PowerPoint Presentation

Session Global Taxation Recent trends and the impact on employees and corporates

Lead Speakers Surabhi Marwah and Shuddhasattwa Ghosh

Panelists - John Stephen Rao (Sapient), Pankaj Bhatia (Honeywell) and Hema Venkatrama (CSC)

#Premium sponsorGold sponsorExhibitorsContents Base Erosion and Profit Sharing (BEPS)

Risk of Permanent Establishment (PE)

Increase in Exchange of Information Cross Border

Global Employment Organizations (GEO)

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Base Erosion and Profit Sharing (BEPS)

#Premium sponsorGold sponsorExhibitorsBEPS: Background and the new reality

#Premium sponsorGold sponsorExhibitorsCritical People RisksLower permanent establishment (PE) thresholdsTightening of the definition of the activities that could create a PE and the limitation of the scope of preparatory or auxiliary which lists instances where a PE would not be created

Country by country reporting requirements (CbCR)Detailed country reporting requirements have been recommended with the purpose of giving tax authorities a view of a multinational company's entire global footprint. This also includes data on the number of employees in each country Documentation and substance considerationsIn addition to the new country-by-country report, the recommendations include new documentation requirements with respect to inter-company transactions in the form of a master and local file

OrganizationPolicyProcessPerformanceMeasurementDataPeopleTechnologyBEPS and HR

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Critical People RisksCorporate structure and operating modelsBEPS will challenge the sustainability of many operating models and structures. As a consequence there may be a broader business case to transform operating models to better align business and operational concerns with tax and legal consideration.

Transfer pricing considerationsInstituting the appropriate cross-charging methodology and ensuring that entities are adequately compensated for the value created by each entity will be crucial. In addition to the cross-charge of employees' compensation, appropriate allocation for deemed transfer of intellectual property (IP) that may be seen as being transferred on secondment of employees will also be required. This will add complexity to the process of cross-charging employees' compensation for secondments. Training

Data

Controls

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Risk of Permanent Establishment (PE)

#Premium sponsorGold sponsorExhibitorsWhy secondment poses a risk?With increasing scrutiny from tax and immigration authorities around the world, moving employees across borders has the potential to create risk for employers like never before.

Factors that influence permanent establishment riskWhat are the travellers doing?How long is the travel?Who is the employer/beneficiary of the work performed?What is the corporate structure?What level is the person who is travelling?Where is the person going?It is important to ascertain the employer while structuring a secondment assignment to analyze PE risk.Risk of Permanent Establishment (PE)

#Premium sponsorGold sponsorExhibitors The global economic crisis

Increased sensitivity about protecting domestic labor markets Governments want to increase revenue From employers: unforeseen triggering of a permanent establishment From individuals: may be obliged to file/ remit taxes in multiple jurisdictions

Business travelers present an untapped source of revenueWhy are authorities increasingly focusing on business travelers?Why the focus now? Advanced border technology Immigration and tax authorities are sharing information Countries are sharing information to scrutinizeimmigration status Authorities are using more sophisticated tracking and reporting systems to collect the information By conducting analysis authorities are linkingcorporate deduction to individual filings Government organizations have access to better information Data can be shared more readily from travel providers, expense reporting, and inter- organization departments Costly remediationWhat has changed and how do authorities goabout identifying business travelers?

#Premium sponsorGold sponsorExhibitorsGlobal TrendsCountries are redefining permanent establishment rules

Alongside personal tax compliance triggers, we are seeing countries issuing complex and fast-moving changes to the rules defining what constitutes a permanent establishment

Australia, Canada and China are all examples of countries who have recently redefined PE in ways that can be triggered by the existence of short term business visitorsRisk of Permanent Establishment (PE)

The BEPS recommendations provide for tightening of definition of the activities which could create a PE

#Premium sponsorGold sponsorExhibitorsConditions:The dispatching company assumes the responsibilities and risks of the work performed by the dispatched personnel, wholly or partly.In general, the dispatching company examines and evaluates the work performance of dispatched personnel.10

Increase in exchange of Information Cross Border

#Premium sponsorGold sponsorExhibitorsAutomatic Exchange of Information (AEOI)

As the world becomes increasingly globalised and cross-border activities become the norm, tax administrations need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction

AEOI involves the systematic and periodic transmission of taxpayers information by one country to another, concerning various categories of income

The enhanced co-operation between tax authorities through AEOI is crucial in bringing national tax administration in line with the globalised economy

AEOI provides for the exchange of non-resident financial account information with the tax authorities in the account holders country of residence

Enables governments to recover tax revenue lost to non-compliant taxpayers

The new global standard on AEOI reduces the possibility for tax evasion

#Premium sponsorGold sponsorExhibitorsForeign Account Tax Compliance Act (FATCA)

FATCA was enacted in 2010 by the US government and effective from July 2014, with a view to combat tax evasion by US citizens and residents, through the use of offshore accounts

FATCA enables IRS to obtain information on offshore accounts and investments beneficially owned by US taxpayers

The Inter - Governmental Agreement (IGA) signed by the Government of India and the United States to implement FATCA is yet another weapon in Indias war against tax evasion and black money

Notices are being issued by Income tax Authorities in India on the basis of information received under FATCA from US Authorities, for the income received by the taxpayers in their US bank accounts

Exchange of information between investigating agencies/ wings of two countries resulting in audit queries

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Global Employment Organisations (GEO)

#Premium sponsorGold sponsorExhibitorsGEO model - Overview

Hong KongChinaBelgiumPanamaUSIndiaUKBrazilJapanIndiaSpainGermanyItalyUSMexicoCanadaGEOKey features of GEOLegally employs employees Provides employment contract, assignment letterPays salary and allowances and provides benefitsProvides global mobility expertise and administrative supportBills host company (receiving company entities)Keeps markup for its services as an employer

Goals of a GEOTo relocate employees:In a tax-effective and administratively efficient environmentWhile simultaneously providing employees with incentives that promote global mobility

#Premium sponsorGold sponsorExhibitorsModel without GEOThis model shows a typical pattern of a multinationals assignment country combinations and how cross-border moves can develop with complex country combinations. Such structures are often characterized by:De-centralized/ chaotic organizational designHaphazard filingsInability to meet changing business demandsHigh risk/lacks proper checks and balancesLong lead times to process paperworkFull of inconsistent treatment

Hong KongChinaBelgiumPanamaUSIndiaUKBrazilJapanIndiaSpainGermanyItalyUSMexicoCanada

#Premium sponsorGold sponsorExhibitorsPotential benefits in a GEOBenefitsExplanationControlCentralised coordination and administration for increased controlConsistency Standardization of processes and proceduresContinuity of benefitsAssignees continue to be in home plans while overseas or centralized in GEO based global benefitsCompensation administrationSingle point administration for payroll, social security and benefit programs interfacing with the companys global system

We just spoke about BEPS and the introduction of country by country reporting requirementsWith the introduction of BEPS, Is GEO still a lucrative proposition?

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