OECD launches Tax Inspectors Without Borders

10/05/2012 –  The OECD’s Task Force on Tax and Development, meeting in Cape Town, South Africa, has launched the concept of Tax Inspectors Without Borders/ Inspecteurs des impôts sans frontières – a new initiative to help developing countries bolster their domestic revenues by making their tax systems fairer and more effective. Building on that concept, the OECD will establish an independent foundation, to be up and running by the end of 2013, that will provide international auditing expertise and advice to help developing countries better address tax base erosion, including tax evasion and avoidance. The initiative was championed by Oupa Magashula, Commissioner General of the South Africa Revenue Service, Nhlanhla Nene, South Africa’s Deputy Finance Minister and Pascal Saint-Amans, Director the OECD’s Centre for Tax Policy and Administration.

The stakeholders from business, civil society, as well as OECD and developing country governments attending the Tax and Development Task Force unanimously welcomed the initiative which fills a gap in the existing provision of audit assistance. They agreed to work together to launch a sustainably financed independent organisation to host a Tax Inspectors Without Borders secretariat by the end of next year. This initiative complements several efforts by donor agencies, notably USAID, to mobilise expertise. Continue Reading

The average tax burden on earnings in OECD countries continues to rise

The average tax burden on earnings in OECD countries continues to rise

Published in OECD Tax News – 25/04/2012

25/04/012 – The average tax and social security burden on employment incomes increased in 26 out of 34 OECD countries in 2011 according to the new OECD Taxing Wages publication. Tax payers in Ireland, Luxembourg, Portugal and the Slovak Republic were among those hit with the largest increases. Those in New Zealand and the United States saw their tax burden fall. In Hungary, the average single worker without children was faced with the largest increase in the tax wedge, but for families with children, it fell.

In most countries the higher overall tax burden was due to personal income tax, rather than increased Social Security Contributions. Only 5 countries raised their statutory tax rates on average earnings. In most cases the rise in the tax burden was due to a higher proportion of earnings being subject to tax because the value of tax free allowances and tax credits fell relative to earnings. In a few countries including the Czech Republic, Hungary and Ireland they were actually reduced in nominal terms.

Taxing Wages provides nationally comparative details about the taxation of employment incomes and the associated costs to employers for different household types and at different earnings levels. These are the key factors in determining the incentives both for individuals to seek work and for businesses to hire workers. Continue Reading

Tax: OECD to Simplify Transfer Pricing Rules

According to an article published by OECD on 28.03.12, at a meeting at OECD’s first Global Forum on Transfer Pricing tax, officials from 90 countries agreed on the need to simplify transfer pricing rules, strengthen the guidelines on intangible issues and improve the efficiency of dispute resolution.

Transfer pricing rules determine how international transactions within a multinational company must be priced to ensure each country receives its fair share of tax. Based on the OECD and UN Model tax conventions, the rules are meant to eliminate double taxation and ensure better compliance by companies. These rules now need to be simplified and made more robust. This is particularly critical in the area of intangible assets, whose location may have a strong impact on tax revenues.
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USCIB Comments on OECD Intangibles Project

At the end of September, the taxation committee of the United States Council for International Business (USCIB) issued its comments on the scope of the OECD’s project on the transfer pricing aspects of intangibles. The OECD had released a scoping document for this project in January of this year. The USCIB comments largely focused on the definition of intangibles, as well as the distinction between intangibles and services.

The USCIB paper (the “paper”) distinguishes between owned and controlled intangible property. The former includes any asset “in which a person can hold a legally cognizable (and protectable) right”, such as patents or copyrights. Controlled intangible assets may not be eligible for the same type of legal protection, even though such protection is afforded anyway in most countries, and include such items as supply contracts and customer lists. When intangible asset ownership is transferred among related parties, either fully or partially (e.g., through a license), transfer pricing rules should be applied in order to determine arm’s length compensation.

The USCIB contrasts these definitions with certain “business attributes or notions” which may cause the value of a business, or line of business, to exceed (or trail) that of its component parts (tangible and intangible). This residual value can be characterized as goodwill or going concern value, and may be due to workforce in place, existence of a global network, synergies, or other factors that cannot be easily or meaningfully separated from the business as a whole, or attributed to identifiable intangible assets. The USCIB argues that such attributes cannot be transferred, between either related or unrelated parties, and are therefore not subject to transfer pricing rules.

A related discussion pertains to the possible general definition of an intangible asset as “something of value”. The paper notes that such a definition could fit a situation where business risk is transferred from one related party to another (e.g., a full-service distributor is converted to limited risk). The party bearing the additional risk might then reasonably expect to realize higher average profits, so that the assumed risk may be seen as providing a certain value. However, the paper argues that this would not constitute a transfer of an intangible, and should not be compensated as such, since the expected increase in profitability is due to the assumption and skillful management of the risk, as opposed to any specific property transferred between the two entities. (Of course, should one party assume risk from another by providing insurance protection, it would be due compensation for that protection. However, this would not be a transfer of an intangible.)

Finally, the USCIB paper downplays the need to distinguish between the transfer of intangibles and the provision of services. A provider of high-value services can make use of intangibles, and this may impact the market value of the services, but it does not necessarily mean that any ownership in those intangible assets is being transferred. For that to happen, the recipient would have to receive rights to exploit valuable assets that it does not own for a defined period of time.

The USCIB comments touch on important definitional and conceptual issues with respect to intangible assets and their transfer pricing treatment. Practitioners, taxpayers, and tax authorities will be following the progress of the OECD project with great interest.

Source: Ceteris Transfer Pricing Times Volume VIII, Issue 10

OECD Launches New Report on Measuring Well-Being

Do you like your job? How’s your health? Are you spending enough time each day with your children? When you need them, are your friends there for you? Can you trust your neighbours? And how satisfied are you, overall, with your life?

A new OECD publication, How’s Life? , looks at these questions and others, offering a comprehensive picture of what makes up people’s lives in 40 countries worldwide. The report assesses 11 specific aspects of life – ranging from income, jobs and housing to health, education and the environment – as part of the OECD’s ongoing effort to devise new measures for assessing well-being that go beyond Gross Domestic Product. Continue Reading

Qatar Tax Policy

As part of a delegation of the Bar Council, I just returned from Qatar and was very pleased with the visit. We saw an energetic and enthusiastic country with a great vision. After doing my research and visiting the country, it is clear to me that Qatar has done the homework to become a recognized international player.

Qatar has a wide network of double taxation conventions with 40 jurisdictions, including many OECD and G20 countries as well as important regional partners. These DTCs generally include the old wording of article 26 of the OECD Model Tax Convention. Qatar’s DTCs with France, UK and Singapore contain the current version of article 26. These agreements apply equally to Qatar generally as well as to the QFC.

Qatar is focusing on further developing businesses and investments that will allow the country to continue being competitive beyond their current dependency on fossil energies. The Qatar Vision 2030 outlines clear steps to that end, which are clearly being executed. The 2022 world cup was not in the agenda some years ago, but will definitively help the country to achieve its goals.

In the tax arena Qatar is moving in the right direction as supported by the Law No. (21) of 2009, creating a corporation tax rate of 10% for all companies. According to the OECD report on Qatar

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European Commission vs Spain.- Transfer Tax on real estate companies

The European Commission has been very active during the last years regarding Spanish Tax position when a non resident element is involved. Our posting today deals with a matter involving transfer tax and stamp duty in the context of M&A.

During the last decades, individuals acquiring Spanish property owned by a Spanish Company (SL)  have been forced to create a double company structure to own the shares of the Spanish company.

In many cases the two shareholders were based offshore and increased substantially the costs of owning property in Spain. The reason was that this acquisition will save the application of a real estate transfer tax which was extended to the disposal of shares.

Spain has been applying for many years a transfer tax charge of 6-7% for the disposal of shares of companies owning real estate assets in Spain. Interestingly enough, the application of this tax was not included in the Transfer Tax Act but in Law 24/1988 on the securities market.

Article 108 of Spain’s Law 24/1988 on the securities market establishes that a 6-7 percent transfer tax  (7 percent in most autonomous regions) applies to the transfer of securities of a company whose real estate assets in Spain represent more than 50 percent of its total assets, or whose assets include securities in another entity whose real estate assets in Spain represent at least 50 percent of its total assets, if the acquirer gains control of the real estate entity as a result of the transfer.

The European Commission has asked Spain to modify its transfer tax provisions relating to the acquisition of securities in real estate companies, arguing that the provisions are not consistent with article 5 of Council Directive 2008/7/EC concerning indirect taxes on the raising of capital.
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Gibraltar Road Toll and good neighborhood with La Linea

Does La Linea’s mayor care about good neighborhood with Gibraltar?

It is a shame that some Spaniards tackle a XXI Century issue with XIV Century measures. See The Guardian article on the most ridiculous initiative from a local mayor we have seen in decades, the establishment of an international border road toll between Gibraltar and La Linea.

This issue is not an isolated one and unfortunately there are still some Spaniards not recognizing the sovereign rights of Gibraltar as determined by its people and the United Kingdom. The Spanish Socialist government has been advocating for dialogue with Gibraltar and the UK, however talks these days seem to be lost in translation.

Why is the Spanish Government so reticent to conclude a treaty with Gibraltar? why is Gibraltar not removed from the Spanish taxhaven blacklist?

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