Surviving Tax: How to Face the Complexities of Tax in Europe

Nov. 5, 2009 - PRLog -- Interview with: Patrick Ellingsworth, Chair Taxation Committee, BIAC-OECD, Trustee,
International Bureau of Fiscal Documentation

Cannes, France, November 5, 2009 - FOR IMMEDIATE RELEASE

Complexities and opportunities seem to multiply constantly when it comes to tax. Trying to address an ever changing tax environment, changing regulation and legislation, and pressures to be more transparent and commercially viable are taxing taxation executives. Patrick Ellingsworth, the Chairman at the marcus evans European Tax Summit 2010 in France, 7-9 March 2010, shares his thoughts on the challenges facing tax executives, how they can minimise their exposure to tax risks and the latest developments in transfer pricing.

What are the most prominent tax issues in Europe at the moment?

Pat Ellingsworth: I think there are three sets of issues in Europe right now; the first relates specifically to the European community and whether or not it is going to go forward with the common consolidated tax base. I don’t think that is directly affecting businesses much right now, but it will in the future so companies have to pay attention to it.

The most immediate issue right now is transfer pricing. It’s a bit odd, because if the common consolidated tax base comes into play, transfer pricing will be of less consequence. But right now it’s a major consequence, because the various rules of the European countries, as well as those outside Europe, are not yet coordinated enough. As a result tax executives have been spending a lot of time on the documentation of transfer pricing, as well as trying to determine what kind of transfer pricing policy works in the current environment.

The third issue is tax rates, and the impact of the financial crisis on national budgets and whether or not there’s going to be a significant increase in the tax rate applicable to either value added tax or income tax to fill the budget gap.

What are the top tax risks in Europe, and how can tax executives minimise their exposure to them?

Pat Ellingsworth: Globally, the biggest risks relate to the increased coordination by tax administrations. The second risk is increasing detail behind the various tax rules that tax executives need to deal with, and those rules differ by jurisdiction.

The first risk relating to increased coordination, you see the impact of it in the exchange of information practices of the countries, but for business, that is of lesser consequence than the mere fact that the tax authorities are exchanging information about tax planning techniques. That I think has enabled a number of tax authorities, particularly in Europe, to better understand how taxpayers have been structuring their businesses worldwide to minimise taxes. And that exchange of information and coordination of techniques by the tax administrations has made it more difficult for taxpayers to know what works and what doesn’t work. I think the principal technique for dealing with this on the part of taxpayers is to engage very actively with the tax authorities in order to be able to really know what they’re concerned about and what are the matters they’re coordinating with the other jurisdictions. So that when you do have a dispute, you can know better what approaches to take in order to resolve that dispute, and also know more in advance what areas of emphasis the tax authority is going to have in connection with an audit. Exchange of information with tax authorities is generally a good idea, as long as the tax administration is forthcoming with respect to their perspective as well.

The other risk is what I call the “US risk”; the US has for a long time had very detailed tax rules on just about everything, and that practise has been taken up by a number of other jurisdictions in Europe, particularly the UK. They are each adding their variation to the rules, and as a result, if you’re trying to plan something globally, you’re faced with not just general rules that are different, but very specific rules that are very different from jurisdiction to jurisdiction. That makes it difficult for taxpayers to plan their affairs. Depending on the size of what it is that the taxpayer is doing, that means that they have to have more advisors, specific to each jurisdiction they’re dealing with.

What are the major developments in transfer pricing at the moment?  

Pat Ellingsworth: The major one is the increased emphasis by the tax authorities on documenting transfer pricing positions in advance. If you don’t have advanced documentation of your transfer pricing position, that is held against you in an audit. I know there has been a group of large adjustments proposed by tax authorities against taxpayers, solely on the grounds that the taxpayer did not file the documentation at the time that the audit commenced.

What are your projections for 2010? What upcoming tax related developments do you expect or predict?

Pat Ellingsworth: I think two areas are going to be the major topics for discussion in 2010; one relates to permanent establishments. Permanent establishments are portions of a company not in its resident country, but operating in another country, and to determine whether or not they’re taxable in that other country and if they are taxable, what is the competition of the income. The reason I think that’s going to be a significant area is that the OECD has two major projects dealing with that in particular, and they’re both likely to be finalised in 2010 and to cause companies to have to adapt their practises to deal with the new rules, particularly the rules relative to the attribution of tax.

The second area of development I think that there’s going to be a lot of continued work on, is value added tax. I think that Europe finally is looking at whether or not the cross-border rules it has are very well coordinated and whether they’re efficient overall. And there is a major project at the OECD about guidelines for value added tax and better administration of the value added tax that I think will be a major area of work in 2010. For companies, I think this is especially welcome as the administration of the value added tax is a very expensive proposition and the ability to administer it more efficiently is going to significantly improve cost structure.

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About the European Tax Summit 2010:

This unique forum will take place at The Majestic Barrière in Cannes, France, 7-9 March 2010. Offering much more than any conference, seminar or exhibition, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The summit includes presentations on how to respond to the changing tax environment, business restructuring, averting double taxation and achieving true tax efficiency.

For more information please send an email to info@marcusevanscy.com or visit the event website at www.taxsummit.com. Please note that the summit is a closed business event and the number of participants strictly limited.

About marcus evans summits:

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