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Tax Planning Limits Recognised as Taxand Welcomes New Age of Tax Governance on Back of G20 Push

Tax Planning Limits Recognised as Taxand Welcomes New Age of Tax Governance on Back of G20 Push
15 Apr 2010

"Following the push by the G20 leaders and the increased reach and authority of the OECD over the past two years, tax evasion schemes used throughout the world over recent decades have been largely killed off. {C}

A panel of Tax experts from around the world and delegates at a global tax conference for multinational companies, held in Berlin by Taxand, today debated the rapid arrival of a new era in tax governance and tax cooperation with authorities, where the integration of the tax function alongside the day to day operations of multinational companies, firmly placing tax on the Board agenda and leading to improved tax efficiency and the new role of Tax Directors, Finance Directors and their tax advisers, means greater cooperation with authorities to ensure the tax efficiencies sought by shareholders are met.

Whilst the OECD has been pushing to limit tax havens and remove banking secrecy for the past 20 years it lacked the coordinated political backing. Since 2008, with the onset of global economic difficulties, there has been an unprecedented wave of global political support for the OECD and the worldwide crack down on tax havens and tax avoidance.

However, these new measures are having a knock on effect of also forcing a significant shift in the tax planning model, with a new era of tax governance, co-operation and transparency replacing older, more 'aggressive' strategies in multinational businesses' drive for tax efficiencies.

Following the tightening of anti-abuse measures around the world, including those in France, Spain the UK and USA and the OECD's ever changing 'black list', many multinational companies around the world, including large financial institutions, are racing to restructure their businesses to ensure that they do not fall foul tax authorities around the world.

Some jurisdictions such as Spain, have allowed multinational companies to operate in their jurisdiction for many years paying favourable tax rates on the back of aggressive tax planning structures for recognising activity. However, the Spanish authorities, have now clamped down on these practices, taking a raft of multinational companies to the courts to try and stop these tax planning structures, ensuring that operations are not sham 'holding' companies and claw back tax revenues. The authorities have even gone further than ever before, not relying on documents provided by the companies, but seeking to interview staff and suppliers to prove the substance of the newly restructured businesses.

In the US, economic substance rules have also been tightened. However, the rules have not been clearly defined for multinationals having to prove 'substantial' economic substance, what constitutes 'substantial' has not been made clear, leaving a wake of confusion that is likely to lead to a significant rise in IRS cases being brought against those companies operating in the US. This confusion is likely to spread as tax authorities adopt the US model.

Many firms operating in the US were operating in a frozen state in 2009, stockpiling cash as they held their breath and reeled from the shock of proposed tax reforms that could significantly impact their profitability and structures, as the US authorities came to terms with the fact that their efforts to streamline the audit practice over the last 15 years have simple not worked.

Many believe that the raft of new measures will only make the process of resolving tax issues with authorities more complex and take ever longer.

Tax goverance and tax optimisation practices in the future will need to include greater transparency, will require increased levels or scrutiny before being implemented, will need constant maintenance and will need to be structured for the longer term.

Ultimately, the rapid changes around the world, following the onset of recession and the desperate bid to claw back as much tax as possible by governments, has limited 'aggressive' tax planning and the tax advice industry must be quick to change and adapt. Those advisers, such as the Big 4, that fail or are too slow to change and deal with this increased global complexity leave their clients potentially exposed to the assertive nature of increased scrutiny in many jurisdictions and ultimately litigation, something no global 'brand' wants to suffer in the public eye."

Frederic Donnedieu de Vabres, Chairman of Taxand

Commentary released as a result of the Taxand 2010 Global Conference - Plenary Session I - Tax Planning and its Limits in the Current Climate
Helping you understand the current framework of anti-abuse measures in place in key jurisdictions; hot topics for tax inspectors and the Courts; and providing best practice guidance as well as recommendations to achieving tax transparency.

For the synopsis of Taxand's 2010 Global Conference and presentations, visit our events pages.

Abigail Tarren
T. +44 20 7715 5243

Also published on on 16 April 2010.

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