INTERNATIONAL TAX 2019 - WHAT TO EXPECT

To say that taxpayers are hardly keeping up with changes in the international tax landscape is possibly a gross understatement. Taxpayers are not even fully used to the changes brought on by the 2015 BEPS changes and the consequences that followed this tsunami, when new tsunamis are already on the horizon, and dangerously high waves are crashing on the proverbial shore, every now and again.

Taxpayers who were under the impression that the impact of the 2015 BEPS changes would not reach them, had probably felt the effects by now, and if not, are in for a big surprise very soon when tax disputes will start to materialise. Especially considering that the first CBC Reports were collected long ago and countries are still learning how to interpret the information received. Workshops are presented and handbooks are developed for this cause, which means that delegates will soon be eager to start implementing their new insights. Furthermore, the impact of the MLI changes on more than 2000 treaties has not fully materialised, since ratifications of the MLI are slowly but surely being deposited. However, this impact will not be small and taxpayer should find advisors to assist them in ascertaining the how their business will be affected.

Taxpayers should keep their eye on the initiatives in place that will culminate into the 2020/2021 BEPS tsunami, when the BEPS actions are officially reviewed and new guidance publications are published. At the forefront of this coming wave is the tax challenges on digitalisation. It is very important to realise that the proposals on the table will affect a much broader array of multi-nationals than pure digital companies. Furthermore, confusion is ensuing as countries are losing patience and implementing unilateral measures, while on the public front, the UN is busy with its own developments in this regard and the US is not totally in agreement with the OECD proposals.

Apart from the ensuing confusion, the current proposals favours broader approaches going beyond the arm's length principle and even toward formulaic approaches. These approaches are focused on residual marketing profits, after remunerating routine marketing expenses, which apart from research and development residuals, is the largest portion of intra-group profits (where marketing and sales are performed in foreign markets), and not to mention the complexities of determining such value.

Final guidance is also in the pipeline for financial transactions, since the comments on the discussion draft has been published in September 2019. However, it was made clear that the countries are struggling to reach consensus and the debate is on-going, which does not provide any clear indication on when the final guidance may be expected.

Furthermore, the impact of the implementation of the EU's Anti-Avoidance Package across the EU, effective from the 1st of January 2019, will also start to materialise in 2019. This package includes interest limitation rules, charging of exit taxes, General Anti-Avoidance Rules (GAAR), CFC rules, hybrid mismatch rules and information sharing rules.

On top of all these changes, the European Commission is continually applying pressure on country rulings, such as the new in-depth investigation launched against a Dutch ruling on Nike's tax matters, amongst many other investigations conducted.

Generally, the increase in new transfer pricing legislation (such as new regimes proposed or effected in Zimbabwe, Botswana and Saudi Arabia) and proposal and changes to existing legislation (such in Qatar, Japan, Latvia, Lithuania, Argentina, Kazakstan, Malaysia, Slovakia, Brazil, Ireland, Australia, South Africa, the US, etc.) shows a renewed focus on transfer pricing enforcement. In the UK a voluntary compliance initiative has been launched by the HMRC to assist taxpayers to get their transfer pricing matters in order, called the Profit Diversion Compliance Facility.

The United States' international tax regulations will be released around June 2019. The OECD has already indicated that it is looking into following the US example of a minimum global tax on intangibles, which is called GILTI (Global Low-Taxed Intangible Income) in the US and functions via the CFC mechanism. This minimum tax is complicated and extensive and could have dire consequences for individual investors.

In summary, taxpayers should not be caught off guard with the impact of the 2015 BEPS changes that are still coming in, in waves; especially with the first CBCR information now disclosed. New transfer pricing regimes and changes to existing regimes may have a greater impact that taxpayers might anticipate. New BEPS changes with momentous impact are already under development.

So what can a multi-national enterprise do to weather these changes?

The most important strategy would be to stay informed about changes and initiatives affecting jurisdictions in which the MNE taxpayer is trading (such as the broad EU avoidance package already implemented, the coming US changes, the coming BEPS changes and all the new TP regime and changed TP regimes around the world). Secondly, it would be prudent to find a well-informed and competent advisor to evaluate the possible impact of existing and possible changes on the existing structures of the group, and if necessary make those adjustments a top priority. Thirdly, ensure that IT systems are in place to deal with the changes, and are sufficiently flexible to incorporate any new changes.

In short, for a multi-national taxpayer group, now is the time to stay on top of the game and be as pro-active and flexible as possible. Compliance must be prioritised and disputes must be anticipated. Make use of preventative measures, such as APAs, advanced rulings and cooperative programs, as much as possible. Global compliance management and ensuring consistency of disclosure, on all levels, should be top priority in any MNE risk strategy for 2019.

To find out how the ICCBT can help you achieve this goal of pro-active evaluation and preparedness by contacting us for a consultation session here.

#2019 #BEPS Risk