2014 B d t S i

www.pwc.com/sg

2014 Budget Seminar

Plenary Session –Plenary Session –International Tax DevelopmentsDevelopments

Andy BaikChai Sui FunPwC Singapore

AgendaAgenda

1 Latest developments – OECD Base Erosion & Profit Shifting Project1. Latest developments OECD Base Erosion & Profit Shifting Project

2. Emerging trends 1 – Transparency and Information Sharing

3. Emerging trends 2 – Substance

4. Emerging trends 3 – Tax Risk Management at the Board Level

5. Emerging trends 4 – US perspectives: Turning tides?

6 A & ll l6. Announcements & Poll Results

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Polling questions & Live questionsPolling questions & Live questions

POLL QUESTIONS

Please take 2 minutes to poll your responses in through your mobile devices.

POLL QUESTIONS

• Has your organisation already started taking (precautionary) steps in reaction to some of the OECD BEPS action plan?

• Have you / your group already experienced BEPS- related reactions (for e.g. as part of field tax audits or dispute resolution platforms)?

• Which are the top 3 countries in Asia for which you experience these issues? Which are the top 3 countries in Asia for which you experience these issues?

LIVE QUESTIONS

Pl i i “li ” i i h “I i l T • Please continue to stream in your “live” questions into the “International Tax Developments” Pigeonhole application for the Q&A.

• Please try to provide your questions within the first 5-8 mins of the session so we can incorporate some of your questions (where relevant) into the Panel Discussion.

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ca co po ate so e o you quest o s ( e e e e a t) to t e a e scuss o .

*Note: We will not be able to address all questions, but will attempt to answer those which are most relevant to the session.

Latest developmentsLatest developments

i fi hif i ( )OECD Base Erosion & Profit Shifting (BEPS) project

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OECD BEPS action planOECD BEPS action planAction plan framework

The digital economy

The spread of the digital economy has raised new questions for international taxation In particular there are fundamental questions as to how concepts taxation. In particular there are fundamental questions as to how concepts of source and residence taxation and the characterisation of income applies to enterprises in the digital economy.

Coherence – Combating structural tax planning

Globalisation means that national economies are more interconnected than ever before. There is currently international consensus on existing rules which cover double taxation but not for those that prevent double non-taxation (e.g., CFCs, hybrid instruments).

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OECD BEPS action planOECD BEPS action planAction plan framework

Substance – Permanent Establishments and Transfer Pricing

Substance is an important theme for the OECD. There is a greater focus on the substance of the arrangements and counteracting those without substance. This includes areas such as treaty abuse, permanent

t bli h t (“PE”) t t d t f i i lestablishment (“PE”) status and transfer pricing rules.

Transparency – Information sharing

Enabling governments to collect more information on the tax affairs of Enabling governments to collect more information on the tax affairs of multinational corporations. This includes the disclosure of tax avoidance schemes, transfer pricing documentation and improved government co-operation where required.

A multilateral instrument

Finding a way of implementing the changes from BEPS without having to go th h th t t b t t t hi h ld b ti i

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through the treaty-by-treaty route which could be very time consuming.

OECD BEPS action plan – Calendar for 2014OECD BEPS action plan Calendar for 2014Document/ Event

Name Date of Publication

Deadline for Comments

BEPS Action Plan Item

W b t BEPS A ti Pl U d t J ’

(as of 20 Feb 2014)

Webcast BEPS Action Plan: Update on 2014 Deliverables

23 Jan ’14

Discussion Draft

Transfer Pricing Documentation and Template for Country-by-Country Reporting

30 Jan ’14 23 Feb ’14 13 – Re-examine Transfer Pricing Documentation

Request for Input

Data/ Effective Tax Rate Methodology

Mar ‘14 (TBC)

30 days after publication

11 – Establish Methodologies to Collect and Analyse Data on BEPS and the actions to address it

Discussion Draft

Tax Treaty Abuse 17 Mar ‘14 (TBC)

11 Apr ’14 6 – Prevent Treaty Abuse

Tax Challenges of the Digital 24 Mar ’14 14 Apr ’14 1 – Address the Tax Challenges of the Digital Tax Challenges of the Digital Economy

24 Mar 14 14 Apr 14 1 Address the Tax Challenges of the Digital Economy

Hybrid Mismatch Arrangements 4 Apr ’14 4 May ’14 2 – Neutralise the Effects of Hybrid Mismatch Arrangements

Public Consultation

Tax Treaty Abuse 14 – 15 Apr ’14

N/A 6 – Prevent Treaty AbuseConsultation 14

Tax Challenges of the Digital Economy

23 Apr ’14 N/A 1 – Address the Tax Challenges of the Digital Economy

Hybrid Mismatch Arrangements 15 – 16 May ’14

N/A 2 – Neutralise the Effects of Hybrid Mismatch Arrangements

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Country-by-country Reporting and Transfer Pricing

19 May ’14 N/A 13 – Re-examine Transfer Pricing Documentation

Emerging trends - 1Emerging trends 1

d f i h iTransparency and Information Sharing

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Unprecedented focus on tax transparencyUnprecedented focus on tax transparencyRapid expansion of tax transparency requirements

• 2008 – 2009 Global Financial Crisis accelerated and intensified attention on tax evasion d i f i i d dand tax information reporting standards;

• New global standards for information exchange (visibility) and attention driven by OECD’s BEPS project & backed by political leaders (G-20 and G-8):

- Multilateral frameworks (e.g. Convention for Mutual Administrative Assistance in Tax Matters Country-by-Tax Matters, Country bycountry report, Common Reporting System);

- Bilateral frameworks (e.g. d f D bl T T i update of Double Tax Treaties,

Tax Information Exchange Agreements);

- Unilateral actions (e.g.

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( gFATCA).

Transparency and Information SharingTransparency and Information Sharing

• OECD BEPS Action Plan of 19 July 2013 (Item 13) identified need to “develop rules regarding transfer pricing documentation to enhance transparency”rules regarding transfer pricing documentation to enhance transparency

• OECD released draft for TP documentation and country-by-country reporting (“CBCR”) on 30 January 2014 (comments due by 23 February 2014)

• In a nutshell, the recommendations are:

Two-tiered approach for TP documentation: a master file containing Two tiered approach for TP documentation: a master file containing standard information for all group companies and local file for each country.

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Transparency and Information SharingTransparency and Information Sharing

Master file would require:

• Legal and ownership structure with geographic locations• Drivers of profit• Supply chain for materials and services and main geographic markets• Intercompany service arrangements• Intercompany service arrangements• Contributions to value creation by individual entities within group• The title and country of principal office of 25 highest paid individuals• Revenue and profits for each entity• Income taxes and withholding taxes paid by entity• Tangible assets, number of employees and total employee expense• Information on intercompany royalties, interest and service fees paid or

receivedreceived

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Emerging trends - 2Emerging trends 2

bSubstance

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Substance – it is more than one dimension… Substance it is more than one dimension…

Are the entititesAre the entititeseffectively located

where they areclaimed to be?

Structural Substance

“L l“Are the

profits/losseseffectively located

Operational Substance

“Legal“Substance

effectively locatedwhere they areclaimed to be?

Substance

Is there a trueeconomic purpose

for thetransaction?

“Economic“Substance

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… and multiple challenges are possible… and multiple challenges are possible

S l b Structural substance: Residence, PE, beneficial ownership

Operational substance: Risks & functions, significant people, profit allocation

Economic substance: True motivation/purpose for a transaction

Concepts are often vague

Expect more challenges

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p g

The drive for substanceThe drive for substanceThe primary components

Steps in forming a Centralised EntityProducts, services, and assets that

will deliver competitive advantagesValue driversValue drivers1

Operational structure and processes that will deliver the projected valueOperating modelOperating model2

Legal structure, relationships, and guidelines governing the operating model

that will deliver the tax objectivesTax model & legal structureTax model & legal structure3

that will deliver the tax objectives

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Testing substance & asking the right questionsTesting substance & asking the right questionsHub models under review

• Are there appropriately qualified personnel in the central entity to Are there appropriately qualified personnel in the central entity to make decisions?

• Do the personnel of the central entity have the bandwidth to appropriately review and approve all decisions assigned to them as appropriately review and approve all decisions assigned to them as envisioned during the operating model design?

• Does the substance of the business appropriately reflect the expected th f th b i ti ? growth of the business over time?

• Does the central entity have access to the appropriate information to make strategic decisions? Would this information be shared in an

’ l harm’s length situation?

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Emerging trends - 3Emerging trends 3

i k h d lTax risk management at the Board Level

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Time for a Review?Time for a Review?

Taking a fresh look/ a re-look at your structure and activities

1. Does the Board know:• Where the company pays tax and how much?• The effective tax rateThe effective tax rate• “Tax havens” in which the group has presence• How sustainable are the existing structures in the face of the changing tax

environment?2. What are your likely tax exposures?3. Reputational issues?4. How can you maximise benefits now?5. Is it an issue of unwinding or strengthening defence? If you have to unwind a

structure, how do you proceed?6. Are you aware of the value creation factors in your business? Do these align with

where profits are recorded?

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Emerging trends - 4Emerging trends 4

i i idUS perspective – Turning tides?

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Numerous US tax reform discussion draftsNumerous US tax reform discussion draftsGeneral overview – Impact on International Tax

Levin Bills (since 2005)

• New Levin Bill (Stop Tax Haven Abuse – Sept 2013)

• Cutting Unjustified Tax Loopholes (Feb 2013)

• Anti-tax haven legislation (2005, 2007, 2009, 2011)

Obama administration FY 14 budget (April 2013)

• Similar to FY 2013 budget with respect to prior international tax proposals.

House Ways and Means Committee (Camp proposal - 2011)

• International Tax Reform discussion draft (Oct 2011)

• Various proposals covering financial products, small businesses & pass-throughs, energy tax etc. in 2013

Senate Finance Committee (Baucus proposal – Nov 2013)

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( p p 3)

• Tax reform discussion draft issued

US Tax Reform perspectivesUS Tax Reform perspectivesOpposing forces & Changing tides?

“Th G ’ k “The G20’s work on tax cooperation is among our most important new initiative”

US T S t J b L t G Fi

Competitiveness of US MNCs - US has one of the highest effective tax rates among industrialised

Enhancing titi ss

Revenue raising s s

- US Treasury Secretary Jacob Lew at G20 Finance Meeting (23 Feb 2014)nations

Proposed measures include: Si lifi ti f i ti l

Proposed measures include: Ch t th S b t F i

competitiveness measures

- Simplification of existing rules- Certainty of tax regime- Territorial taxing system- Lowering corporate tax rates

- Changes to the Subpart F regime- Changes to the FTC regime- Repeal of Portfolio Interest

Exemption (Baucus)- Base erosion concerns

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- Base erosion concerns

Announcements & Poll resultsAnnouncements & Poll results

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PwC International Tax Breakfast SeriesPwC International Tax Breakfast SeriesQuarterly updates from round the globe

Topical issues pertinent global/ regional tax developments & ITS planning

Asia Pacific: • Navigating the

h i t l d

US: • Inbound US

Topical issues, pertinent global/ regional tax developments & ITS planning

changing tax landscape• Exploring the new

frontiers

points of attention –Opportunities and pitfalls

Europe: • The future of EU tax• Financing and holding structures –

What (still) works and what not? Latin America:• Investment strategies

amidst uncertain tax landscapes

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Poll results & List of questionsPoll results & List of questions

• Let’s take a look at our poll results & list of top questions asked

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Thank youThank you.

Andy BaikInternational Tax Services, Partner, PwC Singapore

Andy BaikInternational Tax Services, Partner, PwC Singapore+65 6236 7208andy.baik@sg.pwc.com+65 6236 7208andy.baik@sg.pwc.com

Chai Sui FunTax Partner PwC SingaporeChai Sui FunTax Partner PwC SingaporeChai Sui FunTax Partner PwC SingaporeTax Partner, PwC Singapore+65 6236 3758sui.fun.chai@sg.pwc.com

Tax Partner, PwC Singapore+65 6236 3758sui.fun.chai@sg.pwc.com

Tax Partner, PwC Singapore+65 6236 3758sui.fun.chai@sg.pwc.com

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