INSZoom Immigration Conference 2016 - Recent Trends in Global Taxation
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This document discusses the impact of recent global tax trends on multinational corporations and their employees. It covers topics like Base Erosion and Profit Sharing (BEPS), the increased risk of permanent establishment, and greater exchange of information between countries. BEPS aims to prevent profit shifting to low tax jurisdictions. It recommends tighter rules around permanent establishment and country-by-country reporting of financial data. This poses challenges for corporate structures and operating models. Global Employment Organizations are discussed as a way to centrally manage international assignments in a tax efficient manner, though their viability is questioned in light of BEPS country-by-country reporting requirements.
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INSZoom Immigration Conference 2016 - Recent Trends in Global Taxation
- 1. 1 Premium sponsor Gold sponsor Exhibitors 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)
- 2. 2 Premium sponsor Gold sponsor Exhibitors Contents ► Base Erosion and Profit Sharing (BEPS) ► Risk of Permanent Establishment (PE) ► Increase in Exchange of Information – Cross Border ► Global Employment Organizations (GEO)
- 3. 3 Premium sponsor Gold sponsor Exhibitors Base Erosion and Profit Sharing (BEPS)
- 4. 4 Premium sponsor Gold sponsor Exhibitors BEPS: Background and the new reality
- 5. 5 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors 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
- 7. 7 Premium sponsor Gold sponsor Exhibitors Risk of Permanent Establishment (PE)
- 8. 8 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors ► 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 Premium sponsor Gold sponsor Exhibitors 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
- 11. 11 Premium sponsor Gold sponsor Exhibitors Increase in exchange of Information – Cross Border
- 12. 12 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors 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 Premium sponsor Gold sponsor Exhibitors 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?
Editor's Notes
- 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.