44 IAFEI CONGRESS, Manila day 1 breakout.pdf · 7 deliverables issued (16 September 2014) 3.500...

Piergiorgio Valente

Chairman, IAFEI, International Tax Committee Manila, 16 October 2014

© Valente Associati GEB Partners

International Tax Committee 44 IAFEI CONGRESS, Manila

Overview of the International Tax Framework and Tax Challenges for the CFO’s Agenda

www.gebpartners.it [email protected]

© Piergiorgio Valente


Strategic International Framework © Valente Associati GEB Partners

Arm’s length principle

Economic substance

Functional analysis

Comparability analysis

Transfer Pricing

Transparency Fair Competition

Information Exchange

Economic Substance

Good Governance

Globalization

Corporate Governance

Competitiveness

Taxation

Good Governance Tax in the

Boardroom

“Corporate governance is one key element in improving economic efficiency and growth as well as enhancing investor confidence. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.” (Good corporate governance: the tax dimension by Jeffrey Owens, OECD, Centre for Tax Policy and Administration)

“Leading practice boards in many countries are mandating that tax risk be managed like any other enterprise risk. Recent international surveys by major accounting firms indicate that tax risk management is increasingly gaining acceptance at board level. Findings include that senior executives are increasingly looking for better insights into tax because of its potential material impact on financial statements and that the tax function can no longer focus solely on tax compliance and managing the effective tax rate. CEOs and boards are asking more complex questions about how their organisation manages its tax risk exposure.” (OECD, Tax guidance series – Corporate governance and tax risk management, 2009)

© Piergiorgio Valente, Chairman, International Tax Committee

www.gebpartners.it [email protected] 3

What does the acronym BEPS* strategically mean? BEPS project: Single set of consensus-based international tax rules (i.e. new international

framework for allocating taxable profits and income across Countries) in view of a newly internationally conceived Profit Sharing mechanisms

BEPS goals: Realignment of taxation with 1a. economic activities and 1b. value creation processes Protection of the tax bases with 2.a. increased certainty and 2.b. predictability BEPS numbers: 44 countries on an equal footing (all OECD countries, G20 and others), 7 deliverables issued (16 September 2014) 3.500 pages of comments, 5 public consultations, 3 webcasts with 10.000 viewers BEPS outcome: Hybrid mismatches will be neutralised, Treaty shopping and other forms of treaty abuse will be addressed, Abuse of transfer pricing rules (intangibles) will be minimised, C-b-C reporting will provide key info to Tax Authorities

* “refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity but

the taxes are low, resulting in little or no overall corporate tax being paid.”



OECD Action Plan on BEPS: Actions

4

Action 1 - Address the Tax Challenges of the Digital Economy

Action 2 - Neutralise the Effects of Hybrid Mismatch Arrangements

Action 3 - Strengthen CFC Rules

Action 4 - Limit Base Erosion via Interest Deductions and Other Financial Payments

Action 5 - Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance

Action 6 - Prevent Treaty Abuse

Action 7 - Prevent the Artificial Avoidance of PE Status

Action 8 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Intangibles

Action 9 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Risks and Capital

Action 10 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Other High-Risk Transactions

Action 11- Establish Methodologies to Collect and Analyze Data on BEPS and the Actions to Address It

Action 12 - Require Taxpayers to Disclose Their Aggressive Tax Planning Arrangements

Action 13 -

Re-examine Transfer Pricing Documentation

Action 14 - Make Dispute Resolution Mechanisms More Effective

Action 15 - Develop a Multilateral Instrument

15 Key Actions



Publication of Discussion Drafts:

• TP Aspects of Intangibles (Action 8): 30 July 2013 • TPD & Country by Country Reporting (Action 13): 30 Jan. 2014

• Tax Treaty Abuse (Action 6): 14 March 2014 • Hybrid Mismatch Arrangements (Action 2): 19 March 2014

• Tax Challenges of the Digital Economy (Action 1): 24 March 2014 • Methodologies to collect/analyse data (Action 11): 4 August 2014

BEPS/G20 - Key Topics 2014-2015

September 2014 • Digital Economy Report • Recommendations on hybrid mismatch arrangements • Review of Member country regimes to counter harmful tax practices more effectively • Recommendations to prevent abuse of tax treaties • TP rules in relation to intangibles • TP documentation and country-by-country reporting template • Multilateral instrument Report

December 2015

• Changes to the TP rules to limit base erosion via interest deductions and other financial payments • Revision of existing criteria to counter harmful tax practices more effectively • Development of a Multilateral instrument

September 2015

• CFC rules • Limiting base erosion via interest deductions and other financial payments • Expand participation in the Forum on Harmful Tax Practices to non-OECD Members • Tax treaty measures to prevent the artificial avoidance of PE status • TP rules in relation to intangibles, risks and capital, and other high-risk transactions • Report on data collection • Make dispute resolution mechanisms more effective

Globalization

Corporate Governance Competitiveness

Taxation



Update on BEPS Action Plan

Source: http://www.oecd.org/ctp/OECD-BEPS-Webcast-26-May.pdf

Deliverables September 2014 Deliverables September/December 2015

15 BEPS Actions

Coherence

Substance Transparency



OECD BEPS Stakeholders’ Consultations (1)



OECD BEPS Stakeholders’ Consultations (2)


Source: www.oecd.org


OECD BEPS Deliverables: Set. 2014


3 Reports • 2 FINAL Reports on: • Action 1 – Digital

Economy • Action 15 –

Feasibility of a Multilateral Instrument

• 1 INTERIM Report • Action 5 – Harmful

Tax Competiton

4 Instruments • Action 2 – Mismatch

Arrangements • Action 6 – Treaty Abuse • Action 8 – Intangibles • Action 13 – TP

Documentation and CbCR

Further Releases • Explanatory Statement • Executive Summaries

BEPS Deliverables 2014

* (including all OECD members, OECD accession countries, and G20 countries)

Consensus reached among:

44 Countries on equal footing*

Extensive consultation of developing countries

Extensive consultation with business, NGOs and other Stakeholders


Tax

Gove

rnan

ce

Tax Risk Management

Tax in the Boardroom & Tax Control Framework © Valente Associati GEB Partners

Key points: 1. Corporate Boards are accountable to their shareholders for ensuring appropriate corporate governance practices. 2. Good corporate governance is fundamental to good business. The importance of good corporate governance and greater transparency is highlighted by the current global financial crisis. 3. How a large business manages tax risk can affect its financial performance and reputation. CEOs and Boards of large businesses are increasingly considering tax risk management as part of their overall corporate governance. 4. Tax administrations have a vital role to play in ensuring that corporate boards understand that they are ultimately responsible for their business’ tax strategies and outcomes. Tax administrations are increasingly focusing on encouraging good corporate governance and enhancing relationships with large businesses. 5. Despite these countries’ diverse regulatory environments and experiences, they suggest a number of common benefits, challenges and best practice considerations. 6. These experiences suggest that large businesses that have good corporate governance and more transparent relationships with tax administrations can expect fewer audit interventions and hence greater certainty (in http://www.oecd.org/tax/administration/43239887.pdf).


http://www.oecd.org/tax/administration/43239887.pdf


Tax in the Boardroom © Valente Associati GEB Partners

Transactional Tax Risks

Operational Tax Risks

Compliance Tax Risks

Financial Reporting Risks

Management Tax Risks

Reputational Tax Risks

Managing Tax Risks

Awareness

Attitude towards risk

Management of tax risks

The Board

Tax: integrated into the main

business processes

Alignment/ communication: Board & Tax Department

Ensure compliance/ balance risks & controls

Board Responsibility

Stakeholders’ interests

Tax Issues



Tax Governance & Tax Control Framework © Valente Associati GEB Partners

Transfer Pricing Governance

Risks

Control Activities

Communication Strategies

Monitoring Tax Control Framework

Board and Executive Governance

Business Logic

External Regulation

Management

• Planning • Accounting • Compliance • Controversy

Policy

Tax in the Boardroom

Globalization

New business opportunities

Increased risks to manage

The momentum in

the International Tax Arena

Pressure from the Public (C.S.R.)

Tax Administration

Real Time Approach

Tax in the Boardroom



Tax in the Boardroom & Stakeholders © Valente Associati GEB Partners

Direction

Control

Communication

Right Balance between stakeholders’ interests and trade-offs

Stakeholders Expectations Roles

(Tax Accountability)

Shareholders/investors Net profit Optimize tax position/increase in the value of the company

Analysts, Banks Transparency Tax cash/risk

Tax Authorities Compliance/collection Cost reduction audits

Enhanced relationship Compliance with tax laws

Audit Committee Minimize unexpected tax issues Tax reporting/communication

Supervisory and Management Board

Reputation Solid tax position

Tax strategy/tax risk management

Auditors (internal/external)

Assurance of company’s “tax health”

Monitoring effectiveness Tax Governance Framework

Public society Fair share of tax/CSR (Corporate Social Responsibility)

Tax Communication

Tax Governance: Key Issues


44 IAFEI CONGRESS, Manila day 1 breakout.pdf · 7 deliverables issued (16 September 2014) 3.500...

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Transcript of 44 IAFEI CONGRESS, Manila day 1 breakout.pdf · 7 deliverables issued (16 September 2014) 3.500...