INSZoom Immigration Conference 2016 - Recent Trends in Global Taxation
1. 1
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Session – Global Taxation – Recent
trends and the impact on employees
and corporates
Lead Speakers – Surabhi Marwah and Shuddhasattwa Ghosh
Panelists - John Stephen Rao (Sapient), Pankaj Bhatia
(Honeywell) and Hema Venkatrama (CSC)
5. 5
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Critical People Risks
► Lower permanent establishment (PE) thresholds
Tightening of the definition of the activities that could create a PE and the
limitation of the scope of “preparatory or auxiliary” which lists instances where a
PE would not be created
► Country by country reporting requirements (CbCR)
Detailed country reporting requirements have been recommended with the
purpose of giving tax authorities a view of a multinational company's entire global
footprint. This also includes data on the number of employees in each country
► Documentation and substance considerations
In addition to the new country-by-country report, the recommendations include
new documentation requirements with respect to inter-company transactions in
the form of a master and local file
BEPS
and HR
6. 6
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Critical People Risks
► Corporate structure and operating models
BEPS will challenge the sustainability of many operating models and structures.
As a consequence there may be a broader business case to transform
operating models to better align business and operational concerns with tax and
legal consideration.
► Transfer pricing considerations
Instituting the appropriate cross-charging methodology and ensuring that
entities are adequately compensated for the value created by each entity will be
crucial.
In addition to the cross-charge of employees' compensation, appropriate
allocation for deemed transfer of intellectual property (IP) – that may be
seen as being transferred on secondment of employees – will also be required.
This will add complexity to the process of cross-charging employees'
compensation for secondments.
Training
DataControls
8. 8
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Why secondment poses a risk?
► With increasing scrutiny from tax and immigration authorities around the world, moving employees across
borders has the potential to create risk for employers like never before.
► Factors that influence permanent establishment risk
► What are the travellers doing?
► How long is the travel?
► Who is the employer/beneficiary of the work performed?
► What is the corporate structure?
► What level is the person who is travelling?
► Where is the person going?
It is important to ascertain the ‘employer’ while structuring a secondment assignment to analyze PE risk.
Risk of Permanent Establishment (PE)
9. 9
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► The global economic crisis
► Increased sensitivity about protecting
domestic labor markets
► Governments want to increase revenue
► From employers: unforeseen
triggering of a permanent
establishment
► From individuals: may be obliged to
file/ remit taxes in multiple
jurisdictions
► Business travelers present an untapped
source of revenue
Why are authorities increasingly
focusing on business travelers?
Why the focus now?
► Advanced border technology
► Immigration and tax authorities are sharing information
► Countries are sharing information to scrutinize
immigration status
► Authorities are using more sophisticated tracking and
reporting systems to collect the information
► By conducting analysis authorities are linking
corporate deduction to individual filings
► Government organizations have access to better
information
► Data can be shared more readily from travel providers,
expense reporting, and inter- organization
departments
► Costly remediation
What has changed and how do authorities go
about identifying business travelers?
10. 10
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Global Trends
► Countries are redefining permanent establishment rules
► Alongside personal tax compliance triggers, we are seeing countries issuing complex and fast-
moving changes to the rules defining what constitutes a permanent establishment
► Australia, Canada and China are all examples of countries who have recently redefined PE in
ways that can be triggered by the existence of short term business visitors
Risk of Permanent Establishment (PE)
The BEPS recommendations provide for tightening of definition of the activities which could create a PE
12. 12
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Automatic Exchange of Information (AEOI)
► As the world becomes increasingly globalised and cross-border activities become the norm, tax administrations
need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction
► AEOI involves the systematic and periodic transmission of taxpayer’s information by one country to another,
concerning various categories of income
► The enhanced co-operation between tax authorities through AEOI is crucial in bringing national tax
administration in line with the globalised economy
► AEOI provides for the exchange of non-resident financial account information with the tax authorities in the
account holders’ country of residence
► Enables governments to recover tax revenue lost to non-compliant taxpayers
The new global standard on AEOI reduces the possibility for tax evasion
13. 13
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Foreign Account Tax Compliance Act (FATCA)
► FATCA was enacted in 2010 by the US government and effective from July 2014, with a view to combat tax
evasion by US citizens and residents, through the use of offshore accounts
► FATCA enables IRS to obtain information on offshore accounts and investments beneficially owned by US
taxpayers
► The Inter - Governmental Agreement (IGA) signed by the Government of India and the United States to
implement FATCA is yet another weapon in India’s war against tax evasion and black money
► Notices are being issued by Income tax Authorities in India on the basis of information received under FATCA
from US Authorities, for the income received by the taxpayers in their US bank accounts
► Exchange of information between investigating agencies/ wings of two countries resulting in audit queries
15. 15
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GEO model - Overview
Hong Kong
China
Belgium
PanamaUS
India
UK
Brazil
Japan
India
Spain
Germany
Italy
US
Mexico
Canada
GEO
Key features of GEO
► Legally employs employees
► Provides employment contract, assignment letter
► Pays salary and allowances and provides benefits
► Provides global mobility expertise and
administrative support
► Bills host company (receiving company entities)
► Keeps markup for its services as an employer
Goals of a GEO
To relocate employees:
► In a tax-effective and administratively efficient
environment
► While simultaneously providing employees with
incentives that promote global mobility
16. 16
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Model without GEO
This model shows a typical pattern of a multinational’s assignment country combinations and how
cross-border moves can develop with complex country combinations. Such structures are often
characterized by:
► De-centralized/ chaotic organizational design
► Haphazard filings
► Inability to meet changing business demands
► High risk/lacks proper checks and balances
► Long lead times to process paperwork
► Full of inconsistent treatment
Hong Kong
China
Belgium
PanamaUS
India
UK
Brazil
Japan
India
Spain
Germany
Italy
US
Mexico
Canada
17. 17
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Potential benefits in a GEO
Benefits Explanation
Control Centralised coordination and administration for increased control
Consistency Standardization of processes and procedures
Continuity of benefits
Assignees continue to be in home plans while overseas or centralized in GEO based
global benefits
Compensation
administration
Single point administration for payroll, social security and benefit programs interfacing
with the company’s global system
We just spoke about BEPS and the
introduction of “country by country
reporting requirements”
With the introduction of BEPS, Is
GEO still a lucrative proposition?
Conditions:
The dispatching company assumes the responsibilities and risks of the work performed by the dispatched personnel, wholly or partly.
In general, the dispatching company examines and evaluates the work performance of dispatched personnel.