Further to my last blog there are a few other issues from the consultation last week to touch on. But first one of the simpler points raised. Colin Garwood raised the very good point about permanent establishments and questioned how withholding tax should be treated.
I think the answer to this lies in the policy decisions explicitly made in agreeing the treatment of pes, branches and withholding tax. Withholding tax is paid to the source country (Country A) on a payment made to another country (Country B). Country B will often give relief for the tax withheld against its taxing rights. In the same way a PE in Country A is taxable in that country and though the PE is also taxable in Country B that country will usually give credit for that tax. So the tax is paid to Country A and that is the tax policy intention. In terms of the template, I think this should be treated as tax paid in country A. It may make sense to highlight the credits provided in Country B to explain the reduced tax paid there due to these policy decisions.
There was considerable discussion about whether a top down or bottom up approach should be taken and business seemed to me to be pretty much split down the middle. The important thing is that one approach is taken. Again there was a lot of lobbying by US professional advisers for the need for flexibility which I can only interpret as special rules for US business. I struggle with this approach and its certainly not the approach which has been taken with extractives – so why would you take it here?.
We need to go back to what is the purpose of the template? If it is to provide a greater understanding of the global business of a multinational then surely one basis will provide the same information about all taxpayers? While there may be differences by sector there shouldn’t be by taxpayer or country or this will undermine or strengthen the competitive position of some taxpayers.
I was taken with the comments of Julia Skeets who referred to the need for one version of the truth. In any information system this is key as anyone involved with the establishment of a global ERP will know. This principle should apply to the template if it is to be used consistently both within a mnc but also between mncs, without consistency how can comparisions be made?
I thought Michelle Levac’s summary was very good:
Keep it simple
Think about materiality
Provide guidance on use
Develop a risk assessment handbook