Dropping a sheet of glass would send shards flying all over.
Where the glass represents the tax world, we could say it has just
been shattered. Some of the broken pieces can be identified as
BEPS, Brexit and the European Commission decision on state aid
Once again, last month KPMG has provided the platform for
debates in London themed 'Fragmentation and Controversy'
where around one thousand tax advisors, company directors and high
profile experts got together to discuss the (bumpy) road ahead.
Never have conversations been fraught with as many question marks
on possible scenarios and options.
Let us take Brexit for example, the formal UK-EU negotiations
have not yet officially commenced (Article 50 is set to be
triggered by end of March 2017) and yet businesses and advisors
have to start brainstorming on the manner in which potential
realities could affect their strategies. What type of relationship
will the UK have with the EU? Would the relationship be similar to
that under the EEA, EFTA, or the customs union model? In this sense
the EEA and EFTA models appear to be less realistic options given
that they promote what the British seem to have voted against,
namely the free movement of persons. There is also talk of a UK
bespoke model – though no one seems to know what this would
translate to. Let us take Brexit for example, the formal UK-EU
negotiations have not yet officially commenced (Article 50 is set
to be triggered by end of March 2017) and yet businesses and
advisors have to start brainstorming on the manner in which
potential realities could affect their strategies. What type of
relationship will the UK have with the EU? Would the relationship
be similar to that under the EEA, EFTA, or the customs union model?
In this sense the EEA and EFTA models appear to be less realistic
options given that they promote what the British seem to have voted
against, namely the free movement of persons. There is also talk of
a UK bespoke model – though no one seems to know what this
would translate to.
Turning to 'BEPS – Base Erosion and Profit
Shifting' – a project driven by the G20 and OECD, and
adhered to by several non-OECD countries (including Malta) to
ensure that profits are taxed in the country where the economic
activity is carried out and thus prevent the artificial transfer of
profits to (low or zero tax) countries. Multinational businesses
must pay particular attention to economic substance in order to
ensure that profits are attributed to the country where value
creation takes place. They must also be aware that previously
non-disclosed information such as turnover, assets and number of
employees in each country could soon be disclosed to tax
authorities and potentially to the public at large, thus subjecting
themselves to the scrutiny of investigative journalists.
Unlike the 'ATAD – Anti-Tax Avoidance Directive'
(an EU wide law set to apply across all EU Member States and
thereby providing a modicum of consistency across the EU in terms
of scope and interpretation), BEPS rules are more in the nature of
best practice rather than hard law and consequently the rules may
easily differ from country to country. Businesses need to
understand how the different rules affect their cross border
transactions. One thing is certain: BEPS is expected to cause an
upheaval in international tax rules and interpretation.
Related to EU law upheavals, is the EU Commission decision on
Apple, forming the backdrop for yet another tax related drama. The
Apple decision focuses on the notion of state aid, a concept which
should ensure a level playing field by prohibiting businesses from
gaining an unfair advantage through tax credits, government
subsidies etc. Despite the good intentions that underpin the EU
state aid concept, issues related to state aid have been and remain
an obstacle for EU countries intent on attracting FDI to their
country. The perennial struggle between the notion of tax
neutrality as promoted by state aid rules and tax competition is
expected to remain in place for the foreseeable future.
At this point, the key question is: in what manner should
international businesses react? In times of uncertainty, management
should map out different potential scenarios with their advisors
and understand how these could potentially impact their business.
Going forward it would be useful to have sketches of step plans to
implement in case a particular scenario becomes reality in the near
or immediate future.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Common Reporting Standard (CRS) has been initiated by the Organization for Economic Cooperation and Development (OECD) aiming at improving international tax compliance and preventing tax evasion, through the automatic exchange of information between the countries that implement CRS.
The DITC has stated that it will issue updated CRS Guidance Notes in the first quarter of 2017 to cover the Regulations.
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