What is the most significant change to your region/jurisdiction's tax controversy/disputes legislation in the past 12 months?
At the regional level, there is a strong concern regarding the European Commission activity, following the Base Erosion and Profit Shifting works and recommendations. So EU governments and tax administrations are looking carefully at the same options, even if, of course, the intensity varies from one Member State to another. Looking at some countries, and more specifically at France, there is an increased, ongoing pressure from tax authorities regarding things like tax raids.
What has been the most significant impact of that change?
There may be differences from one country to another, but experience shows that it is becoming more difficult to talk with tax authorities and their management, along with making the move to frequent use of penalties.
How do you anticipate that change impacting your work and the market moving forwards?
We expect to have a more global view on operational changes in multinational enterprises, anticipate tax administrations' activities and start internal audit work with groups to possibly adapt the organisation or prepare documentation/explanation prior to tax audits.
How has this changed the way you offer tax advice?
We work closely with groups and have discussions on procedures to manage tax audits and include tax departments of multinational enterprises in organisational restructuring as early as possible.
What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
From an EU point of view, there is a general move to incorporate more anti-abuse regimes (following the action of the EU to introduce the BEPS recommendations as quickly as possible) and reduce the corporate income tax rates. In EU Member States, tax law changes are expected in anti-abuse rules (to align on recent EU directives), TP documentation, a possible specific digital economy tax, adjustment on some ancillary corporate tax and an R&D incentive regime.
What are the potential outcomes that might occur if those changes are implemented?
Continuing pressure on economic groups and greater tax audit activity.
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
These changes will require a careful anticipation, along with tax and legal review, for evaluating the risks exposure, in order to adapt organisation/group internal rules to face the changing tax environment.
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
In Europe, a majority of countries are willing to increase the pressure on large digital economy factors and on IT groups, in general. The EU Commission has released two draft directives to address this concern, under pressure from some EU governments and to avoid the uncoordinated actions of the Member States. Some countries have been leading that proactive brainstorm, and France has been one of the frontrunners on this topic, even if they are looking for a coordinated action with their partners. However, if nothing transpires soon from the EU Commission initiative in this area (and the Commission action has been developed at the strong request of the French government) it is expected that some countries may introduce a dedicated digital tax (following the example of the Diverted Profits Tax (DPT) introduced in the UK and in Italy).
What is the tax authorities' approach to tax auditing?
There is no uniform approach among the various European countries. Northern European countries are usually more collaborative in the way they perform tax audits. On the other hand, for example, the French approach to tax auditing has historically been in favor of strong action. Because the national tax system relies on trustworthy relationships based on tax returns, the other side of that is an extended tax auditing action from tax auditing services. The French President and government have been talking about a "right to make mistake" (not only in the tax area), to explain that a first time error may be accepted, or at least that the use of penalties may be reduced. A law was voted on with regard to this, but firms in France are still waiting to experience the tax administration's regulation and tax auditing process to see how they will concretely enforce that new approach.
How has tax advice adapted to the changing tax audit approach, and how do you expect it to change further?
To adapt to this new context, advice has been redirected to (a) detailed internal tax reviews on activities and organisations; (b) a stronger anticipation of tax audits and tax raids (to have people ready to face those tax administration actions); and, (c) producing developed and contemporaneous documentation.
For disputes that require litigation (pre-litigation, and court proceedings), how are matters evolving in your jurisdiction/region? Are pre-court settlements becoming easier, and why?
Generally speaking, and some countries like Germany, Italy, France may be good examples as they may be ahead of others, pre-Court settlements are becoming rather complicated. High pressure during tax audits is leading to an increase of the tax reassessment amounts and a more general use of tax penalties. As a result, the possibilities of an exchange with tax authorities and the capabilities of tax administration officials to find an agreement have reduced.
Deloitte Tax and Legal (Taj) France, EMEA, Registered attorney, Partner
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