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This week in tax: Budgets, consultations and the EU Apple case

Debate over how to improve MAPs and APAs will bring changes this year

Taxpayers are busy analysing proposals in India’s budget, while the Apple case is back in the news, and the OECD’s consultation on dispute resolution under BEPS Action 14 has dominated conversations this week.

The much-anticipated Indian budget came with promises to reduce tax litigation, but not all taxpayers are convinced the measures will deliver lasting change.

Finance Minister Nirmala Sitharaman announced that companies will no longer be required to pay for an external audit of their annual goods and services tax (GST) return or to obtain a reconciliation statement to satisfy the rules under the GST regime.

However, tax professionals are divided as to whether the change to self-certification introduces more risks for in-house tax departments that could lead to litigation.

“This is a double-edged sword,” said a tax director at a leading pharmaceutical company.

At the same time, African governments are looking for ways to increase tax revenue. Botswana’s annual budget was also presented to Parliament on February 1. Minister of Finance and Development Thapelo Matsheka announced a two percentage point rise in the VAT rate from 12% to 14%, as well as a number of other rate rises on withholding tax and fuel levies.

The government also plans to modernise tax collection as part of its efforts to boost revenue. However, it is not going to overhaul incentives offered to foreign companies to invest in Botswana.

State aid battle between Apple and EC goes to CJEU

While litigation may be potentially easing in India, the opposite is true in the European Union. Apple and Ireland will, once again, have to defend their tax record against claims of illegal state aid.

The European Commission has filed an appeal to the Court of Justice of the European Union (CJEU) in the Apple state aid case, dated September 25 2020 and published on the court website on February 1 2021.

The EC has claimed that the EU General Court “misinterprets” its August 2016 decision that Apple had been granted illegal state aid in Ireland. The European Commission hopes to overturn the General Court judgment and claw back €13 billion ($15.7 billion) in taxes from the US company.

OECD consults on BEPS Action 14

The OECD’s latest public consultation on February 1 focused on BEPS Action 14. The OECD received 33 consultation responses from professional service providers, businesses, industry associations, and individuals before the public hearing on its proposals.

Before the public consultation, Achim Pross, head of the International Cooperation and Tax Administration Division at the OECD Centre for Tax Policy and Administration, spoke to ITR about how dispute prevention will be improved over the coming year.

During the February 1 panel sessions, a number of suggestions were made to improve dispute prevention and resolution. For example, taxpayers said advance pricing agreements (APAs) could be expanded to include non-transfer pricing (TP) issues so that fewer cases go into a MAP.

Documentation required to apply for a MAP could be standardised too. Mandatory binding arbitration should also be adopted more widely to prevent cases entering a MAP, but arbitration needs to be a more transparent process, critics said.

Although there was some agreement that bilateral APAs (BAPAs) are growing in popularity for both taxpayers and tax authorities in an effort to prevent cross-border tax disputes, APAs are still taking too long to conclude. This is particularly a problem for taxpayers in emerging and developing economies where there are limited resources.

Tax professionals called on the OECD to analyse how to make APAs and BAPAs more efficient and issue guidance to competent authorities. There were also suggestions to assess how audit teams and competent authorities could work together to prevent lengthy APAs and unnecessary tax assessments and eventual MAP cases.

Global Tax 50 2020/21 released

ITR published its annual Global Tax 50 list this week. The 10th edition highlights the most influential figures and events in fiscal policy over the past year, while noting who and what will be important in 2021.

The top 10 entries include the significant impact that COVID-19 has had, OECD chief Pascal Saint-Aman’s role in the global digital tax debate, how digital transformations are changing that way tax departments operate, as well as the global impact of trade developments and environmental tax policies.

ITR reporters also highlighted the importance of some of these topics in more detail this week through a range of articles. For example, in-house tax policies are helping to direct environmental, social and corporate governance (ESG) outcomes to increase investment and limit reputational risks for large companies.

Meanwhile, TP arrangements are being revised faster than planned as business models change because of COVID-19. In addition, TP knowledge gaps among tax authorities and the pandemic’s impact on benchmarking data is creating headaches for taxpayers.

In other news, the Australian Taxation Office updated its guidance on whether the presence of employees in Australia, due to the impacts of COVID-19, may create a permanent establishment (PE). The revised guidance will apply until June 30 2021. After this date, companies will be required to consider whether ongoing arrangements give rise to a PE.

Mexico’s tax authorities, meanwhile, have stated that customised transactions with an aggregate tax benefit of more than MXN 100 million ($4.9 million) will be subject to the mandatory disclosure regime (MDR) reporting requirements.

In a tax alert about the development, EY confirmed that the threshold does not apply to generic transactions or transactions that meet the hallmark for avoiding the exchange of information with foreign authorities. However, the accounting firm warned that companies should note the initial reporting due date for MDR obligations, set at November 2 2020.

“To determine whether the threshold is met, taxpayers or tax advisors must aggregate the tax benefit for all transactions that meet a hallmark for reporting and have at least one tax year in common,” EY explained.

In the US, the Senate is discussing the Removing Incentives for Outsourcing Act in line with US President Joe Biden’s plan to keep jobs in the US and incentivise US businesses. US Senators Amy Klobuchar, Chris Van Hollen, and Tammy Duckworth re-introduced the Act to Congress on January 26 after it was first discussed in 2017.

The bill would amend the global intangible low-taxed income (GILTI) rules by repealing the tax-free deemed return on investments. It would also determine the net controlled foreign corporation (CFC) tested income on a per-country basis, instead of a blended or “global rate”. The change would mean companies will not be able to deduct 10% of their return on tangible assets before the tax rate on foreign income applies.

Senator Klobuchar said that the law would reverse the “2017 Trump Tax Scam [that] created perverse new incentives for corporations”. The law would also require the Joint Committee on Taxation to study various proposals for taxing overseas income to assess whether they minimise opportunities for US tax avoidance and outsourcing American jobs.

In Malaysia, the debate continues over whether a GST regime will be re-introduced. Affin Hwang Capital’s Chief Economist Alan Tan has reportedly said that the government may re-introduce the GST at a rate of lower than 6% in the 2022 budget, and possibly roll out the tax regime in 2023.

Newspapers quoting the economist said the move would mean that the Malaysian government would rely much less on direct tax to raise revenue.

In other developments:

Next week in ITR

Next week, the nomination period will open for the United Nations Committee of Experts on International Cooperation in Tax Matters. Governments of the permanent representatives of UN member states, as well as the permanent observers of non-member states, will be invited to nominate an expert for the next four-year term of the 25-member committee.

Elected members will begin their four-year term on July 1 2021, ending on June 30 2025. In preparation for this process, the UN published its practices and working methods as agreed in October 2020.

At the G7 finance ministers meeting on February 12 under the UK’s presidency, UK Chancellor Rishi Sunak will lead discussions on how to gain an agreement on the OECD digital tax proposals with his counterparts from the US, Germany, Japan, France, Italy and Canada, as well as the European Central Bank.

In ITR, tax professionals will be talking about their compliance worries over Oman’s upcoming VAT regime. The delayed release of the executive regulations that will help them to prepare for VAT implementation and the risk of last-minute guidance creates compliance risks.

Taking a deeper look at the Indian budget, reporters will examine whether proposals to simplify tax disputes with faceless assessments may instead create communications barriers between taxpayers and the Income Tax Appellate Tribunal.

In addition, the COVID-19 crisis has created more permanent establishment risks for businesses around the world and companies have turned to tax risk insurance as part of a safeguarding strategy. ITR explores the options.

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