Horizontal Monitoring Netherlands
Senior Accounting Officer Guidance UK
"Where possible, HMRC relies on large companies’ own governance, systems and processes to manage risks to tax compliance. As part of the Business Risk Review a CRM evaluates how the group’s approach to these factors mitigates the inherent risks to tax compliance within the group.
The Senior Accounting Officer (SAO) provisions fully fit with this approach. The provisions make the SAO of a qualifying company responsible for ensuring that the company establishes and maintains appropriate tax accounting arrangements that allow the tax liabilities of the company to be calculated accurately in all material respects."
Automatic exchanges of information and joint tax audits
The OECD also promotes such enhanced relationships between tax authorities, taxpayer and advisers, where ex post facto audits may be limited by instituting both a proactive and a cooperative relationship with the tax service.
The aforementioned developments are extra reasons to give the right priority to indirect tax management and to formulating annual indirect tax objectives as part of the company's tax strategy. It is essential here that the tax function also be empowered to actually achieve these objectives.
The European Commission’s Tax Transparency Package proposes to introduce quarterly, automatic exchange of information between EU Member States regarding their cross-border tax rulings such as Advance Pricing Arrangements (APAs).
Dutch and German governments sign Memorandum of Understanding on spontaneous exchange of information with respect to tax rulings
General description of the measure
The measure will introduce a legislative requirement for all large businesses to publish an annual tax strategy, in so far as it relates to UK activities, approved by the Business’s Executive Board.
The strategy will cover 4 areas:
- the approach of the UK group to risk management and governance arrangements in relation to UK taxation
- the attitude of the group towards tax planning (so far as affecting UK taxation)
- the level of risk in relation to UK taxation that the group is prepared to accept
- the approach of the group towards its dealings with HM Revenue and Customs (HMRC)
Non-publication of an identifiable tax strategy or incomplete content based on the 4 areas outlined above could lead to a financial penalty. This penalty will be subject to the usual HMRC appeals process.
Who is likely to be affected
Around 2,000 largest businesses in the UK.
The publication of tax strategies will ensure greater transparency around a business’s approach to tax to HMRC, shareholders and consumers. And board level oversight of those strategies will embed tax strategy in existing corporate governance processes. Taken together this should drive behaviour change around tax planning and therefore enhance tax compliance.
Legislation will be introduced in the Finance Bill 2016 to require qualifying large businesses or qualifying groups to publish a tax strategy, in relation to UK taxation, on the internet.
The legislation sets out the content required for inclusion in the tax strategy.
The strategy will need to remain accessible until the next update to the strategy, typically on an annual basis. A penalty may be chargeable either for the non-publication of a tax strategy or if the information contained within the published strategy does not meet the requirements of the legislation.
Monitoring and evaluation
This measure will form part of HMRCs business risk review processes and implementation and impact will be measured within the internal governance and risk management processes within Large Business Directorate.
- Tax administration: large businesses transparency strategy
- Draft clause 65
- Draft explanatory notes clause 65
OECD's action plan on base erosion and profit shifting (BEPS)
"Tax Executives Institute, Inc. (TEI) commends the OECD for its thorough overview of the components of a potential mandatory disclosure regime and its comprehensive discussion of various options that countries may adopt to implement disclosure rules into their domestic law.
TEI appreciates tax authorities’ need to obtain a better view into the aggressive tax planning engaged in by some businesses and we do not oppose a mandatory disclosure regime in principle. Indeed, an objective, clear, uniform, and easy-to-apply mandatory disclosure rule could help level the playing field between multi-national enterprise (MNE) competitors that might have differing appetites for tax risk.
While the flexible approach in the Discussion Draft gives countries the ability to tailor a disclosure regime to their particular domestic tax policy concerns, varied approaches to mandatory disclosure across jurisdictions present several concerns for MNEs."
BEPS - Country by Country report also implemented in the Netherlands. On the 15th of September 2015 the Dutch legislator announced new Dutch reporting standards for the Dutch Corporate Income Tax Act. The annual TP documentation package should consist of a master file and a local country file. The reporting standard is intended for intercompany transactions with more than €50 million annual revenues.
Further Country by Country reporting requirements are also included with an treshold of €750 million. A penalty is included as well. The report will be mandatory per Januari 2016 due to obligations with OESO /G20.
BEPS 2015 Final Reports
What is new? New transfer pricing documentation requirements; demands to publicly account for their tax and business activities on a country-by-country basis; and consultancy proposal in the UK to disclose more information about their overall tax strategy.
Businesses have to disclose not only tax and financial data but also overall approaches to tax strategy, tax planning and tax risk, the relationship the company wishes to have with the taxing authority, and whether the company has an effective tax rate (ETR) target (and if so, what it is, and what measures the business is taking to reach or sustain this target ETR).
The European Parliament proposed on July 2015 changes to the EU accounting directive and transparency directive. Large groups and public interest entities have to include country-by-country information in financial statements, including turnover, number of employees, value of assets, sales and purchases, profit or loss before tax, and tax on profit or loss.
Data analytics will allow tax authorities to in an efficient and effective way identify compliance breaches (no more guessing the numbers).
See chapter: OECD's standard audit file for tax purposes
It will be challenging for the in-house tax function to keep up date on new local requirements (announced) and how to adapt systems, processes and controls to meet legal requirements and analyze the required data prior to submission on tax risks. Systems readiness will be a challenge as many companies have still multiple ERP systems or manipulate data outside the system (Excel).
Tax Compliance Consultation – UK
On 22 july 2015 the Revenue & Customs in the UK have published two linked consultation documents that relate to compliance and anti-avoidance. Both are directed at behaviours and behavioural change for large corporates in particular.
The document entitled Improving Large Business Compliance contains 3 main proposals:
- A legislative requirement for large businesses to publish their tax strategy
- A voluntary ‘Code of Practice on Taxation for Large Business’
- A ‘Special Measures’ regime to apply to businesses continually undertaking aggressive tax planning or persistently refusing to engage with HMRC in an open and collaborative manner.
See chapter: 'Improving Large Business Compliance'
OECD VAT/GST Guidelines 2015
The OECD has published its international VAT/GST Guidelines, which are expected to be approved in 2016. Jurisdictions are encouraged to use existing bilateral, regional or multilateral arrangements on mutual co-operation to practically comply with the Guidelines.
The Australian Tax Office (ATO) Practice Statement
Australia's proactive efforts to change the international tax arena. This practice statement is a draft for consultation purposes only.
When the final practice statement issues, it will have the following preamble: This practice statement is an internal ATO document, and is an instruction to ATO staff.
Taxpayers can rely on this practice statement to provide them with protection from interest and penalties in the following way.
If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith.
However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.
This practice statement is designed to assist Tax officers who are contemplating the application of Part IVA or other GAARs to an arrangement, including in a private ruling, Public Ruling (including a Product Ruling or a Class Ruling) or other document setting out the ATO view.
OECD Tax Administration 2015
Tax Administration 2015, produced under the auspices of the Forum on Tax Administration, is a unique and comprehensive survey of tax administration systems, practices and performance across 56 advanced and emerging economies (including all OECD, EU, and G20 members).
Its starting point is the premise that revenue bodies can be better informed and work more effectively together given a broad understanding of the administrative context in which each operates. However, its information content is also likely to be of interest to many external parties (e.g. academics, external audit agencies, regional tax bodies, and international bodies providing technical assistance).
The series identifies some of the fundamental elements of national tax system administration and uses data, analyses and country examples to identify key trends, comparative levels of performance, recent and planned developments, and good practices.
Relevant benchmark info
- Big4 surveys
- OECD overview
- Risk Management Guide For Tax Administrations
- OECD Report: Study Into The Role Of Tax Intermediaries
- Horizontal Monitoring
- OECD International VAT/GST Guidelines
- A 'European Taxpayer's Code' - European Commission
- Studies made for the European Commission: 2013
- EU standard VAT return
- B2C 2015 VAT changes
- European Commission – Press Release About Future Of VAT
- OECD – Consumption Tax Trends 2012
- OECD – Consumption Tax Trends 2010
- OECD – Consumption Tax Trends 2008
- OECD – Consumption Tax Trends 2004
- OECD – Consumption Tax Trends 2001
- OECD – Consumption Tax Trends 1999
- Technical consultation: country-by-country reporting - UK
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