Common tax regulations: an illusion?
“This isn’t about acting illegally; it’s about acting immorally,” said Patrick Cauwenbergh, partner and tax expert at Deloitte Belgium, as he kicked off his talk.
The specialist, who was invited to our offices to provide an update on new tax regulations, in particular the Base Erosion and Profit Shifting – BEPS (BEPS) project and the draft Anti-Tax Avoidance Directive ATAD (ATAD), did not beat around the bush. In the past four to five years, the tax environment has evolved substantially, first of all due to the 15 actions of the OECD, and then the draft Directive. Those two initiatives have led to a series of measures to, on the one hand, avoid double non-taxation and, on the other, foster transparency.
OECD double non-taxation avoidance measures:
All company levels are impacted, from the business models and cash operations to intra-corporate financing structures such as holdings and risk management.
Hence, companies need to prepare for new reporting requirements (in particular the country-by-country reporting) (1), review their current tax positions and adjust their strategy based on the new framework while making sure the latter is clearly communicated.
The European project, which was recently adopted by the Council of the 28 ministers of Finance, aims to go even further than the OECD, in particular with exit tax rules and general anti-abuse rules.
- The former require the taxation of the market value minus the value of the tax for assets, permanent establishments or residences relocated by the taxpayer outside of a tax jurisdiction of a Member State.
- The latter relates to tax arrangements with the authorities, in the sense that arrangements made for undue economic reasons that do not reflect economic reality will need to be considered non-existent by the tax authorities.
It is an illusion to think that this new regulatory framework only covers big unscrupulous multinationals. The country-by-country reporting is for sure a prerogative for multinationals, but all corporations operating at the international level are impacted by these new rules of conduct, and in this context they are making preparations. As a matter of fact, the Directive will be approved at the next ECOFIN meeting on 12 July. The deadline for transposition in national legislation has been set at 31 December 2018, and implementation will be on 1 January 2019. Each member state is already working on the implementation aspects.
We have already said it: companies must from now on act as responsible taxpayers. Tax strategies are being increasingly scrutinised by civil society, but also by regulators and authorities. Being aware of the sometimes aggressive tax measures taken by companies can help investors identify risks for a fast-approaching future.