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This week in tax: OECD agrees ambitious plan for 2021

Taxpayers are working to prepare for a higher compliance burden next year

The Forum on Tax Administration (FTA) has established a four-point plan to help taxpayers reduce their transfer pricing (TP) audit risks, work through the difficulties created by COVID-19 and help tax administrations go digital.

Tax policymakers have been busy this week setting their plans for the year ahead. At more local and regional levels, governments have released new tax laws and guidance. While the OECD has been occupied with the FTA’s plenary meeting and its 2021 agenda, taxpayers are working to prepare for a higher compliance burden next year.

ICAP becomes permanent

The FTA has agreed to make the international compliance assurance programme (ICAP) permanent, allowing multinational enterprises to reduce their TP audit risks.

The scheme has been running as a pilot programme since 2017. It allows taxpayers to gain tax certainty from the countries involved by explaining their business model and tax arrangements once to multiple tax authorities and gaining outcome letters that reassures them of being tax compliant. It has, in some cases, prevented unnecessary audits or led to more cooperative joint audits.

The scheme was expanded in 2019 to include more tax authorities and taxpayers under ICAP 2.0 and several taxpayers have shared their ICAP experience with ITR:

At the December 7-8 plenary session of the FTA, the tax commissioners and senior officials from the 53 members also agreed an ambitious agenda for 2021.

FTA members agreed to collaborate in new ways by developing and using new IT tools, as well as different working arrangements. Members will also look at how they can better support capacity building and digitalisation in developing countries through the work of the joint OECD/UNDP Tax Inspectors Without Borders initiative, led by James Karanja.

“The pandemic has… accelerated thinking about the use of digital technology and tools, including how digitalisation might lead to fundamental changes in the administration of tax as set out in the FTA's paper on Tax Administration 3.0,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration.

“Our collective work on the steps to realise this vision may be an important legacy of this crisis,” said Saint Amans.

In ITR this week

This week, the European Commission told ITR that there would not be any difference in the tax treatment of vaccines created within the EU and those created externally. The confirmation follows measures it introduced to enable member states to relieve hospitals, medical practitioners and individuals of VAT when acquiring COVID-19 vaccines and testing kits.

In the UK, the Taxation (Post-transition Period) Bill 2019-21 was published and is now being debated in Parliament. The legislation clarifies the tax rules on the post-Brexit movement of goods that travel from Great Britain to Northern Ireland.

The law also confirms that MNEs will be required to pay back any tax exemptions they received from the UK government under controlled foreign corporation (CFC) rules between 2013 and 2018. The missing tax revenue will be charged to MNEs as backdated corporation tax.

As tax compliance gets more complicated and digitalised, indirect tax managers shared their experiences of using tax technology and how they have worked to demonstrate value, gain budget and establish a strong relationship with the IT department at a roundtable held by ITR, in association with Thomson Reuters. However, for their direct tax colleagues who are now embarking on the tax transformation journey, many warned that it is not easy.

In addition, as the European Union’s 6th Directive of Administrative Cooperation (DAC6) weighs heavy on the minds of those who need to comply, selecting the right tool to meet the reporting requirements can be tough. Anna Szkudlarek, advisor at KENDRIS, shared her tips in choosing between in-house solutions, outsourcing entirely or using pay-as-you go reporting software in an article written for ITR.

Those affected by DAC6 and other reporting regimes may benefit from the experiences of transfer pricing directors who have adapted their processes since country-by-country reporting (CbCR) entered into force. ITR’s US Transfer Pricing Forum heard from TP professionals who have used the process to get their global teams more involved and alert to audit risks, as well as improve data governance and how to define stateless entities.

On advance pricing agreements (APAs) in the US, the Internal Revenue Service (IRS) is encouraging taxpayers to speak to officials if they have concerns about current or planned APAs because of the COVID-19 pandemic.

“We would listen to the taxpayers on their specific problem and we look at these issues through the lens of OECD guidelines and the functions, assets and risks analysis. This approach has not changed,” said one IRS official.

In other developments covered by ITR this week:

In other news

Oil company BP published its tax transparency report on December 9 covering the 2019 financial year. The report includes the total tax contribution for the company’s global operations, amounting to $42.7 billion data from its country-by-country report and details of BP companies located in areas considered to be low tax jurisdictions.‎

In Malaysia, Deputy Finance Minister II Mohd Shahar Abdullah said the government has no intention of reintroducing a goods and services tax (GST) in the near future, according to local media reports. Answering questions in the lower house of Parliament on December 7, The Star quoted Abdullah as saying that “reintroducing the GST is not among the latest options as we are looking at all options available” in an effort to increase government revenues.

The response follows an announcement in November by the finance ministry to set up a committee to study various revenue-raising measures to assist the post-COVID economic recovery. The committee will look at the feasibility of implementing a GST, a carbon tax and digital tax, as well as streamlining tax incentives, as well as other measures.

In India, the Delhi High Court has postponed the hearing on the constitutional validity of the National Anti-profiteering Authority (NAA) under the GST to January. It said on December 7 that there was no consensus between the tax department and the companies that had approached the court on the questions raised against the NAA.

Around 50 companies have filed petitions against the anti-profiteering regulations including Johnson & Johnson, Whirlpool, Nestle, Hindustan Unilever, Philips and Subway. Procter & Gamble was one of the latest companies that was ordered to pay back taxes it allegedly made by unfairly profiteering from the GST.

The deferral until January will allow the court to hear all the questions raised by the petitioners over a period of three to four weeks.

Meanwhile, the India Central Board of Direct Taxes has said taxpayers can revise tax declaration filed under the country’s dispute resolution scheme, the vivad se vishwas scheme. The confirmation was included in Circular No. 21/2020 of December 4 2020, which answers 34 more frequently asked questions (FAQs). India has thousands of direct tax disputes locked in appellate forums, with some estimated to take up to 25 years.


Next week in ITR

Coming up in ITR next week, we assess how US President-elect Joe Biden’s presidency will impact environmental tax initiatives. Also, in the US, taxpayers tell us about how COVID-19 is set to increase the number of tax disputes they will be dealing with in 2021.

We will also be releasing another ITR podcast, this time with Karine Halimi-Gue from FedEx, while also talking to taxpayers in India about the updates to the vivad se vishwas scheme.

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