Tax Certainty EBF TAX CONFERENCE 2017 Brussels, 22 November 2017 Giorgia Maffini OECD s Centre for Tax Policy and Administration
Tax certainty Tax certainty report 1 delivered to G20 Finance Ministers with IMF, March 2017 We welcome the work on tax certainty conducted by the OECD and the IMF. We acknowledge the report on Tax Certainty submitted to us and encourage jurisdictions to consider voluntarily the practical tools for enhanced tax certainty as proposed in that report, including with respect to dispute prevention and dispute resolution to be implemented within domestic legal frameworks and international tax treaties. We ask the OECD and the IMF to assess progress in enhancing tax certainty in 2018 Chair of the Inclusive Framework has written to all subsidiary bodies 1. www.oecd.org/tax/g20-report-on-tax-certainty.htm 2
The business survey The OECD Business Tax Certainty Survey Between 18 October and 16 December 2016 724 completed responses From firms with global HQ in 62 different jurisdictions And regional HQs in 105 different jurisdictions Wide consultation Survey was developed on basis of Tax Survey developed by OUCBT and ETPF Consultation with business, governments/tax administrations, civil society, academia 3
Business survey global HQs Global Headquarters 4
Top 20 countries, by HQ of respondents MNEs only 80 70 60 50 40 30 20 10 0 5
Business survey - regional HQs Regional Headquarters 6
Turnover (in USD) (1) (2) FT Global 500 Survey (Overall) No. of firms % No. of firms % Over USD 25 b 181 36.2% 61 8.4% Between USD 10b and USD 25b 126 25.2% 37 5.1% Between USD 500m and USD 10b 55 11% 123 17% Between USD 50m and USD 500m 0 0 123 17% Less than USD 50m 0 0 262 36.2% NR/No answer 138 27.6% 118 16.3% Total 500 100% 724 100% Turnover (in USD) FT Global 500 Survey (Overall) in USD million in USD million Mean 47,510 28,295 Median 25,229 99.7 Standard Deviation 62,069 443,044 Total 17,198,580 17,146,558 % Vs. FT Global 500 100% 99.7% 7
Respondents by position Current position/responsibilities No. of firms Percentage Director (or equivalent) of the tax department 332 46% Senior manager (or equivalent) of international tax issues Senior manager (or equivalent) of specific tax issues 115 16% 31 4% Government relations 24 3% Others 167 23% Missing 55 7.6% Total number of respondents 724 100% 8
Respondents by sector C MANUFACTURING 28% 32% K FINANCIAL AND INSURANCE ACTIVITIES G WHOLESALE AND RETAIL TRADE; REPAIR OF MOTOR VEHICLES AND MOTORCYCLES 7% 8% 12% 13% M PROFESSIONAL, SCIENTIFIC AND TECHNICAL ACTIVITIES Missing Other 9
Mean Top 5 business factors, by importance for investment 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 Corruption Political Certainty The overall tax environment Current and expected macroeconomic conditions in the country Labour costs 10
Top 5 business factors by importance for investment (financial sector only) 4.1 4.0 3.9 3.8 3.7 3.6 3.5 Corruption Political Certainty Efficient financial markets Availability and quality of digital infrastructure Cost of complying with regulations 11
3.9 Top 5 tax factors, by importance for investment 3.8 3.7 3.6 3.5 3.4 3.3 Uncertainty about the effective tax rate on profit The anticipated effective tax rate on profit Uncertainty about input tax credits, refunds, place of supply issues for VAT/GST purposes and/or uncertainty about the tax burden of other consumption taxes (e.g. excises, sales taxes, custom duties) The anticipated neutrality of VAT/GST (e.g through the availability of input tax credit, refund and other relief arrangements) or the tax burden of other consumption taxes (e.g. Excises, sales taxes, custom duties) Existence of tax treaties 12
Top 5 tax factors by importance for investment (financial sector only) 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 Uncertainty about the effective tax rate on profit The anticipated effective tax rate on profit Existence of tax treaties Uncertainty about input Uncertainty about the tax credits refunds place ability to effectively obtain of supply issues for VAT relief for withholding taxes GST purposes and or uncertainty about the tax burden of other consumption taxes e g excises sales taxes custom duties 13
Top 10 sources of tax uncertainty 3.6 3.5 3.4 3.3 3.2 3.1 Tax Administration Specific International Dimensions Dispute Resolution Legal Systems 3.0 Considerable bureaucracy to comply with tax legislation, including documentation requirements Unpredictable or inconsistent treatment by the tax authority Inability to achieve early certainty proactively through rulings or other similar mechanisms (e.g Advance Pricing Arrangement) Inconsistencies or conflicts between tax authorities on their interpretations of international tax standards (e.g on transfer pricing or VAT/GST ) Tax legislation not in line with the evolution of new business models Lack of expertise in tax administration on aspects of international taxation Lengthy decision making of the courts tribunals or other relevant bodies Unpredictable and inconsistent treatment by the courts Complexity in the tax legislation (e.g. different definition of permanent establisment for VAT/GST and CIT purposes) Unclear, poorly drafted tax legislation 14
Top 5 sources of tax uncertainty (financial sector only) 3.65 3.6 3.55 3.5 3.45 3.4 3.35 Unpredictable or Inconsistencies or conflicts inconsistent treatment by between tax authorities on the tax authority their interpretations of international tax standards e g on transfer pricing or VAT GST Considerable bureaucracy to comply with tax legislation including documentation requirements Tax legislation not in line with the evolution of new business models Unclear poorly drafted tax legislation 15
Top 10 tools to enhance tax certainty 4.10 4.05 4.00 3.95 3.90 3.85 3.80 3.75 3.70 3.65 3.60 Legal Systems Tax Administration Dispute Resolution 16
Top 5 tools to enhance tax certainty (financial sector only) 4.2 4.15 4.1 4.05 4 3.95 3.9 3.85 Detailed guidance in tax regulations Reduced frequency of changes in the tax legislation Changes in statutory tax system announced in advance Increased transparency from tax administrations in relation to their compliance approaches Reduction of bureaucracy to comply with tax legislation 17
Tools to support certainty in international tax Some innovative options received strong support Multilateral Advance Pricing Agreements (APAs ) 36% of respondents say very important and extremely important This figure is 44% when we only consider MNEs Multilateral audits 25% of respondents say very important and extremely important Multilateral cooperative compliance programmes 31% of respondents say very important and extremely important This figure is 36% when we only consider MNEs 18
The tax administration survey (1) The OECD/FTA Tax Certainty Survey of Tax Administrations Conducted with members of the Forum on Tax Administration (FTA) Allow tax administrations to respond to results of business survey Is tax certainty a priority for tax administrations? What creates uncertainty for tax administrations? Which measures effective in increasing certainty? 25 OECD and G20 countries 19
The tax administration survey (2) The OECD/FTA Tax Certainty Survey of Tax Administrations Tax certainty is a high priority for tax administrations too Over 80% of respondents: very high/extremely high priority for tax administration Tax administrations recognise tax uncertainty important concern for business For tax administration, an important source of tax uncertainty is taxpayers behaviour, especially when involving aggressive tax planning 20
N.A. Top 10 sources of tax uncertainty 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Bureaucracy Business perspective Inconsistent treatment by the tax authority Inconsistent Lengthy interpretation decision making of international of the courts tax standards Tax Administration perspective Complexity in the tax legislation Tax legislation not in line with evolution of new business models Inconsistent treatment by the courts Unclear, poorly drafted tax legislation Tax Administration's lack of expertise on international taxation Inability to achieve early certainty proactively 21
4.5 Top 10 tools to enhance tax certainty controlled by the tax administration 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Reduction of bureaucracy Business perspective Efficient Increased communication transparency in with taxpayers relation to compliance / risk assessment Mutual agreement procedures Tax Administration perspective Timely communication during tax audits Simplified approaches for tax compliance Multilateral APAs Domestic cooperative compliance programmes Unilateral APAs Multilateral cooperative compliance programmes 22
Dispute prevention Practical solutions Taxpayer Cooperative compliance programmes bi/multilateral unilateral APA bi/multilateral unilateral Co-ordinated audits (joint, simultaneous abroad) Filing of tax return MAP Arbitration Dispute resolution (BEPS) Tax certainty 23
TRACE: common standard for source country taxation Standardised system for claiming withholding tax relief at source on portfolio investments Developed jointly with business and adopted in January 2013 and subsequently aligned to Common Reporting Standard (CRS) in 2015 Based on CRS infrastructure and technical solutions 24
TRACE: is it important for investors? OECD 2016 business survey For multinationals investment and location decisions, existence of treaties between countries 2 nd most important feature of the tax system, after certain corporate tax environment and before level of corporate taxation 3 rd most important factor for the financial sector Streamlined and effective withholding tax relief reclaim systems : 59% of the respondents in financial sector rated such factor as very or extremely important to resolve uncertainty 25
Context and key drivers Why now? 1. Improves tax certainty 2. Reinforces CRS 3. Lower implementation cost 4. Policy coherence 5. Request from business Improves tax certainty and addresses such uncertainty created by BEPS action 6 Adopting TRACE assists in the implementation of the CRS and makes it stronger With the introduction of the CRS, TRACE can be done more easily and at lower cost One standard for residence country reporting (CRS) combined with one for source country reporting (TRACE); based on same infrastructure for overall efficiency at lowest possible cost to all Addresses clear and consistent request from business, worried about compliance costs 26
TRACE: where are we? OECD working on its technical implementation Until recently, actual country implementation on hold: both governments and business busy implementing CRS and FATCA 27
Contact details on TRACE Philip KERFS Centre for Tax Policy and Administration 2, rue André Pascal - 75775 Paris Cedex 16 Tel: + 33 (01) 45 24 93 52 Philip.KERFS@oecd.org www.oecd.org/tax 28
Contact details Giorgia Maffini Deputy Head of the Tax Policy and Statistics Division Centre for Tax Policy and Administration 2, rue André Pascal - 75775 Paris Cedex 16 Tel: +33 1 45 24 15 14 Giorgia.Maffini@oecd.org www.oecd.org/tax 29