Hot topics Treasury seminar

Transcription

1 Hot topics Treasury seminar Treasury in a transparent and new tax world Discover and unlock your potential

2 Program Introduction on BEPS Potential implications for treasury o Interest deduction o Treaty abuse o Hybrid mismatches o Documentation Discussion 2

3 Introduction on BEPS

4 Global tax developments What is going on? Starbucks, Amazon and Google accused of being 'immoral' Amazon, Google and Starbucks were yesterday accused of being immoral, manipulative and of practising tax avoidance on an industrial scale. EU Launches Attack on Corporate Tax Avoidance European Commission Proposal Aims to Close Loophole for Multinationals OECD launches plan to stop firms 'abusing' tax rules Existing tax rules need updating as they can be "abused" by multinational companies, according to the Organisation for Economic Co-operation and Development (OECD). Vodafone's 84bn tax avoidance bonanza: Nothing for taxpayers in Verizon deal while bankers share 500m in fees. 4

5 OECD BEPS action plan - Timing April 2015 June 2015 (3) Release of TP Discussion Draft on Strengthening CFC rules (11) Release of TP Discussion Draft on Improving the Analysis of BEPS (8) Release of TP Discussion Draft hardto-value intangibles (13) Country by country implantation package published Implementation July 2013 Release of Action Plan with 15 separate actions split over 2014 and 2015 September 2014 January 2015 G20 Finance Ministers sign off on actions: 1 Digital economy 2 Hybrid mismatches 5 Harmful taxation (phase 1) 6 Treaty abuse 8 TP Intangibles (phase 1) 13 Country by country reporting and transfer pricing documentation 15 Multilateral instrument (phase 1) (13) Recommendations on Country by country reporting and transfer pricing documentation template December 2014 (9) Release of TP Discussion Draft re risk, recharacterisation and capital September 2015 G20 sign of on actions: 3 Strengthen CFC 4 Base erosion, interest / financial payments (phase 1) 5 Harmful taxation (phase 2) 7 Permanent establishment avoidance 8 TP Intangibles (phase 2) 9 TP value creation / risk and capital 10 TP value creation / high risk transactions 11 Methodology/data on BEPS 12 Disclosure of aggressive planning 14 Dispute mechanisms December 2015 G20 sign of on actions: 4 Base erosion, interest / financial payments (phase 2) 5 Harmful taxation (phase 3) 15 Multilateral instrument (phase 2) 5

6 Relevant BEPS action points Action 1: Address the challenges of the digital economy 1 Action 2: Neutralise the effect of hybrid mismatch arrangements 1 Action 3: Action 4: Strengthen CFC rules 2 Limit base erosion via interest deductions and other financial payments 2 Action 5: Counter harmful tax practices more effectively 1/2 Action 6: Action 7: Prevent treaty abuse 1 Prevent the artificial avoidance of PE status 2 Action 8: Assuring that TP outcomes are in line with value creation: Intangibles 1/2 Action 9: Assuring that TP outcomes are in line with value creation: Risks & Capital 2 Action 10: Assuring that TP outcomes are in line with value creation: Other high-risk transactions 2 Action 11: Establish methodologies to collect and analyse data on BEPS and the actions to address it 2 Action 12: Require taxpayers to disclose their aggressive tax planning arrangements 2 Action 13: Re-examine transfer pricing documentation 1 Action 14: Make dispute resolution mechanisms more effective 2 Action 15: Develop a multilateral instrument Deliverables ² 2015 Deliverables 6

7 Limit base erosion via interest deductions and other financial payments Action 4 and 9

8 Limitation of interest reduction Developing a best practice Objectives Develop recommendations regarding best practices in the design of rules To prevent base erosion through the use of interest expense. If adopted, the rules should apply to: All forms of debt Payments equivalent to interest Expenses related to financing Fixed ratio rule Allow a deduction for interest up to a specified proportion of an entity s earnings or assets Group ratio rule Allocation of the group s actual net 3rd party interest expense across jurisdictions based on a measure of economic activity (e.g. EBITDA) 8

9 Limitation of interest reduction Make sure you re prepared BEPS Action 4 assessment tool The tool calculates the impact on the group ETR for three scenarios, whilst minimising inputs required by the user. It provides a tabular summary of the impact of the nine most impacted territories. Understanding the impact Given the potential for these rules to significantly impact MNCs, it is important to understand: - Potential impact on ETR. - Territorities most likely to be impacted. - Potential impact after any change in the group s debt profile. 9

10 Risk & Capital Action 9 Objective Develop rules to prevent BEPS by transferring risks among, or allocating excessive capital to, group members. More concrete? Adopting transfer pricing rules or special measures to ensure that inappropriate returns will not accrue to an entity solely because it has contractually assumed risks or has provided capital; Alignment of returns with value creation. Examples Fatly capitalised companies would be subject to a predetermined ratio based on regulatory capital requirements (e.g. Basel) or a group/fixed ratio. Income arising from assets funded by capital above those thresholds would be characterised as a deemed interest payment. Cash box lacking of substance. 10

11 Neutralize the effect of hybrid mismatch arrangements Action 2

12 Hybrid mismatches Implications of fundamental and far-reaching reforms Impact of BEPS Hybrid entities and loans OECD has recommended domestic rules to neutralise the following results arising from hybrid mismatch arrangements: - Deduction with no taxable inclusion (D/NI) - Double deduction (DD) - Indirect deduction with no taxable inclusion (imported mismatch) Defensive Rule No Inclusion Inclusion Primary Rule No Inclusion Deductible No Deduction Deductible 12

13 Prevent treaty abuse Action 6

14 Prevention of treaty abuse The need for substance Main aspects: OECD Model Treaty to include a simplified LoB Limitations of Benefit ( LoB ) clause. General anti-avoidance provision to be included in the OECD model treaty; benefits should not be available where one of the principal purposes is securing a tax treaty benefit (principal purpose test or PPT ); Key messages in relation to treasury: Impact example TopCo (Germany) OpCo (ROW) Not meeting the LOB/PPT-requirements = No reduced treaty rates = Increased source state withholding taxation on interest income. Proper local operational presence (substance) required to meet the LOB requirement Economic reasons (non-tax reasons) required to meet the PPT requirement FinCo (Netherlands) Capital Markets 14

15 Re-examine Transfer Pricing documentation Action 13

16 Documentation A 3-tiered approach Master File The master file is intended to provide a high-level overview in order to place [Client name] tranfer pricing practices in their global economic, legal, financial and tax context. + Country File The country file provides more detailed information relating to the material intercompany transactions affecting a specific jurisdiction. = Local file CBC Report + Master file Country -by-country Report The country-by-country report provides aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which operates. 16

17 Research and Development Holding or Managing intellectual property Purchasing or Procurement Manufacturing or Production Sales, Marketing or Distribution Administrative, Management or Support Services Provision of Services to unrelated parties Internal Group Finance Regulated Financial Services Insurance Holding shares or other equity instruments Dormant Other Documentation: entity overview CBC Report Local file Master file CBC Report Name of the MNE group: Fiscal year concerned: Main business activity(ies) Tax Constituent Entities Jurisdiction resident in the Tax Jurisdiction Tax Jurisdiction of organization or incorporation if different from Tax Jurisdiction of Residence A B

18 BEPS and the corporate treasury function Impact analysis Focus area BEPS response Impact on treasury function Hybrid mismatch structures Finance companies with little or no substance High leveraging of group companies Transparency Guidance on eliminating mismatches (Action 2) Avoid treaty abuse (Action 6) through anti-abuse rules in treaty (LOB and PPT). Assure transfer pricing outcomes are in line with value creation (alignment of risk/capital (Action 9) Limit base erosion via interest deductions and other financial payments (Action 4) Transfer Pricing Documentation and Country-by-Country Reporting (Action 13) Reduced tax benefits and increased effective tax rate; unwinding of existing arrangements; additional compliance/monitoring burden Requirement for greater substance, real economic activity and oversight of key risks in treasury location. Fat capitalisation issues. Potential additional tax costs (WHT). Reduced tax benefits and increased effective tax rate; uncertainty over tax benefit on intra-group and third party financing Increase in reporting requirements. Uncertainty as to how the tax authorities will use the information provided? 18

19 Key takeaways A new era of Substance and Transparency Treasury operations of MNCs can be significantly impacted by the OECD BEPS action plan The exact scope will crystallize over the next couple of months - with implementation envisaged per December 2015 Treasury operations of MNCs are already impacted by unilateral tax measures Towards a sustainable tax & treasury model 19

20 Questions 20

21 More information Trainer: Michel van der Breggen Phone number: Trainer: Jasper van Schijndel Phone number: Trainer: Chris Demetrius Phone number: Trainer: Maxim Lassally Phone number: