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Piergiorgio Valente
Chairman, IAFEI, International Tax Committee Manila, 16 October 2014
© Valente Associati GEB Partners
International Tax Committee 44 IAFEI CONGRESS, Manila
Overview of the International Tax Framework and Tax Challenges for the CFO’s Agenda
www.gebpartners.it [email protected]
© Piergiorgio Valente
www.gebpartners.it [email protected]
Strategic International Framework © Valente Associati GEB Partners
Arm’s length principle
Economic substance
Functional analysis
Comparability analysis
Transfer Pricing
Transparency Fair Competition
Information Exchange
Economic Substance
Good Governance
Globalization
Corporate Governance
Competitiveness
Taxation
Good Governance Tax in the
Boardroom
“Corporate governance is one key element in improving economic efficiency and growth as well as enhancing investor confidence. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.” (Good corporate governance: the tax dimension by Jeffrey Owens, OECD, Centre for Tax Policy and Administration)
“Leading practice boards in many countries are mandating that tax risk be managed like any other enterprise risk. Recent international surveys by major accounting firms indicate that tax risk management is increasingly gaining acceptance at board level. Findings include that senior executives are increasingly looking for better insights into tax because of its potential material impact on financial statements and that the tax function can no longer focus solely on tax compliance and managing the effective tax rate. CEOs and boards are asking more complex questions about how their organisation manages its tax risk exposure.” (OECD, Tax guidance series – Corporate governance and tax risk management, 2009)
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected] 3
What does the acronym BEPS* strategically mean? BEPS project: Single set of consensus-based international tax rules (i.e. new international
framework for allocating taxable profits and income across Countries) in view of a newly internationally conceived Profit Sharing mechanisms
BEPS goals: Realignment of taxation with 1a. economic activities and 1b. value creation processes Protection of the tax bases with 2.a. increased certainty and 2.b. predictability BEPS numbers: 44 countries on an equal footing (all OECD countries, G20 and others), 7 deliverables issued (16 September 2014) 3.500 pages of comments, 5 public consultations, 3 webcasts with 10.000 viewers BEPS outcome: Hybrid mismatches will be neutralised, Treaty shopping and other forms of treaty abuse will be addressed, Abuse of transfer pricing rules (intangibles) will be minimised, C-b-C reporting will provide key info to Tax Authorities
* “refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity but
the taxes are low, resulting in little or no overall corporate tax being paid.”
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
OECD Action Plan on BEPS: Actions
4
Action 1 - Address the Tax Challenges of the Digital Economy
Action 2 - Neutralise the Effects of Hybrid Mismatch Arrangements
Action 3 - Strengthen CFC Rules
Action 4 - Limit Base Erosion via Interest Deductions and Other Financial Payments
Action 5 - Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
Action 6 - Prevent Treaty Abuse
Action 7 - Prevent the Artificial Avoidance of PE Status
Action 8 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Intangibles
Action 9 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Risks and Capital
Action 10 - Assure that Transfer Pricing Outcomes are in Line With Value Creation/ Other High-Risk Transactions
Action 11- Establish Methodologies to Collect and Analyze Data on BEPS and the Actions to Address It
Action 12 - Require Taxpayers to Disclose Their Aggressive Tax Planning Arrangements
Action 13 -
Re-examine Transfer Pricing Documentation
Action 14 - Make Dispute Resolution Mechanisms More Effective
Action 15 - Develop a Multilateral Instrument
15 Key Actions
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
Publication of Discussion Drafts:
• TP Aspects of Intangibles (Action 8): 30 July 2013 • TPD & Country by Country Reporting (Action 13): 30 Jan. 2014
• Tax Treaty Abuse (Action 6): 14 March 2014 • Hybrid Mismatch Arrangements (Action 2): 19 March 2014
• Tax Challenges of the Digital Economy (Action 1): 24 March 2014 • Methodologies to collect/analyse data (Action 11): 4 August 2014
BEPS/G20 - Key Topics 2014-2015
September 2014 • Digital Economy Report • Recommendations on hybrid mismatch arrangements • Review of Member country regimes to counter harmful tax practices more effectively • Recommendations to prevent abuse of tax treaties • TP rules in relation to intangibles • TP documentation and country-by-country reporting template • Multilateral instrument Report
December 2015
• Changes to the TP rules to limit base erosion via interest deductions and other financial payments • Revision of existing criteria to counter harmful tax practices more effectively • Development of a Multilateral instrument
September 2015
• CFC rules • Limiting base erosion via interest deductions and other financial payments • Expand participation in the Forum on Harmful Tax Practices to non-OECD Members • Tax treaty measures to prevent the artificial avoidance of PE status • TP rules in relation to intangibles, risks and capital, and other high-risk transactions • Report on data collection • Make dispute resolution mechanisms more effective
Globalization
Corporate Governance Competitiveness
Taxation
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
Update on BEPS Action Plan
Source: http://www.oecd.org/ctp/OECD-BEPS-Webcast-26-May.pdf
Deliverables September 2014 Deliverables September/December 2015
15 BEPS Actions
Coherence
Substance Transparency
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
OECD BEPS Stakeholders’ Consultations (1)
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
OECD BEPS Stakeholders’ Consultations (2)
© Piergiorgio Valente, Chairman, International Tax Committee
Source: www.oecd.org
www.gebpartners.it [email protected]
OECD BEPS Deliverables: Set. 2014
© Piergiorgio Valente, Chairman, International Tax Committee
3 Reports • 2 FINAL Reports on: • Action 1 – Digital
Economy • Action 15 –
Feasibility of a Multilateral Instrument
• 1 INTERIM Report • Action 5 – Harmful
Tax Competiton
4 Instruments • Action 2 – Mismatch
Arrangements • Action 6 – Treaty Abuse • Action 8 – Intangibles • Action 13 – TP
Documentation and CbCR
Further Releases • Explanatory Statement • Executive Summaries
BEPS Deliverables 2014
* (including all OECD members, OECD accession countries, and G20 countries)
Consensus reached among:
44 Countries on equal footing*
Extensive consultation of developing countries
Extensive consultation with business, NGOs and other Stakeholders
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Tax
Gove
rnan
ce
Tax Risk Management
Tax in the Boardroom & Tax Control Framework © Valente Associati GEB Partners
Key points: 1. Corporate Boards are accountable to their shareholders for ensuring appropriate corporate governance practices. 2. Good corporate governance is fundamental to good business. The importance of good corporate governance and greater transparency is highlighted by the current global financial crisis. 3. How a large business manages tax risk can affect its financial performance and reputation. CEOs and Boards of large businesses are increasingly considering tax risk management as part of their overall corporate governance. 4. Tax administrations have a vital role to play in ensuring that corporate boards understand that they are ultimately responsible for their business’ tax strategies and outcomes. Tax administrations are increasingly focusing on encouraging good corporate governance and enhancing relationships with large businesses. 5. Despite these countries’ diverse regulatory environments and experiences, they suggest a number of common benefits, challenges and best practice considerations. 6. These experiences suggest that large businesses that have good corporate governance and more transparent relationships with tax administrations can expect fewer audit interventions and hence greater certainty (in http://www.oecd.org/tax/administration/43239887.pdf).
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
Tax in the Boardroom © Valente Associati GEB Partners
Transactional Tax Risks
Operational Tax Risks
Compliance Tax Risks
Financial Reporting Risks
Management Tax Risks
Reputational Tax Risks
Managing Tax Risks
Awareness
Attitude towards risk
Management of tax risks
The Board
Tax: integrated into the main
business processes
Alignment/ communication: Board & Tax Department
Ensure compliance/ balance risks & controls
Board Responsibility
Stakeholders’ interests
Tax Issues
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
Tax Governance & Tax Control Framework © Valente Associati GEB Partners
Transfer Pricing Governance
Risks
Control Activities
Communication Strategies
Monitoring Tax Control Framework
Board and Executive Governance
Business Logic
External Regulation
Management
• Planning • Accounting • Compliance • Controversy
Policy
Tax in the Boardroom
Globalization
New business opportunities
Increased risks to manage
The momentum in
the International Tax Arena
Pressure from the Public (C.S.R.)
Tax Administration
Real Time Approach
Tax in the Boardroom
© Piergiorgio Valente, Chairman, International Tax Committee
www.gebpartners.it [email protected]
Tax in the Boardroom & Stakeholders © Valente Associati GEB Partners
Direction
Control
Communication
Right Balance between stakeholders’ interests and trade-offs
Stakeholders Expectations Roles
(Tax Accountability)
Shareholders/investors Net profit Optimize tax position/increase in the value of the company
Analysts, Banks Transparency Tax cash/risk
Tax Authorities Compliance/collection Cost reduction audits
Enhanced relationship Compliance with tax laws
Audit Committee Minimize unexpected tax issues Tax reporting/communication
Supervisory and Management Board
Reputation Solid tax position
Tax strategy/tax risk management
Auditors (internal/external)
Assurance of company’s “tax health”
Monitoring effectiveness Tax Governance Framework
Public society Fair share of tax/CSR (Corporate Social Responsibility)
Tax Communication
Tax Governance: Key Issues
© Piergiorgio Valente, Chairman, International Tax Committee