Tax Compliance Management in Europe. Survey October 2017

Transcription

1 Tax Compliance Management in Europe Survey October 2017

2 Tax Compliance Management System ("Tax CMS") A system of principles and measures established by the company's management to ensure that the company's legal representatives and employees as well as third parties (e.g. tax advisors) observe the applicable tax rules A Tax CMS should ensure the compliance of the company's tax obligations and prevent violations of the applicable tax laws The Tax CMS needs to be documented in some form Hogan Lovells 2

3 Survey on Tax Compliance Management in Europe (October 2017) Countries: France Germany Italy Luxembourg Netherlands Poland United Kingdom + EU Law Hogan Lovells 3

4 recommendable to If What disadvantages can companies face if they do not have a Tax France There is no legal Yes, in the event of a tax audit, a Tax CMS may help demonstrate the "good faith" of the taxpayer, thus reducing the amount of the penalties the French tax authorities may charge the taxpayer (10%-penalty instead of 40%-penalty). There are no legal requirements nor recommendations by the French tax authorities. Companies do not face formal sanctions if they do not have a Tax Germany There is no formal legal Yes, because the establishment of a Tax CMS indicates that persons who have submitted incomplete or incorrect tax returns for the company have not acted with intent or gross negligence. As a result, a Tax CMS can avoid the prosecution for tax evasion or a tax administrative offence. There are no legal requirements. On the suggestion of the German Ministry of Finance the Institute of Auditors in Germany has published recommendations for a Tax CMS that are regarded as best practice (IDW Praxishinweis 1/2016). Companies do not face formal sanctions if they do not have a Tax However, companies expose their management and their employees to a greater risk of prosecution for tax offences. As a consequence, the establishment of a Tax CMS is strongly recommended. Hogan Lovells 4

5 If the answer to 1 is no, is it nevertheless recommendable to If review/certify that the company's tax recommendable to have a Tax for the organization of the Tax What disadvantages can companies face if they do not have a Tax Italy CMS and similar systems are not mandatory in Italy. However, in order to promote an enhanced cooperation between the Italian tax authorities and taxpayers, as well as to prevent tax litigation, a cooperative compliance program ("CCP") has been launched since In order to apply for the CCP, taxpayers must have already implemented an effective Tax Control Framework (TCF) in line with the principles outlined in the OECD 2013 Cooperative Compliance: A Framework and OECD 2016 Building Better Tax Control Framework. The CCP applies, on a voluntary basis, to large corporate taxpayers only and it implies the establishment of a continuous interchange of data and information between the taxpayer and the tax authorities aimed at reaching a common view/solution for circumstances that may give rise to tax risks before the taxpayer even filed its own tax return. The CCP allows to manage critical situations in advance, anticipating the tax control and thus preventing potential tax litigation. The adoption of the CCP provided that the taxpayer is eligible for it might be opportune as it allows the taxpayer to benefit from the following: a) a fast track ruling procedure (so that the reply to the ruling request must be delivered in half the ordinary term normally allowed to the tax authorities, i.e. in 45 days rather than in 90 days); b) reduction of tax penalties to 50% and, in any case, the obligation for the tax authorities to apply tax penalties in the minimum amount provided by law; c) no need to provide guarantees when requesting tax refunds; and d) when informing the Public Prosecutor about the commission of a tax crime, the tax authorities must also inform the public prosecutor about the taxpayer's application for the CCP. This should result in a de facto reduction of the exposure to tax criminal risks due to the adoption of an effective TCF which should prevent the committing of tax crimes. In order to apply for the CCP, taxpayers must have already implemented an effective TCF. Moreover, for the time being, CCP is available only for taxpayers meeting the following requirements (although it is expected that they will be widened in the future): 1) Resident and non-resident entities having a permanent establishment ("PE") in Italy with a total turnover or operating revenues exceeding 10 billion; 2) Resident and non-resident entities having a PE in Italy with a total turnover or operating revenues equal to at least 1 billion, which applied for the pilot cooperative compliance project launched in ) Entities granting execution to the opinion of the Italian tax authorities in response to the advance ruling on new investments, notwithstanding threshold of turnover or revenues. In addition, resident and non-resident companies meeting the requirements set out in points 1) and 2) above can, at the time of submission of the application form, ask for the admission to the CCP for their resident and non-resident affiliate (the latter with a PE in Italy) which performs strategic direction functions, regardless of their turnover or revenues. Eligible taxpayers must file a specific application form including the basic information on the entity (paying peculiar attention to the TCF adopted). The implementation of the CCP allows taxpayers to benefit from a number of advantages. No disadvantages are envisaged for those companies that do not, or cannot, implement a CCP. The market perceives the CCP as an instrument for the tax authorities to obtain an insight of the taxpayer's business, thus allowing them to better focus their audit and assessment activities. 5

6 recommendable to If What disadvantages can companies face if they do not have a Tax Luxembourg There is no formal legal There is no formal legal requirement. Whilst there are no legal requirements nor recommendations by the Luxembourg tax authorities in relation to Tax CMS, the Luxembourg direct tax authorities issued, further to the 2017 tax reform and its new accounting obligations, a circular dated 15 September 2017 on accounting obligations as regards to tax matters that should of course be complied with by clients and where CMS might be helpful: n/circulaires/lga pdf Companies do not face formal sanctions if they do not have a Tax However, tax offences have been extended and reinforced by the 2017 tax reform in Luxembourg, and a Tax CMS may help in certain cases to demonstrate the absence of a deceptive intention of the taxpayer. In the context of the extension and reinforcement of tax offences for the purposes of the IVth AML directive, the supervisory authority of the financial sector (Commission de Surveillance du Secteur Financier) together with the Luxembourg public prosecutor issued guidelines containing 22 indicators to detect tax crimes: 6

7 recommendable to If What disadvantages can companies face if they do not have a Tax Netherlands There is no formal legal There is no legal obligation to have a CMS or also (or more common) a TCF (tax control framework). However, without an appropriate TCF a Dutch tax payer is not eligible for a tax agreement with the Dutch tax authorities on so-called horizontal supervision. Such horizontal supervision means that taxpayer and tax authorities proactively work together with an aim to reducing the need of state audits. There are no legal requirements. In the context of customs and related VAT, an appropriate TCF is required for a taxpayer to qualify for certain tax related permits and status, including the AEO (authorized economic operator) status. Hogan Lovells 7

8 recommendable to If What disadvantages can companies face if they do not have a Tax Poland There is no legal establish Tax Yes, having a Tax CMS system is strongly advisable - a Tax CMS is regarded as an indication that the company is diligent and in "good faith". It can help to avoid penal liability on the management side related to incorrect tax reconciliations if they do not act with gross negligence or intent and implemented the Tax CMS properly which delegates relevant tasks through organization. Important aspect of the Tax CMS is a procedure of verification of company's contractors in order to avoid being involved in VAT fraud scheme. There are no legal requirements but the tax authorities recommend to implement a Tax CMS, especially with respect to verification of contractors in order to avoid being involved in a VAT fraud scheme. Companies do not face formal sanctions if they do not have a Tax Nevertheless, implementing a Tax CMS is strongly recommended since it indicates that the taxpayer is diligent and in "good faith" what can be an important issue in case of tax proceedings (e.g. in case of involvement in a VAT fraud scheme) and may help to avoid penal liability. Hogan Lovells 8

9 recommendable to If What disadvantages can companies face if they do not have a Tax United Kingdom There is no formal legal Yes, as: 1) the Senior Accounting Officer/"SAO" (being the director or officer who in the company s reasonable opinion has overall responsibility for the company s financial accounting arrangements) is required to take reasonable steps to ensure that the company has appropriate tax accounting arrangements in place; and 2) corporate taxpayers are required to take reasonable care when submitting tax documents to HMRC that those documents are correct (i.e. that the correct amount of tax is being paid by the taxpayer). There are recommendations by HMRC which set out some of the key considerations they take into account regarding the compliance of taxpayers, see the following guidance: The SAO will be liable to a personal penalty if reasonable steps are not taken to ensure that appropriate tax accounting arrangements are in place. The company itself is also liable for penalties where it submits tax documents to HMRC which contain inaccuracies and result in an underpayment of tax. Tax geared penalties can be applied where there has been a failure to take reasonable care and will vary in quantum depending on whether there was a genuine mistake, careless (but unintentional) error or intentional inaccuracy. The level of penalties will also depend on whether their identification was unprompted or prompted by HMRC, and can be mitigated or suspended in some circumstances depending on the cooperation of the taxpayer and what remedial action can be set. 9

10 recommendable to If What disadvantages can companies face if they do not have a Tax European Union Law Under EU law there are some specific areas where concrete tax compliance measures are required For the input VAT deduction companies have to ensure the authenticity of invoices. Therefore, companies have to create a reliable audit trail between an invoice and the respective supply. For the specific areas: 1. Denial of input VAT deduction 2. Denial of status as AEO The status as AEO (authorized economic operator) for customs purposes will only be granted if the applicant demonstrates a high level of control of his or her operations (internal controls capable of preventing, detecting and correcting errors and of preventing and detecting illegal or irregular transactions). Hogan Lovells 10

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