Global

Details

  • Service: Tax
  • Type: Business and industry issue
  • Date: 9/18/2013

September 2013 

Welcome to the September 2013 edition of our quarterly Global Tax Disputes Update, bringing you the latest news in tax controversy around the world.

With tax audit and dispute activity rising in almost every country, keeping up with trends and developments is more important than ever. In this edition, you’ll find briefings on key news, events and thought leadership submitted by Global Tax Dispute Resolution & Controversy professionals in KPMG member firms worldwide. Staying informed can be a crucial first line of defense as you manage your disputes around the globe.

 

Make sure to view our past issues of the Global Tax Disputes Update.





United Kingdom – How does the new UK GAAR compare?


In the midst of the United Kingdom’s heated debate on tax morality and transparency, a new general anti-abuse rule (GAAR) was enacted on 17 July 2013. Such rules have become increasingly common in other countries. While they are broadly similar, there are significant differences in how they are applied in practice.


In this feature interview, KPMG in the UK’s Head of Tax Policy, Chris Morgan offers up his views on the UK’s newly enacted general anti-abuse rule and what taxpayers can expect as it takes hold.


Read the article.


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India – New GAAR to take effect in 2015


India has introduced General Anti Avoidance Rules (GAAR) with effect from April 1, 2015. Under GAAR, an arrangement entered into by a taxpayer could be declared to be an “impermissible avoidance arrangement” and taxed as prescribed under the Indian domestic tax law. An arrangement could be treated as an “impermissible avoidance arrangement” only if its main purpose is to obtain a tax benefit.


It is important for foreign companies to take note of these provisions and evaluate their investment structures and other commercial transactions. The Indian government intends to issue guidelines that would clarify some critical issues and offer details on related procedural matters.


Further Information:

Vikas Vasal


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Canada – 25 Years of GAAR


Taxpayers and tax practitioners in Canada have now been dealing with the application of the GAAR for 25 years. Arguably, some certainty has developed in some specific areas of tax planning. However, the potential application of the GAAR remains an issue warranting consideration in many situations. The Canada Revenue Agency (CRA) continues to challenge “aggressive tax planning,” described by CRA as follows:


Aggressive tax planning arrangements often have some legal basis in a very technical sense, but they go beyond what Parliament intended when the law was passed. In general, aggressive tax planning arrangements are made for the primary purpose of avoiding the payment of the required taxes, and thus could be in violation of the law.


The CRA recently released some statistics on its application of the GAAR. Since GAAR’s inception, the CRA GAAR Committee has reviewed 1,125 files and recommended GAAR’s application in 865 of them (77%). Although this may seem high, many potential GAAR cases do not make it to the CRA GAAR Committee, as taxpayer’s submissions may be accepted at the audit stage so that GAAR issues are dropped. Accordingly, only the most complex files are presented to the CRA GAAR Committee.


Again, over this timeframe, 52 GAAR cases have been litigated. Both the Crown and the taxpayer have each had their cases upheld 26 times.


This 50:50 split is a fair reflection of the state of the GAAR in Canada. The GAAR can be effective to the Crown for certain cases, and taxpayers must remain vigilant to its potential application. GAAR certainty can be achieved by obtaining a positive ruling from the CRA. But in the absence of such certainty, CRA officials will certainly consider the GAAR when challenging perceived aggressive tax plans.


Further Information:

Paul Lynch


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France – Tax authorities toughen their approach


In 2012, the French Tax Authorities’ (FTA) audits of companies taxable in France permitted them to collect more than 9 billion euros (EUR) in additional tax assessments and EUR 3.2 billion in penalties – a 14% increase over 2011. As additional amounts raised on audit were relative stability in the past, this increase undeniably results from a change in the FTA’s attitude toward tax audits and from the new powers conferred on them by the latest tax reforms.


Indeed, the FTA has repeatedly affirmed its wish to improve the efficiency of tax audits, and it has taken the following measures:


  • creation of specialized teams for tax audits of international groups
  • Introduction of new electronic filing requirements for general accounts
  • more systematic application of penalties for deliberate tax compliance failures
  • pursuit of court litigation on particular issues, including the tax positions of holding companies, the R&D tax credit, hybrid instruments/structures, business restructurings and transfer pricing
  • greater use of information exchanges with foreign tax authorities based on tax treaties or European Union Directives
  • conduct of “dawn raids” on taxpayers’ premises in cases of presumption of fraud.

At the same time, the French government continues to increase the FTA’s powers and facilitate its investigations.


As a result of all these new measures, French companies are finding it ever more difficult to deal with tax audits. While the fight against tax fraud is a legitimate goal, the FTA seems to have forgotten that it only concerns a minority of taxpayers.


Further Information:

Audrey-Laure Illouz


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United Kingdom – House of Lords report on corporate taxation


The House of Lords Select Committee on Economic Affairs has been leading an inquiry into corporate taxation in the United Kingdom. The committee’s report, release 31 July 2013, highlights the committee’s view that the UK faces a serious problem of avoidance of corporation tax.


In part, the problems arise from the complexity of the UK’s tax regime. Additionally, the international tax system gives multinational companies opportunities to shift profits between countries in ways that reduce their liabilities in the UK. This damages the economy and undermines trust in the tax system.


The UK and the G8 support the Organisation for Economic Cooperation and Development’s (OECD) Action Plan to tackle base erosion, published on 19 July 2013. It sets out a two-year program to address the most egregious forms of tax avoidance. But it is not yet clear how effective the proposed solutions will be or whether they can be achieved within the timescale.


Read the article (PDF 1.53 MB).


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United States – Tax Court’s jurisdiction to review IRS’s cancellation of APAs


In Eaton Corp. v Comm., the US Tax Court concluded that it has jurisdiction to review the cancellation of an advance pricing agreement (APA) by the IRS.


Read the article.


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Australia – New ATO task force targeting low-tax jurisdiction structures


The Australian Taxation Office (ATO) has set up a new task force to investigate the corporate tax practices of large Australian companies. The unit will work with international revenue authorities to establish the purpose of Australian businesses in low-tax jurisdictions. It will also investigate whether companies operating in Australia are deliberately avoiding Australian tax by locating profit centers overseas. The unit began work on 1 July 2013.


Commissioner of Taxation Chris Jordan described the taskforce as a ''small but high-level and experienced unit''. He added, “These are highly aggressive structures people are putting in place. The Tax Office has responded to community concerns by forming a special unit headed up by one of the most senior leaders in the Tax Office” [Deputy Commissioner Mark Konza].


Further Information:

Jeremy Geale


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France – Potential changes for transfer pricing audits and abuse of law


On 26 June 2013, the President of the Finance Committee of the Senate (Mr. Philippe Marini) publicly commented on the tax audits of multinational companies.


In the first half of 2013, Mr. Marini reviewed the tax audit files of several multinational groups operating in various economic sectors – industrial companies or services suppliers, in particular in the Internet field. The review studied the tax schemes applied by the enterprises in order to reduce their level of taxation in France, as well as the difficulties faced by the tax authorities in the course of their tax examinations.


In order to maintain the public finance and restore an undistorted competition under the principle of “comparable activity, equal taxation” Mr. Marini has concluded that it was necessary to end abusive practices. The investigations disclosed the existence of “loopholes” in the main anti-abuse mechanisms available at the tax authorities’ level – those relating to the transfer pricing and abuse of law. The globalization of the large enterprises has reduced the efficiency of these mechanisms.


For this reason, Mr. Marini has drafted a law aimed at strengthening the fight against tax evasion and fraud by large multinational enterprises. This law intends:


  • to specify that a transfer of functions and risks outside France is considered to be an abnormal transfer of benefit abroad unless the relevant entity can prove otherwise (i.e., the burden of proof now lies with the taxpayer)
  • to strengthen the abuse of law procedure by extending its scope to the cases where the transactions or structures in question would be “essentially” tax-driven (no longer “exclusively”).

Further Information:

Audrey-Laure Illouz


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Puerto Rico – New tax amnesty program covers more than income taxes


Puerto Rico recently implemented a tax amnesty program to allow taxpayers to become current with respect to their tax debts. Unlike past amnesty programs, the current program covers more than income taxes.


Read the article.


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Brazil – Supreme Court decision on controlled foreign company rules


The Brazilian Supreme Court has completed the trial regarding the Provisional Measure No. 2158/2001 (Brazilian CFC Rules) and has confirmed the unconstitutionality of article 74 of Provisional Measure n. 2158/2001 for Brazilian affiliated companies domiciled in countries not defined as low-tax jurisdictions. The ruling has retroactive effect for profits before 2002.


Further Information:

Marcos Matsunaga

 

 

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