What lies ahead - IFA-UK

Report
Sarah Fahy - Vice President , Sony Global Tax Office , Europe
Guy France – Senior Director, Sony Global Tax Office, Europe
Joy Svasti-Salee - Executive Director, Ernst and Young LLP
- Visiting Prof. Queen Mary University of London
26 January 2011
The principles of
international tax
Key
influencers
to-date
Issues faced
by MNE’s
today
Key
influencers
in the
future
What lies
ahead?

Separate entity approach

An entity is taxed based on its residence

Source countries may tax income and gains – PE threshold

Withholding tax may be deducted at source on passive
income

A parent company can only tax dividends from, and not
profits of, a subsidiary

Interest is deductible and dividends are not
1987
1990’s
1992
1995
2005
2010
• CFC rules regarded as acceptable / encouraged by OECD
• Thin capitalisation rules become commonplace
• LOB concept starts (NL/US DTT) + anti conduit rules
• Transfer pricing – OECD guidelines (major revision in 2010 )
• Focus on exchange of information (Art 26 updated)
• Update to MTC (including new Art 7)

“Individually powerful” countries, e.g.
 USA
 Japan

The OECD

Europe and the ECJ
OECD
Both
European
Australia
Austria
Poland
Bulgaria
Canada
Belgium
Portugal
Cyprus
Chile (2010)
Czech Republic
Slovakia
Estonia
Iceland
Denmark
Slovenia
Latvia
Israel (2010)
Finland
Spain
Lithuania
Japan
France
Sweden
Malta
Korea (1996)
Germany
United Kingdom
Romania
Mexico
Greece
New Zealand (1994)
Hungary
Norway
Ireland
Switzerland
Italy
Turkey
Luxembourg
United States
Netherlands

Listed
Incorporated

resident
Operating
globally
Powerful
countries




Complex
domestic
tax rules

OECD
members
Tax rules of parent
dictate the structure
Continuing strong global
powers:
Complex legislation
Anti-inversion rules
CFC rules and GAARs
Restrictions on interest
deductibility
But recognition of some
that they need to be
competitive ....

Delivering a more competitive system:
 Creating the right conditions for business investment and
growth
 Responding to business concerns over instability and
unpredictability
 Reversing the trend of business leaving the UK

Principles:





Lowering rates while maintaining the tax base
Maintaining stability
Being aligned with modern business practices
Avoiding complexity
Maintaining a level playing field for taxpayers

Cost
Speed
Globalisation
Technology

Centralisation of functions

Rapid growth in emerging markets

Increased tax transparency

Complex regulation and aggressive tax authorities

OECD
“outreach”

Low cost
of labour
Emerging
Markets
New Stock
Exchanges
People
getting
wealthier



Large populations
attract activity
Trading “in” or “with”
large markets
Increasing experience
of international
taxation
Pick and choose rules?
Tax a “toll” to do
business?

The new “individually powerful” countries





India
China
Brazil
Russia
Others ...

G20

Campaigners ......

More competition to be the country of the
parent?

A shift back to taxation at source?

CCCTB in (part of) Europe?

MNE’s recognised for their role as collectors of
taxes?

What should the global fundamental principles
of international tax law be?

Little cohesion?

MNE’s need to find new ways to engage with
Governments particularly in relation to:
 Transfer pricing
 The avoidance of double taxation

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