The aim of this technical consultation process is to ensure that country-by-country reporting will be implemented in the United Kingdom as intended and with effect for accounting periods commencing on or after 1 January 2016.
Legislation was introduced in section 122 Finance Act 2015 to enable the making of regulations to implement country-by-country reporting once the Organisation for Economic Co-operation and Development (OECD) had completed work on Action 13 of its action plan on base erosion and profit shifting (BEPS).
These draft regulations should be read in conjunction with the OECD’s consolidated report on Action 13 of the BEPS action plan transfer pricing documentation and country-by-country reporting published on 5 October 2015. The technical consultation will be open until 16 November 2015.
- Technical consultation on draft regulations for country-by-country reporting
- Explanatory memorandum to the draft regulations for country-by-country reporting
BEPS and Indirect Tax
Let's highlight action 7 and 13:
- Prevent the artificial avoidance of PE status'
- Country-by country reporting (CbC)
Action 7 – prevent the artificial avoidance of PE status
The final BEPS report includes changes to the definition of PE for income taxes of Article 5 of the OECD Model Tax Convention. Action 7 broadens the threshold to determine when such PE status exists. Currently such a PE status does not exist for commissionaire arrangements and the specific activity exemptions in treaties, such as warehousing, purchasing and preparatory and auxiliary activities.
The indirect tax definition of a fixed establishment (FE) is different from a PE and has its foundation in EU VAT law and should therefore not be affected by the BEPS initiative or OECD definition. Some countries however do (still) not accept the absence of a FE once a PE has been established. Note that the amount of PEs will increase when "Action 7" is in force.
As businesses are facing global challenges it makes sense that the existing business model is reevaluated and amended when necessary to meet the new PE environment. That most likely means moving away from a commissionaire structure?
Action 13 – country-by country reporting (CbC)
Action 13 provides a template for multinationals to report on an annual basis and for each tax jurisdiction in which they operate revenue figures and other key figures should be reported. The data of these reports give direct tax authorities the possibility to audit the amount of direct tax paid.
However for indirect tax authorities it is useful data as well. From a custom perspective it could be supportive during auditing the valuation of the transactions when customs duties are due and for VAT cross border intercompany transactions have always qualified as a high risk area.
The SAF-T standard, originally created by the OECD, is intended to give tax authorities easy access to the relevant data in an easily readable format for both corporate income tax as VAT. This leads to much more efficient and effective tax inspections. Data analytics will become the most efficient and effective way of future tax auditing.
- The changing tax world and taxpayer's impact
- Tax rulings and other measures similar in nature or effect
- Anticiperen op onze 'nieuwe' belastingwereld
- BEPS 2015 Final Reports
- UK - Improving large business compliance
- Developing a common framework for disclosing tax information
- Reputational risks
Embrace new technologies and catch up
Compliant tax software solutions for the global management of tax processes
In essence, HRMC’s increases its expectations towards large businesses with regard to a more and more transparent tax management strategy. However, the publication of a tax strategy will clearly not be sufficient. It is just the starting point for the provision of a clear picture about the risk management and controls in place of tax relevant processes. The daily management turns on the radar.
State-of-the-art tax compliance management software is required
In difference hereto, the view into the current daily practice provides a different and non-compliant picture:
Widespread use of Excel spreadsheets, decentralized storage of tax relevant documents, lack of documented controls, lack of automation, global lack of tax compliance software tracking individual changes and filings, lack of standardized reports immediately available upon request, lack of in-built double-checks for the calculation of current and deferred taxes on reporting entity level, lots of tax relevant data stored at external outsourcers (e.g. external tax advisors and accounting firms), several tax software tools in place at various locations which are neither interfaced among each other and with the ERP systems in place, etc.
It is obvious that tax departments which are not adapting its process management to the requirements addressed by HMRC and other tax authorities may struggle with regard to compliance, efficiency and transparency.
Therefore, compliant tax software solutions for integrated tax management like the U² software from Universal Units become more and more important
Related GITM articles
- Examples of public Fiscal Transparency statements
- The Tax Transparency Benchmark 2015
- BEPS 2015 Final Reports
- EU - Public consultation on further corporate tax transparency
- CbC reporting / tax transparency: Accounting Directive
- Improving large business compliance
- Tax administration: large businesses transparency strategy
- Spreadsheets and Compliance
- Tax Strategic Plan
- Tax Control Framework