16 May 2016 Global Tax Alert OECD s Forum on Tax Administration agrees on BEPS implementation, digital and capacity building EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: www.ey.com/taxalerts Executive summary In a communiqué 1 published on 13 May 2016 by the Organisation for Economic Co-operation and Development s (OECD) Forum on Tax Administration (FTA) at the conclusion of its 10th meeting, which took place in Beijing, China, the FTA pledged support for the effective implementation of the G20/OECD Base Erosion and Profit Shifting (BEPS) plan and the Common Reporting Standard (CRS), endorsed three reports outlining how tax administrations can integrate an increasingly digital world into their systems, and approved four recommendations to guide future efforts in tax administration capacity building assistance. Detailed discussion The FTA was created in July 2002 by the OECD s Committee on Fiscal Affairs (CFA), with the aim of promoting dialogue between tax administrations and identifying good tax administration practices. It is currently chaired by Edward Troup, Executive Chair and First Permanent Secretary at HM Revenue & Customs. The Beijing meeting brought together over 150 delegates, including tax commissioners and senior officials, and representatives of business and international partner organizations. EY Global Tax Leader Jay Nibbe and EY Global Tax Policy Leader Chris Sanger attended the meeting and gave a presentation on Building the Tax Administration of the Future.
2 Global Tax Alert The FTA communiqué noted that the meeting came at a critical time, as tax cooperation and tax transparency have been high on the G20 agenda under the Chinese Presidency and expectations of progress have increased. The communiqué cited the success in the area of transparency, as the number of jurisdictions that have committed to implementing the CRS for the automatic exchange of information now totals 101, but it also noted the challenges of implementing the 15 BEPS Actions in a consistent manner. The tax commissioners stated that they will continue their collective efforts to tackle tax evasion and tax avoidance, and are committed to their role in facilitating growth, investment and prosperity. The communiqué outlined agreed-upon actions and commitments made by the FTA in three key areas: The need for coordinated action by tax commissioners to effectively implement the G20/OECD international tax agenda Building modern tax administrations that effectively respond to the challenges and opportunities of an increasingly digital world Finding ways to improve the efficiency and effectiveness of capacity building so that all countries, and in particular developing countries, can benefit from the changes in the international tax landscape and better mobilize the resources they need G20/OECD international tax agenda The communiqué stated that the tax commissioners recognize the role of tax administrations in supporting and implementing the G20/OECD work on designing a fairer and more transparent international tax system and in tackling offshore tax evasion through effective cooperation, including greater transparency and data sharing. The tax commissioners welcomed the new inclusive framework for BEPS implementation and stated that they will contribute to the review and monitoring of BEPS implementation under that framework (the first meeting of the inclusive framework will be held in June in Kyoto, Japan). The tax commissioners agreed on actions needed to receive and use data from country-by-country (CbC) reporting and automatic information exchange, and stated that they will continue to develop additional tools to enable the effective use of CbC and CRS data. The communiqué noted that, as pledged during the 9th FTA meeting held in October 2014 in Dublin, Ireland, the FTA has designed a Common Transmission System (CTS) that will create the first global bilateral exchange system connecting tax administrations and enabling CRS, CbC and other information exchanges. It is anticipated that the CTS will be operational in time for the first exchanges of CRS data in September 2017. The communiqué noted that the FTA meeting hosted the second signing ceremony of the Multilateral Competent Authority Agreement for the automatic exchange of CbC reports on 12 May 2016, during which six additional countries (Canada, China, Iceland, India, Israel and New Zealand) signed the agreement. 2 With this second signing ceremony, the number of countries that will exchange CbC reports automatically under this instrument rises to 39. The tax commissioners also confirmed their commitment to a strengthened JITSIC, which recently met and has been renamed the Joint International Taskforce on Shared Intelligence and Collaboration (previously known as the Joint International Tax Shelter Information and Collaboration Network). JITSIC, which began in 2004 as a joint initiative of the revenue authorities of Australia, Canada, the UK and the US to facilitate the work of tax administrations in countering abusive tax schemes and tax avoidance structures, now comprises a network of 36 tax administrations that share expertise, intelligence and common projects within the framework of international tax sharing agreements. The tax commissioners welcomed the progress made by the FTA Mutual Agreement Procedure (MAP) Forum in putting in place a peer review process to ensure timely, effective and efficient resolution of treaty-related disputes, and stated that they aim to begin the review process in 2016 as scheduled. The tax commissioners endorsed the FTA report, Cooperative Tax Compliance: Building Better Tax Control Frameworks, which outlines the importance of an effective tax control framework (TCF) as an essential component of a rigorous tax risk management program. The TCF is defined as the part of the system of internal control that assures the accuracy and completeness of the tax returns and disclosures made by an enterprise. The report is intended to provide helpful guidance for businesses to design and operate their TCFs, and for revenue bodies to adjust the risk management strategy for an individual large business in the context of a voluntary cooperative compliance relationship. The report includes a discussion of the issue of materiality, given the importance of understanding the relationship between what is material for the purposes of systems of control (such as the external audit of a multinational enterprise s accounts), and what is material in terms of the tax liabilities arising from that enterprise s activities
Global Tax Alert 3 in a particular country. It also discusses how revenue bodies could approach the task of testing the soundness of a TCF in any particular case, and sets out conclusions, recommendations and next steps. The communiqué also expressed the tax commissioners appreciation of the dialogue with business during the BEPS session, and stated that the tax commissioners recognize the contribution that business can make as they work towards greater and earlier certainty for taxpayers and tax administrations. Building modern tax administrations in a digital world The communiqué stated that a key topic of the FTA meeting was how to build modern tax administrations, and thus improve taxpayer service and strengthen tax compliance, by leveraging technological advances. The tax commissioners endorsed three reports: Technologies for Better Tax Administration: A Practical Guide for Revenue Bodies, which explores how tax administrations can move towards more digital service delivery. The report outlines eight critical areas, provides details on big data management and portals, and highlights key opportunities in these areas. It also provides practical examples of how tax administrations have begun to use emerging technologies, and sets out a maturity matrix for the two areas to assist strategic and operational decision making by tax administrations. Rethinking Tax Services: The Changing Role of Tax Service Providers in SME Tax Compliance, which explores how tax administrations can seek cooperation with tax service providers to improve compliance by small and medium-sized enterprises (SMEs). The report notes that the landscape of tax services, traditionally provided by parties such as tax advisors, accountants and other tax practitioners, is changing as a result of new technologies and services such as online accounting and filing, mobile devices, and machine-to-machine communication. The report explains that this may lead to more integrated tax systems, in which taxation is part of the day-to-day operations of SMEs. The report provides an overview of relevant technological and business developments and new service solutions, and identifies four different types of network strategies that tax administrations can adopt for cooperating with tax service providers. Advanced Analytics for Better Tax Administration: Putting Data to Work, which outlines how tax administrations can use advanced analytics and big data to better identify risk, manage resources and target interventions. The report provides practical examples of how administrations are currently using advanced analytics, and discusses key topics, including organizational arrangements, governance, management and data. The report also discusses how administrations are using analytics to improve their operations and deliver better outcomes to taxpayers. The tax commissioners welcomed the 16 April 2016 signing of a Memorandum of Understanding on the International Survey on Revenue Administrations (ISORA) by representatives of the OECD, the Inter-American Center of Tax Administration (CIAT), the Intra-European Organisation of Tax Administrations (IOTA) and the International Monetary Fund (IMF), 3 under which a comparative data set for over 150 tax administrations will be collected. ISORA is a webbased survey jointly developed by the OECD, CIAT, IOTA and the IMF that is based on the RA-FIT data collection platform. Capacity building In response to calls from the G20 leaders and the United Nations 2030 Agenda for Sustainable Development, the FTA discussed ways to improve the efficiency and effectiveness of capacity building and to enhance coordination with other international organizations. The FTA endorsed a report, Tax Administrations and Capacity Building: A Collective Challenge, in which it approved four recommendations to guide future efforts in the organization and delivery of tax administration capacity building assistance: The adoption of a common Tax Administration Capacity Building Framework The application of a whole-of-government approach to domestic capacity building Participation in the development of the Knowledge Sharing Platform, a global online tool that will enable broader and more timely sharing of knowledge and expertise among tax administrations The establishment of a Capacity Building Network to connect to the work of others
4 Global Tax Alert Future FTA plans The tax commissioners stated that the FTA will continue to support all three work areas, including the effective implementation of BEPS and the CRS, and that the FTA intends to take forward a number of specific projects aimed at enhancing customer service and improving domestic tax compliance. Endnotes 1. https://www.oecd.org/tax/forum-on-tax-administration/meetings/fta-communique-2016.pdf. 2. See EY Global Tax Alert, Six additional countries sign tax cooperation agreement enabling automatic exchange of Country-by-Country reports, dated 12 May 2016. 3. https://www.iota-tax.org/news/signature-memorandum-understanding-mou-international-survey-revenueadministrations-isora.
Global Tax Alert 5 For additional information with respect to this Alert, please contact the following: Ernst & Young LLP (UK), London Chris Sanger +44 20 7951 0150 csanger@uk.ey.com Rob Thomas +44 20 7760 5538 rthomas5@uk.ey.com Ernst & Young LLP, Washington, DC Rob Hanson +1 202 327 5696 rob.hanson@ey.com
EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2016 EYGM Limited. All Rights Reserved. EYG no. 01021-161Gbl 1508-1600216 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com