?

Approaches to tax audits are evolving, with penalties growing stiffer while demands for information continue to rise. There is, more than ever, a premium on tax information. Tax administrators need such information to ensure compliance, but even so, administrators in certain jurisdictions are looking to finalise returns early in the process, and reward taxpayers for their compliance.

Evidence of the premium on information can be seen through the fact that most tax treaties have been, or are being, updated, and the specific provisions that have been updated are those relating to information exchange and disclosure.

But what does the shift towards enhanced relationships and greater information disclosures – such as the Dutch horizontal monitoring programme and the US compliance assurance program (CAP) – mean for the future and how will such relationship structures develop?

“We will be analysing disclosure obligations and focusing on how tax authorities pull in information, request taxpayer information on transactions and strategies,” said Peter Utterstrom, partner at Delphi in Stockholm.

As governments try to increase the revenue they bring in, and increase certainty for taxpayers, there has been an increase in the number of compliance policies that must be adhered to.

“For instance, in the US there is now a requirement for the reporting of uncertain tax positions (UTP), while in Sweden the authorities have invited a few large corporations to participate in a test scheme aimed at closer cooperation,” said Utterstrom. “In Scandinavia there is fairly close cooperation already.”

There will be analysis of these relationships and requirements on a jurisdictional basis and further analysis of differences between jurisdictions. The flow of information between tax administrations will also be explored, as well as looking at whether there is closer cooperation between certain jurisdictions.

“For example the US and Canada, and not just for geographical reasons,” said Utterstrom.

So, while tax administrators and taxpayers may not be tucked up together just yet, it might not be too long before their toothbrushes are in the same stand. For taxpayers, this session will inform and guide on how to avoid compliance issues and ensure nobody is left sleeping on the sofa.

Approaches to group taxation and issues presented for M&A transactions

In the tax codes of many countries, there are provisions for systems to tax groups of companies together, treating them as one taxable unit. Consolidated group taxation of companies presents advantages to both taxpayers and governments, but there is an additional complexity when it comes to planning in countries where such regimes exist.

“Practitioners advising clients on cross-border M&A transactions need to be aware of the pitfalls and planning opportunities provided by different consolidation regimes,” said Gordon Warnke, chair of the tax department at Dewey & LeBoeuf in New York. “With a proper understanding, taxpayers can utilise consolidation regimes to their benefit, presenting interesting planning opportunities, and avoiding serious pitfalls.”

The requirements for consolidation regimes will be discussed for the countries represented on the panel – Austria, China, Italy, the Netherlands, Spain, the UK and the US. There are differing requirements across different jurisdictions, but many similarities as well.

“Issues such as ownership threshold requirements, discretion of the taxpayer to consolidate, ability to consolidate with entities outside of the parent’s home country, timing of joining a consolidated group, and special rules for particular jurisdictions will be analysed,” said Warnke.

Use of partnerships in international joint ventures

One issue which will be explored is the use of partnerships in international joint ventures. There is no consistent treatment of partnerships and joint ventures, which obviously creates problems of certainty for administrators and practitioners alike.

Elinore Richardson, of the Institute for International Taxation, and Jutta Schneider, partner at Orrick Hoelters & Elsing, will chair the session and present examples of how partnerships have been used in investment structures and what the issues are on going in, holding and exiting.

“For example we have a joint venture by a fund into Mexico with Mexican and other foreign holders through a Canadian LP structure which achieves some advantages,” said Richardson. “We also have an investment structure from Canada and the US into India through Germany.”

“We have a lot of issues under US law affecting how profits are attributed and allocated among partners – and also the status of the partnership as a cooperation,” said Richardson.

The session will highlight several ways in which partnerships, or in certain circumstances hybrids which are regarded as entities in one jurisdiction and partnerships in another, may be used tax effectively to optimise a business acquisition, an investment or the expansion of a business through a joint venture, for an investor.

“The panel will focus on certain rules which distinguish a partnership from a corporation and on rules for allocation of profits or losses of a partnership as well as specific developments in some jurisdictions as to limitations on use of foreign tax credits by partners in various partnership scenarios,” said Richardson.

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