Asia officials highlight compliance priorities
Past and present tax officials from Asia and the US, speaking on the first day of International Tax Review's Asia Tax Forum in Singapore, painted a picture of compliance in their jurisdictions where in some areas efforts are being radically restructured, such as the reorganisation of the US mutual agreement procedure and advance pricing agreement (APA) programmes, and in others change is more gradual.
Chinchie Killfoil, tax attache at the US Embassy in Beijing, told delegates how the Internal Revenue Service had appointed a transfer pricing director in its Large Business & International division last August and put him in charge of the mutual agreement and advance pricing agreement programmes, when previously they had been under the control of the Office of Chief Counsel. Thirty new staff, including managers and economists, have been hired and a branch office has been opened in San Francisco.
Killfoil admitted that the MAP programme needed to improve. The process takes way too long. The US needs to get better, she said. At the same time, she said 95% to 96% of taxpayers get full relief, avoiding double taxation, when the MAP programme takes up their case.
The focus for the competent authority in India is on capacity building, Rabi Dash, former director general for international tax in the Indian government, said. He said MAP cases had been speeded up and more people had been hired. He added the beginning of domestic transfer pricing audits, and the profiling of industries and benchmarking of transactions for tax compliance risk were other new features in India this year.
Dash said the inauguration of an APA programme and retrospective amendments announced in the budget in March were also notable announcements this year. He said a circular about controversial changes to indirect transfers is on the way and the clarificatory amendment to the Finance Bill emphasised that any changes would not override any of the India's double tax treaties with other jurisdictions.
Lim-Leow Lay Hwa, director (corporate tax medium corporations) at the Inland Revenue Authority of Singapore (IRAS) said IRAS runs an enhanced taxpayer relationship, encouraging taxpayers to come to talk to them. She said the electronics and services industries are under transfer pricing compliance focus at the moment
Arthit Satthavorasit, from the Thailand Revenue Department, said his country's corporate tax rate went down from 30% to 23% in 2011 and is due to fall by another three percentage points this year. He added that changes to how taxes were paid meant taxpayers could now pay by credit card which drew laughs from the delegates and a rebate for anyone who paid online.
Tax authorities get together
Another growth area, the panellists agreed, was cooperation between tax authorities.
The tax world is cooperating much better than previously, said Dash. Killfoil described initiatives such as the OECD's Global Forum on Tax Administration, which brings together 43 commissioners for regular meetings and contacts, and the Joint International Tax Shelter Information Centre, where a number of jurisdictions, including the US, UK, Australia and Canada, work together in offices in Washington, DC and London. It's real-time information sharing, she said. It's quicker than other methods.
Killfoil also referred to the Foreign Account Tax Compliance Act, or FATCA. She said that offshore, as well as US, information reporting was needed and that the aim was to improve compliance globally.
The phased implementation of the legislation begins on January 1 2013, though Killfoil said there was leeway for some foreign financial institutions (FFIs), who are the principal compliance target. For example, compliance for FFIs in countries which have legal restrictions on what and how much information they can report, will not commence until January 1 2016, though they will still have to identify accounts held by US citizens and do any necessary compliance before then
Killfoil also described the intergovernmental approach being taken to FATCA implementation, which was announced in a joint statement by the US and five European jurisdictions in February. The cooperation, which will take the form of a series of bilateral agreements between the US and any foreign jurisdiction that has the mechanism to exchange information with the US, such as a double tax treaty or tax information exchange agreement, will allow FFIs to report information to their own tax administration rather than directly to the IRS. A model agreement is due to be published before the end of May.
The information reporting is not all one way. Killfoil said that rules released last month require banks in the US to report the earnings of non-resident aliens to the IRS.
On the offence
Veerindeerjeet Singh, managing director of Taxand Malaysia, who chaired the panel, said companies needed to take action to respond to the latest compliance initiatives by tax authorities around Asia and the rest of the world.
Singh said taxpayers needed to take the initiative and plan for change and had to be more agile and flexible in their structuring. Taxpayers need to invest time and effort to make sure it had real substance, he said. He added that companies should use the compliance assistance programmes that tax authorities run and ensure that internal tax processes and controls were robust.