Transfer of Registered Office

If emigration taxes imposed by a country have as only purpose to compensate for the awarded benefit, there is in principle little that can be done against this. This is certainly justified. But, in practice, we will often notice that emigration taxes go one or two steps further than this and in such event a discussion on their validity may arise.

Obviously, even the smallest emigration tax will have a dissuasive effect on the company that is subject to the tax. Even if a compensation is charged for the benefits awarded in the past to these companies, we will see that this puts a brake on international transfers of registered offices.

It is a very thin line between what in case law and literature is considered as a correct or excessive compensation.

Link: Fiscal consequences of transfer of registered office to another country 

Transfer Pricing Aspects of BEPS

Transfer pricing is hot. The globalisation and also the rise of multinational enterprises make transfer pricing one of the most important themes on international taxes. Transfer pricing is moreover a key focus of the OECD’s Base Erosion & Profit Shifting (BEPS) project.

In the future, there will be far more emphasis on the substance and the economic behaviour underpinning the transaction in the context of the entire value chain, as opposed to the contractual analysis. The finalised guidelines, which provide for increased levels of TP documentation, will also result in unprecedented levels of transparency.

Overall, it is clear that the BEPS initiative is one of the biggest game-changers in international tax policy in living memory. The impact of the Action Plan will fundamentally change the way multinational organisations engage in international business, related-party dealings and business restructurings in the future.

SlideShare Presentation: Transfer Pricing and BEPS

Transfer pricing policy assessment

Transfer pricing is a key focus of the OECD’s Base Erosion & Profit Shifting (BEPS) project and has been publicly described as a device that may be used by multinational companies and their advisers to avoid paying taxes.

In general, it is important that companies regularly confirm their transfer pricing policies comply with applicable laws and regulations in form and substance, and even more so now, as we enter this period of enhanced scrutiny of transfer pricing.

• Transfer pricing policies: Where are the potentially most vulnerable points (e.g., continuing losses, valuation of transferred intellectual property)?
• Operating structures: Does income reflect economic activity (e.g., use and exploitation of intangibles)?
• International financing and organizational structures: Are the structures sustainable in light of BEPS?

Failure to achieve intended transfer pricing results can also lead to unwanted scrutiny by tax authorities in the context of BEPS. As a result, it is important that your company determine it has appropriate, Operational Transfer Pricing (OTP)-related controls and infrastructure (i.e., resources and enabling technologies) in place to help manage the intercompany process effectively.

State aid: Belgian Carat Tax

Companies in Belgium are subject to a 33.99% tax on profit, meaning companies in competing diamond centres such as Dubai or Hong Kong, taxed at 16.5%, are biting at their heels. After years of discussion between the Antwerp diamond industry and the Belgian Government, in 2015 it was decided to introduce the "Diamond Regime" tax system, pending European Commission approval.

On 29 July 2016, the European Commission announced that the fiscal regime does not constitute State aid, and gave the green light for the "Carat Tax". Implementation of this new tax regime will put an end to complex discussions between the Antwerp diamond industry and tax authorities on the control and valuation of diamond traders' stock.

More information:

https://www.linkedin.com/pulse/state-aid-belgian-carat-tax-dirk-de-wolf?trk=hp-feed-article-title-publish

Belgium's excess profit tax ruling system

On 11 January 2016, the European Commission (EC) again used Tax State Aid arguments to combat tax planning by multinationals when it announced its final decision in the formal state aid investigation into the Belgian 'excess profit rulings'. Under the Belgian 'excess profit' tax scheme,  applicable since 2005, multinationals are permitted in certain circumstances to write down their actual taxable profits by comparison with the hypothetical profit that a stand-alone company would have made in a comparable situation.

The EC concluded that the rulings only benefit multinational groups whilst Belgian companies only active in Belgium could not claim similar benefits. The rulings, therefore, represented a distortion of competition within the EU's Single Market. The EC also concluded that the 'excess profit rulings' constitute illegal state aid and estimated that Belgium needs to recover around 700 million Euro in total from at least 35 multinationals.

Belgium, other Member States, the beneficiaries of the 'excess profit rulings' or other parties who are directly and individually concerned by the decision may challenge it before the EU General Court under Article 263 of the TFEU. Belgium filed its appeal against the decision on 22 March 2016. In the action for annulment, the Belgian Government focused on a number of arguments, which encompass various pleas in law referring to the procedural aspects of the EC investigation and specific arguments given by the EC in the final Decision.

More information:

https://www.linkedin.com/pulse/state-aid-belgian-excess-profit-rulings-dirk-de-wolf?trk=hp-feed-article-title-publish

European Commission proposes public tax transparency rules for multinationals

On 12 April 2016, the European Commission (EC) introduced a legislative proposal on public reporting requirements for large multinational enterprises (MNEs), being multinational groups with a consolidated turnover exceeding 750 million EUR.  The so-called Country-by-Country Reporting (CbCR) will force large multinational enterprises to publish country specific profits and tax payments.

The current efforts for changes in the EU tax policy are directly linked to the OECD project on Base Erosion and Profit Shifting (BEPS). Among the 15 action points of BEPS, transparency plays a central role. Action point 13 - 'Transfer Pricing Documentation and Country-by-Country Reporting' - addresses the issue of more transparency explicitly. A first step by the EC refers to the so-called "Anti-Tax Avoidance Package".

In its Anti-Tax Avoidance Package, released in January 2016, the EC already indicated it was looking at the issue of public CbCR. The current legislative proposal to introduce public CbCR is published only a few weeks after the Council of the European Union reached political agreement on non-public CbCR to national tax authorities of the EU Member States. It is yet another EU initiative aimed at enhancing transparency and public scrutiny on corporate income tax affairs of MNEs.

CbCR is seen as a powerful tool to fight profit shifting by MNEs. They shall be obliged to provide financial figures such as the net turnover (including that with related parties), profit/loss before tax and number of employees as well as the nature of the enterprise's activity, the amount of accumulated earnings and the current year corporate income tax accrued and corporate income tax paid (differences between amounts of tax paid and tax accrued at group level must be explained). However, for legal reasons the CbCR will be limited to EU countries while for the rest of the world only aggregated figures will be provided.

The EC proposal goes further than OECD BEPS Action 13 requirements regarding the disclosure of information to tax authorities. This report must be published and made accessible on the corporate website in at least one of the official languages of the EU and filed with the appropriate business register.

Neutralising the Effects of Hybrid Mismatch Arrangements

The final report recommended that changes be made both to domestic law and the OECD Model Tax Convention in order to neutralize the effects of hybrid mismatch arrangements, which necessarily exploit differences in tax treatment of a single entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation including long-term deferral.

Part 1 of the report for Action 2 basically recommends the linking of rules that align the tax treatment of an instrument or entity with the tax treatment in the counterparty jurisdiction but otherwise do not disturb commercial outcomes. Also, Part 2 aims to ensure that hybrid instruments and entities do not abuse the treaty benefits and will not prevent the application of the changes in domestic law as recommended in Part 1.

https://www.linkedin.com/pulse/beps-action-plan-2-hybrid-mismatch-arrangements-dirk-de-wolf?trk=hp-feed-article-title-publish

The Action Plan is clearly ambitious in scope and timing and some actions will be easier to implement than others, yet there is broad political support for at least some change to the international tax system.