FTA Treasury Implications of Global Tax Reform

Transcription

1 FTA Treasury Implications of Global Tax Reform Geoff Gill, Transfer Pricing Partner, Deloitte 16 November 2017

2 Agenda 1. G20 BEPS global tax reset & financing 2. Australian approach law changes, case law (Chevron, Orica), ATO risk management 3. Practical takeaways for treasury operations 2

3 The G20 / OECD BEPS Initiative Action items for intercompany financing (at least 6 out of 15 ) Action Item Guidance Implications 2 Hybrid Mismatches 4 Interest Deductions Changes to domestic law and the model tax treaty that impact after tax cost of hybrids through denial of deduction or inclusion as income Limit interest deductions based on either a fixed net interest expense to EBIDTA ratio or the group s net interest expense to EBIDTA ratio Australia will enact likely 2019 UK has already implemented Will commonly require re-structuring of financing arrangements Australia not adopting Action 4, but has already tightened thin cap rules (note: ALP policy suggests further restrictions) and TP rules Should monitor US tax reform measures 8 TP aspects of intangibles 9 TP aspects of risk and capital 10 TP for high risk transactions International standards: Emphasising risk management and control rather than contractual allocations of risk Providing example that reflects implicit group or parent credit support that should be factored into the intercompany loan price Others e.g. New Zealand, UK Must consider commercial analogue of intercompany financing arrangements e.g. security, tenor, finco margins, guarantees implicit/explicit How would an independent lender lend? 13 TP documentation International standards Country by Country Report (CBCR) Masterfie (MF) financing section Local file (LF) Greater transparency e.g. regarding global fincos May open questions re commerciality and substance Masterfile requires global overview of sources and uses of financing for global group 3

4 Australian approach financing is a major focus New laws Major cases ATO Administrative Focus 1. New TP laws (2014) with reconstruction powers & interaction with thin cap 2. Increase (x2) of penalties for large MNCs 3. Diverted Profits Tax from New OECD TP guidelines substance and passive association 5. Cross Staple & MITs non arm s length income rule 6. Anti-hybrid measures (likely 2019) 1. Chevron Transfer pricing 2. Orica Part IVA 1. ATO is well resourced - Number 1 issue in MNC taxation 2. ATO Practical Compliance Guide for financing High interest rates on inbound loans Low rate or interest free outbound loans Cross currency / interest rate swaps with related parties Thin cap asset revaluations Guarantee fees 3. FIRB approvals review of financing arrangements 4

5 ATO Risk Assessment Tool - PCG 2017/D4 Draft PCG 2017/D4 issued on 16 May 2017; final PCG expected December 2017 Risk assessment framework only mandatory for taxpayers who lodge an RTP Schedule Qualitative and quantitative factors broadly pricing and motivational factors 18 month period for taxpayers to modify financing arrangements drive to behavioral response 5

6 Practical considerations for the Group Treasurer 1. Global financing approach increasingly relevant to intercompany financing Ø Coordination of external and internal financing policy essential Ø Demonstrate commercial basis for key terms (including tenor, security, subordination / mezzanine, interest deferral, covenants) Ø Credit market conditions & benchmarking to support pricing 2. Chevron case showed Treasury policies can be used as evidence in Court by the ATO Ø Review treasury policy and intercompany arrangements to identify any potential risks Ø Ability to secure or provide other covenants? 3. Related party derivatives including cross currency and interest rate swaps under focus by ATO Ø Demonstrate commerciality of non-aud funding and related hedging 4. Understanding impact of law changes around the world Ø Consider consistency of global funding approach in light of increased transparency 5. Review of internal credit rating assessment model Ø Consider passive association or implicit support and document position 6. Review of substance (i.e., people and capital) in funding hubs e.g. SPVs 6

7 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Deloitte Tax Services Pty Ltd. This publication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the Deloitte network ). None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.