1. Tax Administrations in a post BEPS environment
20 & 21 April 2015
Jeffrey Owens

2. Table of Contents:
The Changing Relationship in taxpayer, tax administration and tax advisor interaction
Pressures vs Opportunities in the international tax world
BEPS
Exchange of Information
Country by Country Reporting
The Role of Technology
How to benefit from a more transparent and cooperative environment
Moving Forward: What will tax administrations look like in 10 years

3. The taxpayer, tax administration and tax advisor: A changing relationship
The new cooperative way of building tax compliance:
The old model:
Operating only by reference to legal requirements
Limited disclosure and no signals of uncertainty
Low levels of trust
Towards an enhanced cooperative relationship:
Establishing and sustaining mutual trust
Disclosure and transparency from taxpayers
Revenue body approach based on commercial awareness, openness and responsiveness.

4. The taxpayer, tax administration and tax advisor: A changing relationship
Trust and transparency are key in the relationship
Technical skills, commercial understanding, responsiveness and understanding are all key aspects of a successful relationship
Taxpayer confidentiality must be preserved
Business treated individually according to their profile and needs
Mutual sharing of information will inform relationship

5. Pressures vs opportunities in the international tax world
BEPS
Exchange of Information
Country by Country Reporting
Technology Development
Reflection Points:
Are tax administrations geared up to use this information?
How could tax administrations benefit from a more cooperative environment?
Here make the point that BEPS tends to be received by tax administrations with a lot of suspicion, because they do not know what to expect going forward. The creation of new standards is always scary. However, BEPS is also producing new enhanced standards of exchange of information between countries, which could contribute to greater transparency, and as a result increase tax revenues. Therefore BEPS is not just bad all together. All these new developments put pressure on tax administrations to cope with the new standards, but they can also represent great opportunities, especially for developing countries, to increase their tax collection ability.

6. Emerging new international standards: A challenge for MNEs
BEPS
Emerging new international standards: A challenge for MNEs

7. Exchange of Information
Global Forum for Exchange of Information: Two standards:
Exchange of Information on Request
Automatic Exchange of Information
In a Treaty Context:
Exchange of Information between tax authorities of the Contracting States (Article 26);
Assistance by Contracting States in the collection of each other’s taxes (Article 27)
Articles 24, 25, 26 and 27 apply to “taxes of any kind” and therefore could cover other direct (not just on income and capital) and indirect taxes referenced in third agreements.

8. Country by Country (CbC) Reporting
TP Master file
TP Local file
CbC report
CbC reporting: getting a good look inside
What it is: Companies will have to provide tax authorities with country-specific allocation of profits, revenues, employees and assets; worldwide adoption expected by 2017, though specific adoption deadlines will vary by country.
CbC Reporting
Why this is an early focus:
Because of the level of complexities involved with cross-border transactions, and data collection and management, many companies should begin preparing now, testing and validating processes and technologies. This will allow time to take mitigating steps – e.g., ensuring profit margin consistency (Inter-Company Effectiveness) and minimizing potential controversy..
What it is not:
Not intended as a substitute for a full transfer pricing analysis, nor is it intended for use in formulary apportionment-based adjustments. But it will feed into tax audits.
Next steps:
Fully understand the requirements and how those requirements could be met with your current reporting efforts. Do a thorough analysis to understand what reporting gaps you might have and devise a strategic plan that allows enough time to ensure proper and accurate reporting.

9. Country by Country (CbC) Reporting Key considerations
How to assess the data – the search for anomalies. For example:
Should parent company or local company GAAP be used as a basis for reporting?
How can the company avoid misinterpretation of data, such as reporting ordinary profits in addition to profits after extraordinary items?
Does the company have accurate information on global operations - including headcount, revenues and profits by country?
Has the company identified features listed as potentially indicative of transfer pricing risk?
Does the company have significant transactions with a low tax jurisdiction?
Does the company have transfers of IP to related parties?
Has the company experienced a business restructuring?
How to source the data
Rapid flow of new reporting and disclosure requirements have left both tax departments and software houses rushing to catch up
Many companies approaching on a phased basis (Excel spreadsheet versus systems integration)
Vendor market will catch up
Moving from year 1 to sustainability – investment, integration, analytics
How much information should the company submit? What is the balance providing sufficient information for tax authorities to make an informed decision about transfer pricing risk against the time and cost involved in producing the reports?
Should parent company or local company GAAP be used as a basis for reporting?
Can the supply chain be diagrammed and can the company provide a functional analysis of each of the nodes of the supply chain for the top five products and/or all products with more than 5% of sales?
Is the company prepared to include royalty income, interest income and services income in revenue disclosures?
Can the company manage the possibility that it may have different accounting periods for different entities in different countries?
How can the company manage the possibility that financial data may be stored in different currencies?
Can the company explain its transfer pricing compliance succinctly and consistently? Do you have a written transfer pricing policy with respect to intangibles and R&D? Do you need to change your advance pricing agreement (APA) strategy?
Can the company disclose financial information and allocation schedules on a per-country basis showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements?
How can the company avoid misinterpretation of data, such as reporting ordinary profits in addition to profits after extraordinary items?
Does the company have accurate information on global operations - including headcount, revenues and profits by country?
Has the company identified features listed as potentially indicative of transfer pricing risk?
Does the company have significant transactions with a low tax jurisdiction?
Does the company have transfers of IP to related parties?
Has the company experienced a business restructuring?
Does the company have specific types of related-party payments?
Is the company in a year-on-year loss-making position?
Does the company have poor or nonexistent documentation of transactions?
Does the company have excessive debt in comparison to their peers?
Does the company have amounts of and sufficiently detailed diagrams for material goods and services flows?
What percentage of transactions does the company currently cover in documentation?
How does the company’s' global footprint compare to your global tax footprint?
Where is revenue earned in the group?
Where are the profits being derived in the group?
Are the functions, assets and risks of the company aligned with its economic substance and reward?
Are the value-driving processes of a company relating to IP aligned with its economic substance and reward?
Does the company earn consistent returns on similar transactions?

10. OECD CbC template – main reporting table – country aggregated data
Tax jurisdiction
Revenues
Profit (loss) before
income tax
Cash tax paid (CIT and WHT)
Current year tax accrual
Stated capital
Accumulated earnings
Tangible assets other than cash and cash equivalents
Number of employees
Unrelated party
Related party
Total 1. 2. 3. 4. 5. 6. 7.
Etc.
Notes:
Aggregated rather than consolidated data
Flexibility in data sources allowed
Entity data aggregated on the basis of tax residence
Revenue defined to include turnover, royalties, property, interest
Revenue specifically excludes intercompany dividends
Profit/loss before income tax includes extraordinary items
Cash tax paid includes tax withheld by other parties on payments to the constituent entity
Current year tax accrual is tax on current year operations only
Number of employees may include external contractors

11. OECD CbC template – table 2 – entity details
Tax jurisdiction
Constituent entities resident in the tax jurisdiction
Tax jurisdiction of organization or incorporation if different from tax jurisdiction of residence
Main business activity(ies)
R&D
Holding or managing IP
Purchasing or procurement
Mfg or production
Sales, mktg or distribution
Admin., mgmt or support services
Provision of services to unrelated parties
Internal group finance
Regulated financial services
Insurance
Holding shares or other equity instruments
Dormant
Other
Etc.
Notes:
Constituent entities rather than legal entities
Multiple activities may be chosen

12. Master file – information required
Organizational structure
Business description
Intangibles
Intercompany financial activities
Financial and tax positions
Structure chart:
Legal ownership
Geographic location
Important drivers of business profit
Overall strategy description
Financing arrangements for (related and unrelated) lenders
Annual consolidated financial statements
Supply chain of:
Five largest products/ services by turnover
Products/services generating more than 5% of sales
List of important intangibles and legal owners
Identification of financing entities
List and description of existing unilateral APAs and other tax rulings
Main geographic markets of above products
List of important intangible agreements
Details of financial transfer pricing policies
List and brief description of important service arrangements
R&D and intangible transfer pricing policies
Functional analysis of principal contributions to value creation by individual entities
Details of important transfers
Business restructuring/ acquisitions/divestitures during fiscal year
Master file
CbC report
Local file

13. Other analysis Global footprint by business activity
Comparison of profit margins
Income per head
Tax rate comparison
Related-party revenues
Pie charts to illustrate “absolute amounts”
Filters

14. The role of technology Technology can help obtain greater synergies
One single registry point to verify company’s substance and identify the members in a group?
Cloud computing: Data could be fed into a cloud to store MNE’s information;
New software base will have to be developed in order to support country files;
How to guarantee that all this data will be stored over a long-term period without any leak? Safety is the biggest concern

15. How to benefit from a more cooperative and transparent environment?
Main Advantage for Governments:
Transparency and disclosure by business
Willingness to go beyond respecting just the strict letter of the law
Volunteering information which may highlight significant differences of opinion and interpretation
Willingness of business to educate tax administrations on the realities of new business models
Cooperation in tax assessment
Main advantage for business:
Greater certainty and predictability
Commercial and business awareness in tax administrations
Access to decision makers in tax administrations
Consultation on tax policy issues
Speedy conflict resolution system

16. Moving forward: What will tax administrations look like in 10 years
Tax administrations will be stripped of policy functions;
Leaner and flatter tax administrations by making use of technology;
Assessment and collection functions will be outsourced
Good taxpayer service
Constructive and transparent dialogue between taxpayers, tax authorities and their advisors
Tax will focus on prevention rather than detection and non-compliance
Move away from a tax-by-tax approach to a more taxpayer by taxpayer approach
Special units to deal with groups of taxpayers i.e. large business units, SMEs, etc.
More sophisticated approach to risk management, based on new technology resources and segmentation
Behavioural approach towards compliance (help taxpayers who want to be compliant and target those who do not)

17. Moving forward: What will tax administrations look like in 10 years
Financial institutions will become an integrated part of the tax assessment process
Pre-audit settlements will become the norm
Joint multilateral audits will become the norm amongst different tax administrations
National fiscs will operate as global bodies
Bilateral agreements will be substituted by multilateral agreements
Global system of tax arbitration to resolve issues not handled by competent authorities
Non-revenue function of tax administrations will develop – they will raise to the new role of global regulators.

18. Thank you! Jeffrey Owens Director WU Global Tax Policy Center
Institute for Austrian and International Tax Law
WU Vienna University of Economics and Business