A Practical Guide to BEPS: Reviewing What the Leaders are Doing-Tavin Skoff, Veritas Technologies LLC

Practical Guide to BEPS
Tavin Skoff
Director, Tax Planning

Current Message
Dear CFO,
I’m going to spend large consulting and
technology fees to change your ERP system and
increase taxes. I look forward to discussing my
bonus next time we meet…..
Tavin

Presentation

BEPS (Base Erosion & Profit Shifting) Environment
Game changer: OECD
intent to increase
worldwide corporate taxes,
making entities pay what is
perceived as “fair”.
Globally coordinated
approach by countries that
increases regulatory
filings to provide countries
support for their position.

Path To Success in BEPS Environment
Lead and move first.
Determine and dictate how
much tax is “fair”, rather than
reacting to other’s standards.
This positively shapes
perception and frames the
discussion in an
advantageous manner where
tax authorities react to
Veritas.

Goals of Project
Design a well-thought out,
consistent, global narrative
and structure which provides
a framework for deciding how
much tax is “fair” and creates
a strong case tax authorities
will have to overcome.
Create an automated value
chain analysis global model
which can be updated in-
house as facts change.
Create a high level
implementation plan. Next
step will be country by country
implementation.

Appendix 1
Sample Deliverables

Sample World Heat Map of Revenue

Sample ETR Analysis

Sample Dashboard

Sample Risk Identification & Resolution

Sample Risk Identification and Resolution

Appendix 2
Strategy Decision Criteria

Global Narrative & Structure Decision Making Criteria
Copyright © 2015 Veritas Corporation
1 Certainty
2 Tax Position Optimization
3 Simplicity & Process and Administrative Efficiencies
15

One Ring to rule them all…..

Appendix 3
BEPS Actions

Current Law BEPS Goal

Standardization

Decision Makers

Flexibility Substance vs. Technically Correct

Action 1 – Addressing the Tax Challenges of the Digital
Economy
• Governments have to adapt and
change laws because of the digital
economy.
• Hard to source and value
• “Artificial” shifting of income
• Significant economic presence
(determined by facts and
circumstances )
• Withholding on digital transactions

Action 2 – Neutralizing the Effects of Hybrid Mismatch
Arrangements
• Gradual reduction of mismatches
• “Hybrid mismatches in aggressive tax
planning”
• Idea – Want to have tax somewhere.
Laws expected to be standardized,
esp. with anti-abuse clauses.
• Thoughts – Build strong support for
position or adjust.
• Will depend on exact wording of law
and facts.

Action 3 – Designing Effective Controlled Foreign Company
Rules
• Standardized laws of what is income
between parent and CFC country.
Definition of CFC.
• Use rules of parent country to calculate
CFC income?
• Standardization and minimized profit
shifting
• Thoughts – If every country applied the
same tax rates and laws, there would be
no issue! But because they don’t there
are areas.

Action 4 – Limiting Base Erosion Involving Interest Deductions
and Other Financial Payments
• Interest income in low tax jurisdictions
and interest expense in high tax
jurisdictions. Both 3rd party and
intercompany debt.
• Limit interest deductions to a
percentage of EBITDA. Potential
carryforward.
• Monitor and adjust – Move substance
and/or change transaction.

Action 5 – Countering Harmful Tax Practices More Effectively,
Taking into Account Transparency and Substance
• In order for a regime to be considered preferential, it must offer some form of
tax preference in comparison with the general principles of taxation in the
relevant country. A preference offered by a regime may take a wide range of
forms, including a reduction in the tax rate or tax base or preferential terms for
the payment or repayment of taxes. Even a small amount of preference is
sufficient for the regime to be considered preferential. The key point is that the
regime must be preferential in comparison with the general principles of
taxation in the relevant country.
• Get more transparency from preferential countries. European patent boxes.
• Ivory tower. Keep taxes high.
Copyright © 2015 VeritasCorporation27

Action 6 – Preventing the Granting of Treaty Benefits in
Inappropriate Circumstances
• Treaty shopping
• Make sure income is taxed once.
• Letterbox companies to become
resident of preferential treaty
• New treaty anti-abuse rules

Action 7 – Preventing the Artificial Avoidance of Permanent
Establishment Status
• Change PE definition to establish PE if there is
substance. Form v. Substance argument.
• Under current treaties where went to court,
taxpayer generally won.
• Commissionaire arrangements targeted. Many
companies going to buy/sell.
• Eliminate legal entities? Cost conversion.
• Really thought out and explicit changes
recommended.
• Example: Preparatory or auxiliary in nature
(stop fragmentation of supply chain)
Copyright © 2015 VeritasCorporation29

Actions 8-10 – Aligning Transfer Pricing Outcomes with Value
Creation
• Contractual allocations vs. substantive
functions, assets, and risks to determine
arm’s length
• Intangibles: development, maintenance,
enhancement, protection, and
exploitation. Not just legal ownership
alone
• Funding: risk, not just contractual
relationship alone
• Intergroup services (management fees,
AP, AR, HR): substance?

Action 11– Measuring and Monitoring BEPS
• Government Theory: Mismatches and
gaps in international tax rules
separate taxable profits from the
underlying value-creating activity.
• Governments to report and analyze
more corporate tax statistics and
present them in an internationally
consistent way. This will allow better
measurement and monitoring by
governments of BEPS effects.
• Example: MNE overall tax rate is
lower than average country rates.
• Takeaway: Ivory tower. They are trying
to monitor and eliminate BEPS. Govt.
expects domestic and international
businesses to have same ETR.

Action 12 – Mandatory Disclosure Rules
• Provides a modular framework that enables countries without mandatory
disclosure rules to design a regime that fits their need to obtain early
information on potentially aggressive or abusive tax planning schemes and
their users. Set up regime for mandatory disclosure and then sharing among
countries.
• Monitor – Disclose minimum legally required unless helpful to disclose more.

Action 13 – Transfer Pricing Documentation and Country-by-
Country Reporting
• Can either give you what you ask for or
give you what you need.
• Master File – Overview - Global
business operations, org chart and
transfer pricing policies, financial
statement, APAs, etc.
• Local File – Detailed transfer pricing
documentation
• Country-by-Country Report

BEPS Table 1- Overview of allocation of income, taxes, and business activities by tax juristiction
Number of
Employees
Tangible Assets other
than Cash and Cash
Equivalents
Unrelated Party Related Party Total
Tax Juristiction
Name of the MNEGroup:
Fiscal Year Concerned:
Currency Used:
Revenues Profit (Loss)
before
Income Tax
Income Tax
Paid (on Cash
Basis)
Income Tax
Accrued -
Current Year
Stated Capital Accumulated
Earnings

BEPSTable 2- Listof all the ConstituentEntitiesof the MNEgroupincludedineachaggregationpertaxjuristiction
Other
Fiscal YearConcerned:
Name of the MNEGroup:
Tax Juristictionof
Organizationor
Incorproationif
DifferentfromTax
Jurisdictionof
Residence
Tax Juristiction
ConstituentEntities
Residentinthe Tax
Jurisdiction
MainBusinessActivitiy(ies)
ProvisionofServicesto
UnrelatedParties
InternalGroupFinance
RegulatedFinancialServices
Insurance
HoldingSharesorOtherEquity
Instruments
Dormant
Administrative,Management,
orSupportServices
Sales,Marketing,or
Distribution
ManufacturingorProduction
PurchsingorProcurement
ResearchandDevelopment
HoldingorManaging
IntellectualProperty

CBC Table 3
• Please include any further brief
information or explanation you
consider necessary or that would
facilitate the understanding of the
compulsory information provided in the
Country-by-Country Report.
• Put your story in here and let them
know why Table 3 is relevant to the
discussion compared to Table 1 & 2
(unless they are).

Action 14 – Making Dispute Resolution Mechanisms More
Effective
• Timely and fair resolution of tax issues
using Competent Authority, peer-
reviewed and monitored by the
Committee on Fiscal Affairs to the G20.
• Mandatory binding arbitration
• Certainty, predictability, and
accessibility
• Average 24 month resolution
• Suggests bi-lateral APA programs

Action 15 – Developing a Multilateral Instrument to Modify
Bilateral Tax Treaties
• Governments have agreed to explore the feasibility of a multilateral instrument
that would have the same effect as a simultaneous renegotiation of thousands
of bilateral treaties.
• Efficiency
• Provides recommendations, guidelines, and comments on how to put together
a multilateral instrument.

Thank you!
Copyright © 2015 Symantec Corporation. All rights reserved. Veritas and the Veritas Logo are trademarks or registered trademarks of Symantec Corporation
or its affiliates in the U.S. and other countries. Other names may be trademarks of their respective owners.
This document is provided for informational purposes only and is not intended as advertising. All warranties relating to the information in this document, either
express or implied, are disclaimed to the maximum extent allowed by law. The information in this document is subject to change without notice.
Tavin Skoff
tavin.skoff@veritas.com
650-933-1849

A Practical Guide to BEPS: Reviewing What the Leaders are Doing-Tavin Skoff, Veritas Technologies LLC

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A Practical Guide to BEPS: Reviewing What the Leaders are Doing-Tavin Skoff, Veritas Technologies LLC