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International Tax and the Battle for Investment
Changes in international tax legislation, such as thin cap rules and the OECD's papers on permanent establishment, have increased the focus on substance. Alongside this, complex cross-border transactions and growing issues around offshore capital reserves have noticeably impacted the mood of multinational CFOs.
What's more, we've seen an unprecedented amount of inter-country tax competition, as countries battle to secure inward investment. As a result of the recession and 'cash is king' philosophy, significant cash piles are sitting on balance sheets doing nothing. Multinationals are holding back on investment fearing a further deterioration in the macro-economic environment. To position themselves for the eventual deployment of these reserves, countries are striving to appear attractive. In the indirect tax arena, a number of governments are increasing VAT to finance the decrease in CIT, simultaneously ensuring the double whammy of increased investment and increased tax revenues. Countries remain trapped in a schizophrenic scenario whereby they want to attract business, but have limited fiscal latitude.
Ian Fleming, Taxand Global Transaction Tax Service Line Leader, commented:
"We are definitely seeing an increasing focus on acquisition structures. Holding companies in tax friendly areas such as Luxembourg and the Netherlands are facing more scrutiny and there is rising pressure from the EU to ensure that multinationals based in these jurisdictions are not bending European-wide laws."
Companies should re-assess their structures to ensure they are compliant with OECD best practice, particularly in high-profile jurisdictions where certain structures are under the microscope.
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