International Tax: A State of Uncertainty?

 

In recent years, governmental entities, most notably the OECD, the United States, and the EU Commission, have driven massive changes to the once-stable field of international tax law. These changes have created uncertainty and challenges for all levels of taxpayers, tax practitioners, and (even) regulators. When the OECD began pushing these initiatives with the BEPS Project back in the earlier part of this decade, the EU Commission responded with its state aid investigations, sending not-too-subtle reminders of its legal authority to create extra-statutory tax laws.

 

These ongoing cases have induced responses from both tax authorities and taxpayer behavior.

 

ATAD and DAC6

 

Most recently, the EU introduced a requirement that its member states implement the Anti-Tax Avoidance Directive (ATAD) and the DAC6 (Directive on Mandatory Disclosure for Intermediaries) into their own national laws. For smaller EU member states and for those seeking to compete on a tax basis in the global economy, implementation of these directives, such as introduction of CFC legislation, represents significant (and potentially unwelcome) legislative and policy change.

 

Under these extra-national rules, EU member states must also create interest deductibility restrictions featuring a fixed ratio rule, exit tax provisions, and anti-hybrid rules, further introducing complexities and compliance burdens. No end appears in sight, either, as the EU Commission continues its tax juggernaut with further draft directives, the most prominent of which is the Digital Tax Directive—considering a potentially aggressive approach to taxation of non-brick-and-mortar business profits, a notably unpopular piece of regulation that many member states believe ought to be left to the OECD (although the UK seems to be trying to foment quick adoption with its recently proposed digital services tax).

 

Discover more: International Tax: A State of Uncertainty?

 

Authored by: 

Jon De Jong

 

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Taxand's Take

Each multinational’s situation and risk tolerance will vary, and there is no straightforward answer regarding an optimal tax structure for a U.S. multinational. For now, U.S. multinationals are considering EU exposures, weighing their potential supply chain exposures related to their subsidiaries, ensuring they are fully compliant with tax laws (esp. in the wake of U.S. Tax reform), and modeling potential outcomes that fit their businesses and risk tolerances. Risk analysis, business needs, modeling, and technical savvy will drive structures, and the best of these will incorporate low-cost options to flex in the future as global tax policy continues to change at an unprecedented pace.

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International Tax | USA

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