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Taxand's Take on the Year Ahead
As the world welcomes 2013, the furore surrounding multinational tax planning is coming to a head.Governments globally have been faced with a dilemma: to balance the ongoing need to address a difficult economy through increased tax revenues, whilst conversely attempting to attract multinational investment to their shores.
Tax authorities around the world are also crumbling under the weight of public pressure and may well enforce further measures to limit tax planning. Coupled with that, country competition poses a further 'hurdle' for tax harmonisation. It's a real dichotomy. So, to kick the new year off, we tour the world to understand the latest tax issues impacting your business. We explore the growing prominence of tax and provide an overview of the year ahead.
FATCA is now a reality! It will not just impact financial institutions, but also other foreign entities, regardless of whether you are US account holders or owners, or hold US stocks or securities. And the additional administrative burden is not the only worry, failure to comply with FATCA may result in a 30 percent withholding on US sourced payments. We expect to see a rise in exchange of information agreements as a result.
The OECD's recent work on intangibles involved a redraft of Chapter 6 impacting transfer pricing arrangements of multinationals with cross-border transactions involving intangibles. Two practical considerations in response to the recent OECD guidance that stand out indicate a need for multinationals to consider a change to either your transfer pricing policies or the documentation supporting the policies.
Whilst we have seen the emergence of numerous positive measures around the world with the likes of Ireland continuing to bid for investment, the Netherlands abolishing thin-cap rules, the UK Chancellor springing a surprise reduction of the UK corporate tax rate, and the possible policy update on Chinese direct / indirect share transfer, to align local policies to government strategies countries continue to announce new tax law in an effort to claw back further revenue: Luxembourg introduces a minimum corporate income taxation, the French introduce a Finance Bill increasing the corporate tax burden for multinationals.
Simplification remains an aim with Germany redrafting law to modify and simplify the company taxation regarding fiscal groups and your transactions.
As we head into 2013 tax treaties are a theme: the Argentina- Russia double tax treaty enters into force. With the annual volume of trade between Russia and Argentina valued at more than USD 1 billion this provides opportunities for businesses in both countries. Cyprus-Estonia finally signed a double tax treaty which marks a long-awaited new chapter in building business and economic relationships between the two countries; and Malaysia & Hong Kong sign a tax treaty which includes investment opportunities in Labuan. However, after lengthy discussions, a tax deal between Germany and Switzerland failed, meaning income from undeclared assets of German residents held in Swiss banks accounts cannot be taxed in Germany. GAAR continues to be a hot topic, most recently in Australia where the rules have shifted in the latest version of the New Exposure Draft Legislation.
In Europe activity tax shows no sign of decline either with the ECJ clamping down on those regulations seen as breaching EU principles, for example in Belgium the ECJ crackdown on preferential withholding tax treatment. The ECJ has also recently focused on VAT and ruled in favour of the taxpayer in a recent Romanian VAT case, and in another case promoted a positive outlook of VAT treatment in relation to investment advisory services benefitting multinationals. In a similar vein, Poland has aligned major VAT law changes with the EU.
Finland, on a positive note are considering proposed amendments to enhance the ability to obtain legal tax advice in advance of an income tax dispute, allowing more scope for multinationals to appeal.
In addition, multinationals face an ever more stringent tax focus on their global resourcing, for example, when designing and implementing international pension plans, how do you strike the right balance to benefit both employer and employee? Countries, too, are revising their national approaches to compensation: Switzerland amends its equity-based compensation tax, and South Africa has rolled out a new employee share scheme, while Indonesia attempts to resolve its inconsistent treatment of contractors.
In conjunction with revenue authorities' worldwide ever increasing scrutiny, there have been further unusual taxes implemented to bolster tax revenues... Discover more
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2013 will be pivotal for multinationals as they will be scrutinised now more than ever, not only by relevant tax authorities but also by the media on a global scale. With the debate around multinational tax planning coming to a head, tax authorities around the world may well enforce further measures to limit tax planning under the weight of public pressure. Conversely, these same countries are bidding to remain competitive in an attempt to attract those same multinationals to their shores.
FATCA and the OECDs recent focus on intangibles will bring additional administrative burden to multinationals. By focusing on your tax strategy and aligning planning to meet your commercial objectives, you will help to mitigate future tax risks and maximise opportunities, holding you in good stead.
It's not all doom and gloom though for multinationals. Dialogue between tax authorities and multinationals is improving. Double tax treaties and efforts to attract inward investment are increasing. And countries are proactively working with each other to combat tax evasion.
We know harmonisation is still a long way off; international collaboration will be essential to securing a brighter future.
So, whilst the debate continues international tax will continue to steal the show. Watch this space!
So how did 2012 fare in comparison? Download our Taxand Global Survey 2012 research findings. In our 2012 survey, we explored the key tax issues affecting CFOs and multinationals worldwide. Access the survey highlights to understanding the pressing tax issues in 2012.
Our 2012 Milestone Survey also highlights the international struggle between revenue and compliance, being faced by multinationals and authorities alike. Access our Taxand 2012 Tax Milestones Survey to find out more