Amicorp’s Enhanced Corporate Services offering can assist your business in today’s Base Erosion Profit Shifting environment
The tax developments of the past ten years such as BEPS, or Base Erosion and Profit Shifting, have altered the way in which tax planning is being implemented worldwide. More economic substance and value added services are required in the onshore, mid-shore and offshore entities in order to address these developments
Among the tax developments over the last few years we have:
- The referenced BEPS initiative;
- EU Anti-Tax Avoidance Directive;
- Place of Effective Management or “POEM”;
- Foreign Account Tax Compliance Act or “FATCA”; and
- Common Reporting Standard, or “CRS”.
Why BEPS is important to you?
BEPS and other anti-tax avoidance measures are already a reality being incorporated in different legislations across the world. They are accelerating the global trend toward greater tax and financial transparency. The OECD/G20 BEPS refers to tax planning strategies that exploit gaps, mismatches and loopholes in tax rules and tax treaties in order to make profits “disappear” for tax purposes or to shift profits to locations where there is little or no real activity but where the taxes are low, resulting in little or no overall corporate tax being paid.
The BEPS initiative identifies 15 actions focused on:
- Establishing coherence in international taxation;
- Aligning taxing rights with substance; and
- Improving transparency.
BEPS is the result of struggling economies driving to obtain more income from their tax base, stronger global focus and public opinion pressure for promoting transparency and the overall movement towards automatic exchange of information on ultimate beneficial owners (FATCA, CRS, AEOI, etc.). In this sense, BEPS aims to deliver tools for governments to close the gaps in existing international rules that allow corporate profits to “disappear” or be artificially shifted to low or no tax jurisdictions, where companies have little or no economic activity.
In essence, the BEPS project attempts to align taxation with activity. Companies should be taxed in the country or countries in which the activities take place. Holding, royalty and finance structures which lack economic substance and are set up for treaty shopping purposes would be impacted by the recommended introduction of Limitation on Benefits provision (LOB) and/or the Principle Purpose Test in tax treaties and denied such benefits. Hybrid mismatch arrangements and thinly capitalized entities will be questioned.
Transfer pricing structures and the allocation of taxable profits needs to be aligned with economic activities and value creation in the respective countries. Aggressive structures have to be disclosed and transfer pricing transactions needs to be properly documented and filed to give tax authorities more information. Already over 90 countries and jurisdictions are members of the new inclusive framework on BEPS, and have committed to implement or participate in the BEPS package.
EU Anti-Tax Avoidance Directive (ATAD)
In June 2016, the EU Council reached political agreement on the Anti-Tax Avoidance Directive (ATAD). The ATAD will be formally adopted in a forthcoming EU Council meeting. The main goal of the ATAD is to ensure a coordinated and coherent implementation at the EU level of some of the OECD’s recommendations regarding BEPS and to add certain anti-tax avoidance measures which are not part of the BEPS project. Among the measures are new rules on controlled foreign companies (CFCs) with the objective of tackling the practices whereby multinationals shift profits from a high-tax country to a low-tax jurisdiction in order to avoid tax. A new exit tax will be levied on companies moving assets such as intellectual property or patents from one tax jurisdiction to another, as well as an interest limitation provision will be introduced (already implemented in Spain). Most elements of the directive will have to be transposed into national law by the Member States by the end of 2018.
Place of Effective Management (POEM) rules
The OECD recognizes the concept of POEM for determination of a company. Company triggering residency under a particular income-tax law may tie break treaty residency in one jurisdiction, which is linked to POEM. In this sense, companies which have a headquarters in one jurisdiction A and have outbound operations should understand the concept of POEM to assess if they would qualify as a tax resident of that jurisdiction A. Health checks of various foreign companies (whether operating or set up for strategic holding purposes) should be conducted.
What are the points to take into consideration for a POEM analysis (and the subsequent service response)? For example:
- Whether the charter document of the company in jurisdiction A gives veto power to a parent company in jurisdiction B;
- Whether board of directors of a company in jurisdiction A merely approves (i.e. in form) the decisions taken by the parent company in jurisdiction B;
- Whether secretarial, administrative and accounting work, including operation of the bank account in jurisdiction A is carried out from jurisdiction B;
- What is the employee strength and constitution of board of foreign companies, and do they have the competence to exercise independent decisions?
Amicorp’s Enhanced Corporate Services
Amicorp, through its various offices, not only provides corporate directors, but also individual directors, executives and employees specialized in the specific market segment of the structure (e.g. consulting, holding, trading); administration of entities; accounting; F&A; corporate legal services; corporate governance; etc., and other enhanced added value services that are functional to the required economic substance.
Efficient structuring is key for every client and it has become more complex to balance operational economic requirements with a sound tax plan following the above described new tax framework. It is then essential to remain compliant while ensuring efficiency across different operations. In this regard, Amicorp has created a strategy to:
- Create awareness;
- Perform Health Checks;
- Implement improvements;
- Offer Alternative Solutions; and
- Continuous Monitoring.
Create awareness: What is the level of awareness that you as a client have in terms of the implications of the OECD BEPS Action Plan among companies at the tax function, management and board levels? What steps are you taking in order to address BEPS risk and position your tax functions for success in the years to come? Perform Health Checks: It is necessary to review your existing tax transactions and structures in order to identify potential weakness, and take measures to rectify these areas.
Implement improvements: Depending on each client’s specific circumstances, improvements may include movement of functions, assets and personnel within a client’s group / structure; development of legal, tax and transfer pricing documentation as support and working internal guidelines to mitigate tax risks.
Alternative Solutions: You must engage in BEPS and other anti-tax avoidance measures related consultations to ensure your practical business issues are raised and considered. Effective and alternative solutions can only be forged through broad consultation with tax professionals.
Continuous monitoring: Requires a comprehensive resource to monitor BEPS related developments, including country updates on proposed and enacted tax law changes. Furthermore, a benchmarking analysis to help assess the activities of other companies in their peer group industry.
In order to improve the required economic substance, Amicorp offers a menu of items from which you can select and choose the tailor-made enhanced service offerings vis-à-vis your needs such as:
- Providing different types of directorship for client entities (e.g. corporate directors, personal directors) based on profile, experience in the specific market segment (in order to align the required added value and economic substance with the holding, finance, royalty, trading, or consulting business of the structure);
- Domiciliation services, including provision of registered address, temporary or permanent leasing of offices or provision of furnished office space and other support services;
- Enhancing added value by bookkeeping; opening a bank account in the country of incorporation of the fiduciary entity, etc.;
- Corporate legal services and governance, etc.;
- Tax compliance services, including CIT and VAT registration and filing services, in conjunction with the company’s tax advisors; and
- Payroll and HR services, including assistance with hiring staff.
How to structure these services in different levels, per activity?
These services can be tailored to the needs of the clients and can also be adapted to the legislation of each country (e.g. Netherlands, Spain, etc.). For Holding companies the focus is to ensure that the most important board decisions are made in the country of incorporation. For consulting and trading companies the focus is to have adequate human and material resources to manage its participations and to ensure that the consultancy service has actually been rendered. The trading company must have a sufficient workforce to perform the trading and other related activities (e.g. trade finance, shipping documents, collection, etc.).
The anti-tax avoidance initiatives like BEPS, POEM and ATAD have already altered the international tax landscape dramatically and tax planning structures that companies have widely employed may no longer be viable. Many countries international tax regimes will be extensively modified as a result of BEPS, POEM and ATAD. Correspondingly, a proactive approach is needed to stay on top of these changes.
For more information on how we can assist you, visit our website www.amicorp.com or contact our dedicated team directly.