2015 10 20 Trends in The Indirect Tax Landscape and The Impact of BEPS

Trends in the Indirect Tax
landscape & the impact of

BEPS
Liesbet Nevelsteen (Deloitte)

Eric von Frenckell (Laga)
Charlotte Degadt (Laga)
20 October 2015
© 2015 Deloitte Academy

1
Agenda
Welcome & Introduction 8:00 – 8:15
Update on BEPS & impact on indirect tax 8.15 – 9:00
Indirect tax: update & trends 9:00 – 9:45
Q&A 9:45 – 10:00

Update on BEPS and
impact on indirect tax

Update on BEPS

OECD/G20 BEPS project nears the finish line (1)
2013 — Action Plan adopted
− 44 countries commit to develop 15 sets of recommendations (“Actions”) to
address loss of corporate tax revenue from base erosion and profit shifting
(“BEPS”)
© 2015 Deloitte Academy 5

BEPS
15 Actions (reminder)
1. Digital economy
2. Neutralising hybrids Establishing international

3. Strengthen CFC rules
4. Limit interest/finance deductions coherence of corporate
5. Counter harmful tax practices – substance income taxation
6. Prevent treaty abuse

7. Prevent PE avoidance Restoring the full effects
8. Value creation – intangibles and benefits of
9. Value creation – risk and capital international standards
10. Value creation – high-risk transactions
11. Data collection/analysis Ensuring transparency while

12. Disclosure (aggressive tax planning)
13. Transfer pricing documentation promoting increased certainty
14. Dispute resolution and predictability
Swift implementation
15. Multilateral instrument
OECD/G20 BEPS project nears the finish line (2)
2014 — Reports on 7 Actions approved by OECD Committee on Fiscal Affairs,
G20 Leaders
− The “2014 Deliverables”
− Result of public discussion drafts and consultations
− Recommended changes to:
o Domestic laws
o OECD Model Tax Convention (“OECD Model”)
o OECD Transfer Pricing Guidelines (“TPG”)
2015 — “Final Reports” released on all 15 Actions
− After numerous public discussion drafts and consultations
− Additional countries participated
− Awaiting approval by governments
− “Final” isn’t entirely final
Deloitte Global Services Limited © 2015 For more information, contact Deloitte Touche Tohmatsu Limited © 2015 Deloitte Academy 7
The 2015 final reports
• What is final?
− TPG changes are largely done
− OECD Model change recommendations have partly been finished
• What is not final?
− Individual countries must still decide extent to which they will amend domestic
law in light of recommendations
− OECD and other countries must still:
o Develop multilateral instrument for speeding incorporation of recommended
OECD Model changes into existing bilateral treaties
o Complete anti-treaty-abuse recommendations for OECD Model when
Treasury Dep’t finalizes US Model treaty updates
o Report on attribution of profits to PEs in light of PE definition changes,
transfer pricing of financial transactions, and several other items
o Monitor each other for compliance with “minimum standards”
Deloitte Global Services Limited © 2015 For more information, contact Deloitte Touche Tohmatsu Limited © 2015 Deloitte Academy 8
The global tax environment
Change in tax
authorities’
approach to
Responsible Unilateral tax OECD BEPS
interpretation
tax agenda law changes action plan
of existing
tax law and
tax treaties
• Stakeholder • Increased tax audits • Possible double • Uncertainty

engagement/brand and adjustments taxation
protection • Increased complexity/
compliance
BEPS is part of the bigger picture

Response • Risk assessment to identify relevant focus areas
• Quantify potential risks/impact
• Develop strategy to respond to current and anticipated changes
• Stakeholder management

Corporate tax rate competition
Source: EU Commission

Financial crisis
Public outcry
VAT WE PAY, WHY DONT THEY……

And our survey says…
24% 9%
Yes - in some detail
1. Has your business started Yes
considering the potential 17% 50%
No
impact of BEPS?
Don’t know
12% 17% Close involvement
2. To what extent has this Limited involvement

involved the indirect 40% 31% No involvement
tax team?
Don’t know
Impact on place of
taxation
26% 25%
Changes to compliance
3. What do you see the main process
indirect tax implication 13%
Impact on supply chain
23%
as being? 13% No implications
Don’t know
How is BEPS relevant for Indirect Tax?
It seems that Indirect tax is not specifically mentioned in BEPS

Upon first read ‘VAT’ is mentioned in some places in the OECD’s 44
page Action Plan
1. In ‘Action 1’ which relates
to taxation of the digital
economy (lots of mentions) ‘PriVATe’ ‘InnoVATe’
2. In the middle of the words
‘DeriVATive’
…So is there still a lot of thinking yet to be done on Indirect Tax?

Highlights: BEPS and Indirect Tax
Challenges of the • Creation of ‘digital’ PEs; re-evaluation of where

digital economy ‘consumption’ occurs
Major changes to existing • Businesses may have taxable presence for corporate
operating models tax where previously one did not exist; compliance
and supply chains changes
Transfer pricing aligned • Changes to how and where products are valued;
to value creation new transfer pricing documentation
Changes to intercompany
• Complex step plans, partial exemption, VAT grouping
financing arrangements
Data exchange/disclosure • More onerous rules, information sharing, cross-border

of tax planning tax authority challenges

Indirect Tax challenges
The digital economy

Challenges of the digital economy
• Overview
− Digital economy cannot be ring-fenced
− BEPS risks, addressed in other Actions, are exacerbated by the digital
economy
• Significant developments
− Generally concludes that other parts of the BEPS Package addressing mobile
income effectively address BEPS concerns in the digital economy
− Does not adopt proposals discussed in 2014 Deliverable regarding Significant
Economic Presence Test, Withholding Taxes, and Equalizing Levies
• Next steps
− Post-project monitoring process to be developed in 2016

Insight

Transparency
Country-by-country Tax-by-Tax reporting?

reporting
NL EUR
673mio VAT
Spain AUS
0,440mio VAT 0,941mio VAT

Permanent establishments,
operating models and
supply chains

Key areas of focus
Supply chains
with overseas
commissionaire
entities
Supply chains Toll
with limited risk manufacturing
distributors operations
BEPS
Structures with
Centralised
overseas
warehouses
Principals which
and/or packing
supply digitised
activities
content

Some indirect
tax considerations Unfair tax competition between
compliant/larger companies who
register and smaller ones who
Changes to inter-company operate under the radar
transactions and supply chains
can create new and unanticipated
Indirect Tax compliance, cost and The valuation of inter-
operational challenges company goods and
services may be
affected, with related
impact on VAT, and
Consequences might include new VAT particularly customs duty
regs, undesirable sticking VAT or customs
duty or other circumstances which reduce
the benefits being sought as a result
Changes to the
of the restructuring
treaty definition of
“Permanent
Establishment” for
Need to make sure any new operating direct tax purposes
or supply chain is indirect tax and the interaction
compliant in the ERP system with VAT

PE: Dependent Agent PE
• Change to Article 5(5) of OECD Model: “Dependent Agent PE”
Current Model Final Report Language

“where a person... is acting in on behalf of Adds “or habitually plays the principal
an enterprise and has, and habitually role leading to the conclusion of
exercises, in a Contracting State, an contracts that are routinely concluded
authority to conclude contracts... in the without material modification by the
name of the enterprise... that enterprise enterprise”
shall be deemed to have a permanent
establishment.” Contracts may be 1) “for the transfer of
the ownership of, or for the granting of
the right to use, property owned by that
enterprise or that the enterprise has the
right to use,” or 2) “for the provision of
services by that enterprise.”
Removes broader “or negotiates the

material elements of contracts” language
in last discussion draft.

PE: Excluded activities
• Change to the Article 5(4) list of activities excluded from PE definition in the
OECD Model
− Every activity on the list of currently excluded activities would have to be of a
“preparatory or auxiliary character” to be excluded
− Additional Commentary carried over from prior discussion draft, including
Paragraph 22, which provides an example of activities involving a warehouse
used for storage and delivery of goods sold online as not being of a
preparatory or auxiliary character

PE: Article 5(4) and the Anti-Fragmentation
Rule—New Article 5(4.1)
Foreign parent Foreign parent Foreign parent
Closely related Closely related

#1: 5(4) Foreign Local Enterprise
FPB Enterprise
#2: (5(1) #1: 5(4)
FPB FPB #2: (5(1) #1: 5(4) #2: (5(1)
FPB FPB FPB
• The Article 5(4) exception shall not apply to #1 if the same enterprise or a closely
related enterprise carries on business at the same place of at another place in the
same Contracting State (#2) and the business activities carried on by the 2
enterprises at the same place, or by the same enterprise or closely related
enterprises at the 2 places, constitute complementary functions that are part of a
cohesive business operation, and either
• One of the places constitutes a PE for the enterprise or the closely related
enterprise, or
• The overall activity from the combination of the activities carried by the 2
enterprises at the same place, or by the same enterprise or closely related
enterprises at the 2 places, is not of a preparatory or auxiliary character
Ensuring that Transfer
Pricing outcomes are
in line with value creation

Actions 8,9,10, and13
Action 10 Action 13
Action 8 Action 9
Other high risk Re-examine TP
Intangibles Risks and capital
transactions documentation
• Develop rules to • Develop rules to • Consider high • Action plan to

ensure prevent BEPS by risk transactions consider the
intangibles are transferring risk and when these rules regarding
appropriately among, or should be re- transfer pricing
priced in relation allocating characterised, documentation
to use, creation excessive capital and common with a goal to
or transfer within to group base eroding enhance
groups members payments such transparency
as co-manage- for tax
ment fees and administrations
head office
charges

Some indirect tax considerations
The valuation of inter- New Transfer Pricing

company goods and documentation
services is likely to be Broad spectrum of reviewed to ensure
affected outcomes – from basic Indirect Tax compliance
compliance to real understood, etc.
supply chain and end-
user/ consumer
pricing implications
Possible new
Customs duty – capacity Customs/Global trade costs for FS
for changes to the considerations – businesses on
customs value (and serious sanctions for international
possibility of increased international trade charges
duty payments) non-compliance

What can you do about
this?

What can you do about it?
Evaluate
Indirect Tax
collection and
reporting obligations
based upon current Help the
Evaluate
activities wider business
the possible
understand the
indirect tax implications
Indirect tax effects
of activities performed
for VAT and
by a related entity
U.S. Sales
or third party
& Use Tax
BEPS and
Indirect Tax
Think about
Consider feeding into
the systems discussions with
challenges the OECD, legislators,
or taxing
Feed into authorities
internal discussions
on the possible
impact

Indirect Tax
Update & trends

VAT on the agenda

VAT on the (political) agenda
VAT/GST exists in VAT represents 20%

> 100 countries & of the global tax
continues to be revenu, 7.5% of the
introduced EU GDP
Trend of more & VAT/GST exists in

more qualitative > 100 countries &
audits, including continues to be
exchange of introduced
information
‘Unilateral’
Increasing case law
introduction of
of CJEU with high
stricter compliance
impact
requirements

Some numbers: VAT revenues in the EU

Some numbers: standard VAT rate
Standard VAT rate 2007 vs. 2013
2013 2007
30
25
20
15
10
Source: OECD(2012), Consumption Tax Trends 2012
Indirect Tax—Perspective = everything © 2015 Deloitte Academy 35

Some numbers: VAT GAP
2012:
+/- € 177
billion or 16%
of total
expected VAT
revenues
The difference between the expected VAT receipts if all the

VAT which is due is collected and the actual VAT collected
by Member States.

Some numbers: VAT recovery ratio
Ratio between actual VAT revenue and revenue that would theoretically be raised
if VAT were applied at standard rate to all final consumption.
1,20
1,00
0,80
0,60
0,40
0,20
0,00
Source: OECD(2012), Consumption Tax Trends 2012

Indirect tax update

Indirect tax update
• Head office – branch supplies

• VAT PE
On the agenda • VAT recovery for holding companies

• Use of exemptions & flash title supplies
• Increased focus on EX works supplies

Head office – branch supplies
Digital supplies to exempt businesses
Multinational
Bank
VAT group
Skandia America Corp Branch1
Main Branch2 Subsidiary1

seat Branch4
Branch3
IT services no VAT?
Skandia Case C-7/13 (17 September 2014)

Head office - branch supplies
• CJEU: in that particular case: supply from head office to branch subject to VAT since
branch member of VAT group
• Different interpretations in EU Member States… or no interpretation yet
• EU VAT Expert group recommendations:
− Strict interpretation (“Swedish” style VAT groups, involvement 3rd countries, inbound
supplies)
− To be seen in context of abuse: only if no anti-abuse provisions implemented
− Change Directive to tax all head office – branch transactions?
− Cf. OECD position
• General taxation of head office-branch supplies would constitute major VAT change
− Impact on VAT treatment flows, VAT registrations, ERP systems, etc.
− Possible impact on neutrality (cf. exempt businesses)

Head office - branch supplies
Before Skandia decision After Skandia decision
Not subject to VAT Ongoing uncertainty

VAT PE
Requirements & relevance
Place of supply
Sufficient
Liability to degree of
account for VAT – permanence
Local reverse
charge
VAT grouping
VAT fixed Human &

Suitable
technical
structure establishment resources
Licences &
approvals
Simplification for
Receive / triangulation
supply
Audit position & goods or
Risk profile services

VAT PE
Although legal definition & high practical relevance >< concept not fully clear
• Different notions of “established” for different VAT rules?
• Purchase (passive) FE; Sales (active) FE; other?
• “Suitable structure”
• Determine in function of nature of business carried out?
e.g. fully digitalised services vs. ‘traditional‘ supply of goods
• Also if merely auxiliary and preparatory activities?
• Some guidance in Welmory decision of CJEU

VAT PE: Welmory (C-605/12 – 16 October 2014)
FE?
Invoice + Polish VAT?
Cooperation agreement
Welmory Sp. Z.o.o Welmory Ltd.
Reverse charge service invoice

(advertising, servicing, provision of information & data processing)
Bids
Sale of bids
Goods

VAT PE
What can we learn from Welmory?

• Digital services: suitable structure requires computer equipment, servers & software
• Being able to receive & use the services for performing its economic activities
• Absence of human presence could suffice
• However reference to the national court, no fixed decision
• Not determining factors:

• Fact that economic activities of both companies, which are linked to a cooperation
agreement, form an economic whole
• Fact that results of combined efforts essentially benefit consumers in Poland
• Required suitable structure could be owned by a third party
• Level of control of that structure to be determined
• Seems to allow to still distinguish purchase FE from sales FE (cf. auxiliary & preparatory)

VAT PE
Today: not all questions answered > uncertainty for businesses

… But also opportunities
• National evolutions (rulings, case law, etc.)
• Notion of VAT PE subject to further investigation of EU VAT expert group:
► determine criteria for VAT PE
• being able to perform the full supply vs. preparatory & auxiliary?
• TP remuneration type (cost plus vs. profit split)?
• technical resources prevail over human presence ?
• business dependent?
• Possible impact of BEPS Action 7?

• To be continued…

VAT recovery of holding companies
Larentia & Minerva (C-108/14, C-109/14)
Costs acquisition participations
(EUR 764k VAT)
DE tax authorities reject
77.69% of input VAT
Larentia &
Minerva
Holding
Administrative +
Administrative +
commercial services
commercial services
L&M: Attraction of EUR 25M new

capital, 77.69% invested in subs
Sub 1 Sub 2

Larentia & Minerva
• Confirmation of principle of VAT recovery for holding companies
− actively managing their subsidiaries
− for consideration
• Unless (part of) the services rendered to the subsidiaries should be considered
as VAT exempt
• Mixed holding companies (managing some subs but not all, passive
managment): partial rejection of VAT recovery
• apportionment between economic and non-economic activities
• based on an investment formula, a transaction formula or any other
appropriate formula

Larentia & Minerva
• Former practice:
• often VAT recovery limitations because of out of scope activities
− rejection based on pro rata – including dividends
 can now be countered:
 assess possibility to reclaim previous non-recovered VAT
• Positive development for holding companies and private equity investment
funds: improve ability to recover VAT
• By developing service activities in those companies (which are now
sometimes in other companies)
Attention point upon restructuring of holding companies

VAT exemptions & flash title supplies
Background
• Traders established in one country trading goods situated in/moving between
many countries
• VAT exemptions (with credit) are crucial to minimising VAT registration
requirements and cash flow implications of trade:
• Exemptions for intra-Community transactions
• Exemptions on exportation / importation
• Exemptions related to international transport
• Exemptions for transactions relating to international trade (warehouses / tax
suspension)

Fast Bunkering Klaipeda UAB (C-526/13)
Sale
Sale VAT exempt?
VAT? 148 (a) VAT Dir
FBK (LT) INTERMEDIARIES CUSTOMER
• Fuel physically delivered by FBK to vessel operator; legal ownership (and

invoices) through intermediary
• Likely that legal ownership only passed to intermediaries once fuel
delivered to vessel operator
• Fuelling intermediaries prefer not to be charged VAT – and to have no
domestic VAT registration / credit position

Fast Bunkering Klaipeda UAB

Question referred
Article 148(a)- exemption (with credit) on goods supplied for fuelling and
provisioning of vessels:
Must this provision mean that exemption from VAT is available to both
− The supplies to the vessel operator; and also
− The supplies to the intermediaries where the ultimate use of the goods is
known in advance (and duly evidenced in accordance with national law)?

A judgment of two halves: (a) Velker remains good law

• Velker (C-185-89): exemption may only apply to the final supply to vessel operator –
exemption is not applicable to supplies to intermediaries
However… (b) FBK’s facts differed from Velker

• Transfer of ownership in FBK’s case may have taken place only at end of loading >
ownership does not transfer to intermediaries until vessel operators are entitled to dispose
of fuel (as owners)
• Therefore, intermediaries have at no time been in position to dispose of fuel
• Paragpraph 52: Transactions carried out by FBK:
• Cannot be classified as supplies to intermediaries, but instead
• Should be regarded as exempt supplies to vessel operators
• National Court to determine whether ownership transferred “at the earliest at the same
time” when vessel operators able to dispose of fuel

Decision raises a number of questions
• What could a “direct supply” from supplier A to vessel operator C mean?
Supply/Invoice?
A B Supply/Invoice?
contract
contract
VAT exempt invoice? C

“Supply of right to dispose goods”
• Could this be applied to commodity chain transactions more generally?

− Are there other situations in which an intermediary never obtains right to
dispose of goods?
• How will individual tax authorities respond?
Increased focus on EXW supplies
VAT Exempt IC supply
These EXW supplies often treated erroneously

 Absence of transport information / documents
 EXW supply not recognized in ERP system (e.g. customer master data, pricing,
Incoterm)
 EXW supply not duly implemented in tax logic

Increased focus on EXW supplies
Consequences of unrightfully claiming of exemption:

• Underpayment of local VAT in relation A-B
• Liability for late payment interest
• Possible requirement to correct the past
• Intragroup & vis-à-vis customers
• Need for additional VAT registrations
• Change of ERP system to reflect EXW supplies
Possible high (VAT) bill

Questions?

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and
their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not
provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected
network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the
insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of
excellence.
This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively,
the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for
any loss whatsoever sustained by any person who relies on this communication.
© 2015. For information, contact Deloitte Belgium © 2015 Deloitte Academy

2015 10 20 Trends in The Indirect Tax Landscape and The Impact of BEPS

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

2015 10 20 Trends in The Indirect Tax Landscape and The Impact of BEPS

Încărcat de

Drepturi de autor:

Formate disponibile

Trends in the Indirect Tax

landscape & the impact of

Liesbet Nevelsteen (Deloitte)

© 2015 Deloitte Academy

Welcome & Introduction 8:00 – 8:15

Update on BEPS & impact on indirect tax 8.15 – 9:00

Indirect tax: update & trends 9:00 – 9:45

Q&A 9:45 – 10:00

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy 5

2. Neutralising hybrids Establishing international

6. Prevent treaty abuse

11. Data collection/analysis Ensuring transparency while

• Stakeholder • Increased tax audits • Possible double • Uncertainty

BEPS is part of the bigger picture

© 2015 Deloitte Academy

© 2015 Deloitte Academy

VAT WE PAY, WHY DONT THEY……

© 2015 Deloitte Academy

12% 17% Close involvement

2. To what extent has this Limited involvement

It seems that Indirect tax is not specifically mentioned in BEPS

2. In the middle of the words

…So is there still a lot of thinking yet to be done on Indirect Tax?

Challenges of the • Creation of ‘digital’ PEs; re-evaluation of where

Data exchange/disclosure • More onerous rules, information sharing, cross-border

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy 17

© 2015 Deloitte Academy

Country-by-country Tax-by-Tax reporting?

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

Current Model Final Report Language

Removes broader “or negotiates the

© 2015 Deloitte Academy 23

© 2015 Deloitte Academy 24

Closely related Closely related

© 2015 Deloitte Academy

• Develop rules to • Develop rules to • Consider high • Action plan to

© 2015 Deloitte Academy

The valuation of inter- New Transfer Pricing

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

© 2015 Deloitte Academy

VAT/GST exists in VAT represents 20%

Trend of more & VAT/GST exists in

© 2015 Deloitte Academy

© 2015 Deloitte Academy 34

Source: OECD(2012), Consumption Tax Trends 2012

Indirect Tax—Perspective = everything © 2015 Deloitte Academy 35

The difference between the expected VAT receipts if all the

© 2015 Deloitte Academy 36

Source: OECD(2012), Consumption Tax Trends 2012

© 2015 Deloitte Academy 37

© 2015 Deloitte Academy

• Head office – branch supplies