As the proliferation of changes associated with indirect taxation and new legislation spreads, it’s essential to manage your indirect taxes. See the latest developments worldwide.
Indirect tax developments in 2015
Telecommunications, Media and Technology VAT
BEPS project: OECD actions and this year’s outlook
Global tax policy outlook for 2015
2014 Global Transfer Pricing Tax Authority Survey
WSJ features Jay Nibbe on CFO tax preparedness
Global transfer pricing tax authority survey
Indirect Tax Briefing: planning for the future
We’ll help you navigate the global tax landscape
The business and tax landscapes have changed dramatically, and the pace and complexity of change continues to increase. Governments are tempering the need for revenue with increased competition for labor and capital. Tax authorities are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. Companies are balancing competing priorities, ensuring they maintain compliance while adding value.
We can assist you with these critical issues in today's tax environment, including:
Building a tax manifesto for manufacturing 658K, August 2014
- Midweek Tax News
A weekly update on tax matters to 23 March 2015
Midweek Tax News provides you with a succinct overview of the key tax developments that have occurred each week to allow you to stay up-to-date on tax issues that may have an impact on your business. If you would like to discuss an article in more detail, please speak to the relevant contact listed at the end of this issue or to your usual EY contact
Finance Bill published later today and Parliament dissolved next Monday
Midweek Tax News is a day early this week because the Finance Bill is expected to be published later today. We will be sending out a special alert on the contents of the Finance Bill tonight in advance of it being expected to pass all its Parliamentary stages tomorrow, Wednesday. It should receive Royal Assent before the end of this week. In the meantime, our full coverage of the 2015 Budget can be found here.
On Thursday, we expect that the Prime Minister, David Cameron, will visit Buckingham Palace to ask Her Majesty the Queen to dissolve Parliament for the general election scheduled for 7 May. The campaign proper begins with the dissolution of Parliament next Monday.
We will continue to keep you up to date on other tax-related matters throughout the election period.
Government announces further proposals to tackle tax evasion and avoidance
On 19 March 2015, HM Treasury and HMRC jointly published Tackling tax evasion and avoidance. It sets out the action that they have taken over the last few years in relation to tackling tax avoidance and evasion, and proposes further changes.
In relation to tax avoidance, a key proposal in the document is that the Government will be asking professional regulatory bodies to enforce standards around the promotion of aggressive tax planning. However, last week it also rejected the public accounts committee recommendation for a code of conduct for tax advisors.
Other options being considered by HMRC include new rules to increase the downside risk for avoiders and promoters, such as surcharges and penalties; the use of digital tools to bring avoidance notification online; and extending the accelerated payments regime.
In relation to tax evasion, consultations will take place in the following areas:
• A new strict criminal offence to prevent the possibility, in cases of offshore evasion, of pleading ignorance to avoid criminal prosecution
• A proposed increase in financial penalties faced by evaders, including a new penalty linked to the underlying assets kept in offshore bank accounts
• A proposed new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion, and new civil penalties for those who enable evasion
• An extension in HMRC's scope to ‘name and shame’ tax evaders
No information was given in relation to the timescale over which these consultations will take place.
OECD public consultation on base erosion and profit shifting (BEPS) Actions 8 to 10 (transfer pricing)
On 19 and 20 March, the OECD held its largest public consultation meeting of the BEPS project so far on the subject of Actions 8 to 10 (transfer pricing). The OECD’s aim is to arrive at consistent and balanced transfer pricing guidance, ensuring that transfer pricing outcomes are in line with value creation.
There were two key areas of focus during the consultation. In respect of risk and recharacterisation, participants considered the proposed revisions to chapter one of the OECD’s transfer pricing guidance. In order to prevent BEPS, the OECD and participating governments are focused on aligning risks with the functions which are capable of controlling, managing and monitoring those risks. There was also plenty of discussion about when transactions should be disregarded altogether. Even though the OECD draft guidance states that the non-recognition of transactions should only occur in exceptional circumstances, industry participants were concerned that the guidance is not explicit enough in determining such circumstances. Better examples, illustrating the boundary of where non-recognition can occur, were requested.
In the discussion on profit splits, the OECD stressed that, at this stage, it is not making any recommendations as to the use of profit splits but is instead looking to understand experiences and views. Participants expressed the view that profit splits should not become the default method where global value chains exist, and should only be applied in those limited cases where it is the most reliable method.
Given that the BEPS project is supposed to be completed by September 2015, participants were keen that a rewrite of the transfer pricing guidance should not be rushed. Instead, the focus for the OECD should, for now, be on preventing BEPS with the rewrite itself to follow later.
We understand that the OECD will issue revised discussion drafts in April following the public consultation process.
New clauses on diverted profits tax (DPT) released
As we communicated last Friday, HMRC has responded to the representations that it has received on the draft clauses on DPT released on 10 December 2014.
A key concern expressed was the breadth of the notification requirements. These have been narrowed from the original draft, focusing on situations where the financial benefit of the tax reduction is significant relative to the non-tax benefits of the material provision. Furthermore, there is an opportunity for groups to proactively discharge their DPT notification obligations by providing HMRC with, and ensuring HMRC has examined, sufficient information to enable it to determine whether a DPT assessment notice should be issued.
Despite the narrowing of the notification provisions, it is clear that HMRC continues to intend DPT to have a very wide scope. The scope of the avoided permanent establishments rule has even been expanded to include sales to non-UK customers that relate to UK business activity and to sales of land and property. It has also been put beyond doubt that UK headed-groups that have suffered a UK controlled foreign companies (CFC) charge could still be subject to DPT. Credit should, however, be available where a company has paid a CFC charge.
A final version of the DPT legislation is expected to be included in the Finance Bill published later today. HMRC only released three updated clauses on Friday so it will be necessary to review in detail the changes to the remaining legislation when it is released.
Our alert on the changes to DPT can be found here.
Other UK developments
Response to consultation on the oil and gas investment allowance (IA) published
HM Treasury published its response to the recent consultation on the operation of the IA for the UK oil and gas industry on 20 March. This provides further detail on the operation of the IA including:
• The IA will be generated by qualifying expenditure incurred from the effective date of 1 April 2015.
• The Government has reiterated that qualifying expenditure is to be defined as capital expenditure excluding decommissioning expenditure and expenditure qualifying for the cluster allowance or the onshore allowance.
• IA is not spread over a five year period like the current field allowances and brown field allowance but can be activated immediately.
• The Government appears to acknowledge ‘there is a case’ for a form of group relief for activated IA, though the document implies this will not be included in the Finance Bill.
• The Finance Bill legislation will require the transfer of unactivated allowances where licence transfers take place.
• Exploration and appraisal expenditure is to be qualifying expenditure albeit the related IA can only be activated by production from the successful development of the explored resources.
• There is no mention of the interaction of IA and loss carry-back on decommissioning despite that being discussed at some length in the consultation process.
Although the new IA is welcome, the current exclusion of tariff income for activation purposes is disappointing given the consultation discussions.
Upper Tribunal rejects HMRC appeal on exemption from aggregates levy
In the case of Northumbrian Water gravel was needed for reservoir works which was obtained from a pit some 500 metres away from the reservoir. It was not in dispute that the gravel became part of the land by being used in structures which were treated as land. Aggregates levy is charged on aggregate which is the subject of commercial exploitation. However, an exception is available when the aggregate becomes part of the land ‘at the site from which it was won’.
The issue for the First-tier Tribunal was whether the pit and the reservoir structures were all part of a single ‘site’ for the purposes of the relief. The First-tier Tribunal held that ‘site’ in this context bore a wide meaning. Taking into account the size and scale of the construction project undertaken, it considered that the pit and gravel-use locations were on the same single construction site and that the relief should not be restricted to construction at the particular area of ground where the aggregate was extracted. The Upper Tribunal held that the First-tier Tribunal did not err in law in reaching its decision and dismissed the appeal.
Mini one stop shop (MOSS): Return guides and templates
HMRC has published guidance and templates regarding how to submit MOSS returns. Changes to the EU VAT place of supply rules came into force on 1 January 2015. The changes affect business-to-consumer supplies of digital services encompassing telecoms, broadcasting and electronic services (such as ebooks and music downloads). Supplies of digital services to EU consumers are now subject to VAT in the Member State where the consumer belongs, rather than the supplier. The introduction of the MOSS gives affected businesses the option of registering in one Member State from which they can submit VAT returns and pay the VAT due in all Member States. Affected businesses may find our MOSS compliance tool useful in considering any post MOSS implementation issues.
The European Commission has also published its final report on selected national VAT rules under the MOSS which EY helped prepare. This final report is an updated version of the previous report published by the European Commission in October 2014. The updated report takes into account all legislative changes which took place in the EU Member States as at 1 January 2015.
HMRC provides details on registering for its gambling tax service
Organisations with obligations in respect of general betting duty, pool betting duty or remote gaming duty can use HMRC's online gambling tax service. This allows organisations to register, submit their returns and view their account. HMRC has provided details on how to register and keep details in the gambling tax service up to date.
European Commission presents its tax transparency package
On 18 March 2015, the European Commission presented a package of measures to boost tax transparency in the EU.
A key element of this tax transparency package is a proposal to introduce the automatic exchange of tax rulings between Member States. Under the proposal, the Commission will require that, every three months, national tax authorities will have to send a short report to all other Member States on all advance cross-border tax rulings and advance transfer pricing arrangements that they have issued. If, after this initial exchange, a Member State believes that it needs more information on a particular ruling, it can request further details or the full ruling. This requirement will be retrospective such that Member States will have to provide rulings that are still in force going back ten years from the date of the directive.
The Commission has also launched a number of other initiatives:
• Examining the feasibility of new transparency requirements for companies
• Working with Member States to review the tax code of conduct, to make it more effective in ensuring fair and transparent tax competition within the EU
• Repealing the Savings Tax Directive in order to have a streamlined framework for the automatic exchange of financial information
• Quantifying the effect of evasion and avoidance
The next milestone will be an action plan on corporate taxation which will be presented before the summer. This is expected to include a re-launch of the common consolidated corporate tax base and ideas for integrating new OECD/G20 actions to combat base erosion and profit shifting.
Our global tax alert is available here.
EU and Switzerland agree automatic information sharing
The European Commission announced on 19 March 2015 that negotiations have been concluded on a new tax transparency agreement with Switzerland. Under the agreement, Member States will receive, on an annual basis from 2018, the names, addresses, tax identification numbers and dates of birth of their residents with accounts in Switzerland, as well as other financial and account balance information. The agreement was initialled by the Commission and Swiss negotiators on 19 March 2015. It will be signed following authorisation by the European Council on one side and the Swiss Government on the other, both of which are expected to happen before summer 2015.
Other global tax alerts
Please see links to a selection of our tax alerts in respect of the following developments. Additional articles are available in our global tax alert library.
France: The EU Commission has initiated infringement procedures against France on the 3% dividend tax based on an alleged breach of the Parent-Subsidiary Directive and the freedom of establishment.
New Zealand: Combatting base erosion and profit shifting and international tax-related reforms will be a priority for the new Government.
Austria: The Government has announced tax reform including a more progressive income tax scale and a proposal to increase withholding tax on capital gains and dividends by 2.5% to 27.5%.
Russia: Amendments to the tax code passed by the Duma do not include proposed extensions of thin capitalisation rules to foreign affiliates. The Government has also introduced a draft law on a new tax on the financial results for the oil industry.
US: The Senate's Finance Committee hearing focused on the potential benefits of establishing a US patent box regime.
Turkey: The Government has submitted a new bill to introduce notional interest deductions on equity to the corporate tax code.
Ukraine: Parliament has adopted a legislative package that significantly changes the order and rates of personal income taxation and the payment of the unified social tax.
Please speak to your usual EY contact, or email us at firstname.lastname@example.org, if you would like to receive a copy of our regular indirect tax newsletter, or information about our other publications.
If you would like to discuss any of the articles in this week's edition of Midweek Tax News, please contact the individuals listed below, Claire Hooper (+ 44 20 7951 2486), or your usual EY contact.
Finance Bill published later today and Parliament dissolved next Monday
+ 44 20 7951 2486
Government announces further proposals to tackle tax evasion and avoidance
+ 44 20 7951 0150
OECD public consultation on base erosion and profit shifting Actions 8 to 10 (transfer pricing)
+ 44 20 7951 4584
New clauses on diverted profits tax released
+ 44 20 7951 2486
For other queries or comments please email email@example.com.
- Operating in a shifting tax landscape
The global tax landscape continues to change in a dramatic fashion, with near-constant news hitting the headlines regarding shifting tax policy, increasing levels of enforcement and the growing potential of reputational risk.
Multinational companies now have to balance more competing priorities than ever before, ensuring they protect their business by monitoring and responding to changes in policy, legislation and tax enforcement, while at the same time ensuring they not only maintain the highest levels of compliance but also add value from the tax function.
Governments work to secure each tax dollar they're due
From a policy perspective, all governments want their country to be viewed as an attractive place to do business, to attract jobs and capital in an increasingly competitive globalized arena.
At the same time, they want to increase the amount of revenue they bring in. Governments are treading a fine line, constantly assessing how to secure the tax revenues they see as rightly theirs, while at the same time being in direct competition with other nations, making sure they do not scare off mobile capital.
Tax administrations for their part are adapting their enforcement strategies, focus and policies in response to the changing dynamics of business. They are working to ensure that their resources are being applied to the right issues and taxpayers. They share more leading practices and taxpayer information with their foreign counterparts, to help them collect every dollar due.
Disputes are on the rise
The result has been more frequent, complex and higher value disputes between taxpayers and taxing authorities — a trend that is only increasing as countries collaborate together and as emerging markets gain in stature and influence, taking a more sophisticated approach to taxation. Penalties are becoming more stringent and the threat of reputational risk has risen significantly in recent months.
We can help you to navigate a route through this complex landscape.
We can help you monitor and react to quickly-changing tax policy and assess the economic and fiscal impact.
Where tax policies might create an impediment to your business that is unintended by policy makers, we can help you to collaborate – either solely, or as part of a broader grouping of companies who share a common objective – with government to:
- Explain the impediment
- Develop alternative policy choices which are logical and well thought out
- Model the potential outcomes
- Deliver an alternative choice to the government in a form with which policy makers can comfortably work
We also help you address your global tax controversy, enforcement and disclosure needs.
We focus on pre-filing controversy management to help you properly and consistently file your returns and prepare the relevant back-up documentation.
Where a controversy has already occurred, our professionals leverage the network's collective knowledge of how tax authorities operate, and increasingly work together, to help resolve difficult or sensitive tax disputes. To ensure that continuous performance improvements are instigated after a controversy, we work with EY's other tax professionals to ensure that similar events are less likely to occur.
Below you can access our views and analysis of some of the substantial policy and enforcement trends and issues at play today.
- Seizing the opportunity in Global Compliance and Reporting
Global Compliance and Reporting (GCR) is at a tipping point, with risks on the rise. Many companies distribute responsibility for GCR processes throughout their organization, creating a patchwork. Local jurisdictions are rewriting regulations, focusing more intently on the collection of tax revenues and sharing more taxpayer information across borders.
Due to the combination of evolving business models, transforming finance functions and an increasingly complex regulatory landscape, there are new opportunities to better optimize efficiency, control and value, to help mitigate risk and improve performance.
What is Global Compliance and Reporting?
GCR comprises the key elements of a company's finance and tax processes that prepare statutory financial and tax filings as required in countries around the world. These duties include:
- Statutory accounting and reporting
- Tax accounting and provisions
- Income tax compliance
- Indirect tax compliance
- Governance and control of the above processes
GCR activities reside in the middle of a broader set of record-to-report (R2R) processes. R2R is the intersection between any company's finance and tax departments and is used to capture, process and store information that is essential to statutory accounting, tax compliance and reporting. Any change to R2R processes, information, finance systems, roles and responsibilities will have a direct impact on GCR processes.
Helping you meet the new GCR demands
Fast changing compliance and reporting requirements are more demanding on tax and finance functions today than ever before. So how do you improve control and quality, manage risk, create efficiency and drive value?
Our market-leading approach combines standard and efficient processes, highly effective tools and an extensive network of local tax and accounting subject matter professionals.
- Building effective supply chains
As multinational companies seek to reach new markets and compete more effectively in mature markets, they are adapting and differentiating their supply chains. Companies’ operating models need to cater for efficiency and scale in mature markets, while having the flexibility and local ability to support growth in emerging markets. Consequently, driving true shareholder value requires an operating model that combines global and regionally differentiated processes, and integrates these with local striking power and operational excellence.
Leading companies recognize the need for integrating tax in their business planning and decision processes
Whether companies seek to enter new markets or drive efficiencies in mature markets, leading companies understand the complexities of the international tax systems. The impact of both direct taxes and indirect taxes needs to be carefully considered and integrated to drive the effectiveness of the operating model while complying with all applicable local and international tax laws and effectively manage all tax risks. Operating model effectiveness is becoming one of the cornerstones of successful competition and differentiation.
The EY TESCM offering helps ensure you do just that. Our advisory and tax professionals operate as one team to assist our clients with developing and implementing operating model optimization where business needs and requirements are the driver while making sure that tax is an integrated part of the design of the operating model architecture.
- Managing mobile workforce risk
In today's globally integrated, tightly regulated and increasingly competitive business environment, one critical success factor stands out: people. It’s no wonder that leading companies are focusing their efforts on:
- Attracting and retaining the right people
- Global talent deployment and mobility
- HR and payroll effectiveness
- Risk, governance and compliance
Managing the risks of mobile employees
While optimizing the competitive advantage of your people has long been a core objective, a more recent set of trends in the tax landscape means that large companies with an internationally mobile workforce are at a higher risk of tax noncompliance and resulting controversy than ever before.
Fortunately, an increasing number of organizations are currently either planning or embracing a wider process of change for their mobility teams.
Unintended tax compliance obligations
These travelers are increasingly creating unintended tax compliance obligations, and the resulting risks are not just personal. They are felt at the corporate level, with the corporate tax function often unaware of the extent of the spreading problem. Tax administrations are becoming increasingly aware of the issue, however, and are very effectively using new technology to identify where a tax obligation has arisen. In a rising tax enforcement landscape, this issue has significant potential to grow.
Managing these risks should be a burning platform issue for multinational companies.
Will your tax risks prompt a tax audit?
What may start as a relatively simple personal income tax compliance issue can quickly create a ripple effect, with risks such as the creation of a permanent establishment, an employment tax audit or the payment of a significant related penalty all occurring at the corporate level.
Companies, recognizing the spectrum of reputational, personal and financial risks related to tax, are making strong efforts to be compliant. There is an increasing acceptance that such issues are becoming increasingly urgent from both a reputational and a financial perspective.
How we are helping companies
Our Human Capital network embeds processes and technology that will help companies to identify and manage short-term business traveler-related risks before they occur. Where controversy has already arisen, our global Tax Controversy network can use our insights into the culture and processes and relationships with each key tax administration to remediate issues. With prior year issues being rapidly unearthed, and with tax administrations focusing on this issue more than ever before, the time to act is now.
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Read our news, analysis and insight into measures announced in Budget 2015.
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