TJN-A Academy - Sol Picciotto
TJN-A Academy - Sol Picciotto
TJN-A Academy - Sol Picciotto
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International Interdependence
but if they choose to invest through London `must pay the cost
International Coordination
unilateral: foreign tax deduction; credit (USA, Netherlands)
UK: only for Empire, or by international agreement
League of Nations >> first model treaties 1928
growth of treaty network 1945 (US-UK) >>> OECD
main aim to facilitate FDI, so prevention of double taxation
1980s liberalisation, 1990s >> competition for investment
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Treaty Skeleton
League of Nations Fiscal Committee: 1928-1946
UN Financial & Fiscal Commission: 1948-54
OECD Committee on Fiscal Affairs (OECD-CFA): 1956UN Ad Hoc Group of Tax Experts: 1967-2004 > Committee 2004upgrading?
OECD Global Forum on Taxation /Transparency 2003
International Tax Dialogue (IDB, IMF, OECD, UN, WB) : 2002-
Sinews
expert community: public-private
elaboration & application of rules
Treaty Models
1928+ few treaties negotiated
League: Mexico model 1943, London model 1946
US-UK treaty 1945 > US & UK networks
OECD 1963 model:
strengthens London model: income attributable to PE
OECD members negotiate 200 treaties by 1985
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Anti-Avoidance Measures
Transfer (mis)Pricing
US Regulations 1968 :
Comparable Uncontrolled Price (CUP) where available
Cost +, Retail, `Other
OECD Transfer Pricing Report 1979
US: GAO Report 1981, Tax Reform 1986, `comparable profit method 1988
OECD Transfer Pricing Guidelines 1995 (now 2010)
CFC rules disregard separate personality in limited circumstances
Transfer Pricing rules based on separate-entity arms length principle
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shadow banking, excessive leverage etc >> `financialisation bubble & crash
G7: 1996
G8/G20: 2013
St Petersburg Declaration, Tax Annex
International tax rules, which date back to the 1920s, have not kept
pace with the changing business environment, including the growing
importance of intangibles and the digital economy.
existing international tax rules on tax treaties, permanent
establishment, and transfer pricing will be examined to ensure that
profits are taxed where economic activities occur and value is created.
more transparency will be established, including through a common
template for companies to report to tax administrations on their
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worldwide allocation of profits and tax.
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Organisations Involved
UN Tax Committee
meagre resources
BEPS & beps subcommittee
work on services, extractives
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`Horizontal Issues
Digital Economy
not separate sector: `digitalisation of the economy
closer/ symbiotic relations with users/customers
new test of taxable presence?
limited to `fully dematerialised activities?
incompatible with analysis of DE & with Ottawa Principles
Data Collection
Notification procedure for ATP practices
Multilateral Convention
rapid revision of existing treaties
package deal, or a la carte?
Stronger MAP
to deal with increased conflicts
but lack of resources: delay now averages 28 months
compulsory arbitration? LDCs opposed.
Country-by-Country Report & TP Documentation
check if tax paid `where economic activities take place & value created
For detailed commentaries see BEPS Monitoring Group:
https://bepsmonitoringgroup.wordpress.com/
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Purposes
divergent: overview vs. Details of intra-firm transactions
Three Tiers:
CbCR
Master File
Local File
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Each
entity
included
in
consold
financial
report
(no excl.)
Incl. PEs
Reve
nues
Pre-tax
Profit/
Loss
Inc Tax
Paid
(cash)
Inc Tax
Accrued
(in year)
Stated
Capital
Accumlt
d
Earnings
Employ
ees
Tangible
Assets
Related
unreld
Total
Incl.
extraordinary
items
To all
jurisns
incl. WTs
on
receipts
Not incl
deferred
taxes or
provision
Incl.
capital of
PEs
Sum of
all
entities
in jurisn
FTEs
year-end/
average/
other;
may incl.
contractors
Net book
value
NOT
cash/
intangs/
financial
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Tax Jurisdiction
Fiscal Year
Entities Resident
(list each one)
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Organisational Structure
chart of ownership & geographical location
Description of business(es)
profit drivers
supply chains for main (>5%) products/services
internal services & transfer pricing for them
functional analysis + important restructuring in year
Intangibles
Description of strategy & location of R&D activities & management
List of intra-firm agreements/licences
description of TP policies on intangibles
important internal transfers during year incl. price paid
Local Entity
management structure, organisation chart, reporting lines abroad
description of business, strategy, restructurings, transfers
key competitors
Financial Information
annual accounts (audited if available)
information linking financial data with TP methods
schedules of financial data for comparables used in TP,
including sources
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Confidentiality
`Tax administrations should take all reasonable steps to ensure that there is
no public disclosure of confidential information (trade secrets, scientific
secrets, etc.) and other commercially sensitive information
Publication of CbCR?
Not mentioned, but said to be out of question
many, including companies, regard it as inevitable
Review
before end of 2020
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Implementation
National Laws
states already demand transfer pricing documentation
power to compel production of documents held abroad?
OECD to develop Model Laws
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History
Alternative identified in Carroll report 1932 (Spain etc.)
political obstacles (League)
permitted for PEs; profit-split = ad hoc apportionment
Used in federal states, e.g. USA, Canada, Switzerland
Federal States
USA: e.g. California: film distribution via Nevada
optional till 1942; TNC campaign 1970s; `waters edge election 1986
harmonised (partly) since 1957, some variations in formulae
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Components of UT System
Combined Report
Unitary Enterprise
based on ownership/control test
presumption that engaged in unitary business
avoid problems of US
but exclude clearly unrelated business
wider PE concept: business presence
needed for Digital Economy
Tax Base Definition for Consolidated Accounts
financial & tax accounting standards diverge
harmonised tax accounting standard
cf CCCTB transaction based
capital & R&D allowances at national level?
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Apportionment Formula
Assets
Labour
US: payroll costs
international wage disparities suggest headcount better
EU: 50-50 weighting
Sales Revenue
by destination (country of recipient/customer/client)
if firm has business presence not just trade
but should include direct sales to retail customers
especially via website (e.g. Amazon)
wider than PE definition
International Agreement?
If possible, but could be compatible unilateral approaches
aggressive approach would deter FDI
scope for political trade-offs (sales vs. labour)
Equal weighting of 3-factor Formula seems fair
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Transition to Unitary
Studies
OECD Base Erosion & Profit-Shifting project?
UN Committee: needs resources
needs serious research
Regional Adoption
US States experience
EU CCCTB: enhanced cooperation, euro `fiscal pact?
Mercosur, Andean Pact, Asean, NAFTA, EAC, SADC
but should require worldwide Combined Report
For TNCs
risk of inconsistent rules & conflicting formulae?
global offset of losses against profits
much lower compliance costs
For States
offset of foreign losses against local profits
much lower enforcement costs
reinforces fiscal sovereignty
higher revenues could allow lower marginal rates
Globally
resolve Transfer Pricing problem
remove respectability from tax havens
end temptation to offer tax incentives for FDI
redirect resources wasted on avoidance-enforcement
remove distortions on allocation of capital investment
Losers
tax avoidance industry
tax havens
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Thank You
Ke a leboga
Ngiyabonga
Enkosi
Dankie
Asante Sana
Grazie
Merci
Muchas Gracias
Obrigado
Vielen Dank
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