We previously wrote two blog posts about the 2nd International Conference on Taxpayer Rights held in Vienna, Austria in March 2017 here and here. Videos of each panel discussion are now available for viewing here. Planning is currently underway for the 3rd International Conference on Taxpayer Rights, which will be held in The Netherlands on May 3-4.
On March 13 and 14, the 2nd International Conference on Taxpayer Rights was held in Vienna, Austria. More than 150 individuals from more than 40 countries attended the conference, which connects government official, scholars and practitioners from around the world to explore how taxpayer rights globally serve as the foundation for effective tax administration. This is the first of two posts recapping the issues discussed at the conference.
Four panels were held on March 13: (1) The Framework and Justification for Taxpayer Rights; (2) Privacy and Transparency; (3) Protection of Taxpayer Rights in Multi-Jurisdictional Disputes; and (4) Access to Rights: the Right to Quality Service in an Era of Reduced Agency Budgets.
As a follow-up to regulations issued last June, the Internal Revenue Service (IRS) has issued Revenue Procedure 2017-23, which sets forth the process for filing Form 8975, Country-by-Country (CbC) Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information (collectively, Form 8975), by ultimate parent entities of US multinational enterprise (MNE) groups for reporting periods beginning on or after January 1, 2016, but before the applicability date of §1.6038-4 (early reporting periods).
The Treasury Department and the IRS published final regulations on June 30, 2016 –Treas. Reg. 1.6038-4– that require ultimate parent entities of US MNE groups to report CbC information about the group’s income, taxes paid and location of economic activity. The impacted taxpayers must report this information annually via Form 8975. The CbC reporting regulations apply to reporting periods of ultimate parent entities of US MNE groups that begin on or after the first day of the first taxable year of the ultimate parent entity that begins on or after June 30, 2016.
For annual accounting periods beginning on or after January 1, 2016, some jurisdictions have adopted CbC reporting that would require an entity in that jurisdiction to report CbC information if it is part of an MNE group in which the ultimate parent resides in a jurisdiction without CbC reporting requirements for the same annual accounting period. This can result in constituent entities of a US MNE group being subject to various local CbC filing requirements for early reporting periods unless the ultimate parent entity files a Form 8975 in the US, or reports CbC information through surrogate filing in another jurisdiction.
The preamble to the US CbC reporting regulations addressed this issue by indicating that the Treasury Department and the IRS would provide a procedure for ultimate parent entities of US MNE groups to file Form 8975 for early reporting periods; Revenue Procedure 2017-23 is the resulting procedure.
The Revenue Procedure provides that, beginning on September 1, 2017, taxpayers may file Form 8975 for an early reporting period with their income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the US MNE group with or within which the early reporting period ends. Taxpayers can amend an income tax return for a taxable year that includes an early reporting period without a Form 8975 attached if they follow the normal procedures for filing an amended return, and attach the Form 8975 to the amended return within twelve months of the close of the taxable year that includes the early reporting period. Filing an amended return for the sole purpose of attaching Form 8975 will have no effect on the statute of limitations. Ultimate parent entities are encouraged to file their returns and Forms 8975 electronically through the IRS Modernized e-File system in Extensible Markup Language (XML) format. The IRS plans to provide information on the Form 8975 to the software industry to [...]
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Adoption of the base erosion and profit shifting (BEPS) action items in specific countries can be expected to alter traditional multi-national enterprises (MNE) tax strategy processes. In this regard, it is appropriate to note that tax authorities and the Organization for Economic Co-operation and Development (OECD) often seem to overlook, or conveniently ignore, that MNE strategies are often a function of the rules established by countries to develop their own tax base (at the expense of other countries). In other words, countries, in their respective self-interests, grant incentives of various sorts to encourage economic investment. MNEs take advantage of these incentives to minimize their tax liabilities, which the BEPS process views as, somehow, inappropriate behavior of MNEs denuding the tax base of other countries.
Like water going downhill, MNE planning strategies will utilize the most efficient path to achieve desired objectives. This is a fiduciary duty to shareholders. Effective tax rates are a major expense of all MNEs, which need to be managed as effectively as possible in a competitive world. For example, if Country A offers an incentive such that MNE #1 makes an investment in Country A, as opposed to Country B which offers no such incentive, the net result is that jobs and economic activity are created in Country A not B. Country B may perceive that its tax has been eroded. But who has done this? Country A via its incentive or MNE #1?
International tax disputes arise when Country B challenges the activity of MNE #1 asserting that it should have been paying tax in Country B. If there is a treaty between Countries A and B, there could be a mutual agreement procedure (MAP) proceeding. If that proceeding stalls for whatever reason, then all parties would benefit from processes that would lead to resolution.
The transparency demanded by the Country-by-Country (CbC) package and related matters evolving on a unilateral country basis (seeking, once again, to attract tax base away from other countries) will create new opportunities and paradigms for MNE effective tax rate strategies. It may be that these evolutions will drive planning and acquisition strategies toward treaty or non-treaty protected corporate structures designed to: (i) take advantage of new opportunities created by the new regimes; and (ii) minimize transfer pricing exposures, imposition of exit or other taxes on the movement of intangibles or other assets, and so on. As these strategies evolve, the net result may not be an outcome that was anticipated by organizers of the BEPS project. This was certainly the case with respect to design of our current international tax system just after World War I.
These evolutions in the international tax world reflect, not surprisingly, what is evolving in the global political world. The popular press regularly addresses what is often described as globalism vs. populism, which reflects an apparent trend of voters and governments to focus less on the global good and more on local needs. The same phenomenon appears to be evolving in the world of cross-border [...]
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