Joint International Tax Conference round-up

This annual International Tax Conference presented by King´s College London, the Chartered Institute of Taxation, ADIT and the International Fiscal Association, took place online on 14 and 15 July. Professor Jonathan Schwarz, Director of the International Tax Law LLM at King’s and Clive Gawthorpe, Chair of the CIOT European Branch, welcomed attendees from many countries.

Opening keynote speech

Manuel de Los Santos, Head of the OECD Transfer Pricing Unit, gave the opening keynote speech. He noted that the arm’s length principle and Pillar 1 will coexist for some time.

Manuel discussed the three main elements that differentiate the recently published 2022 Transfer Pricing Guidelines, from previous editions: when and how the Transaction Profit Split Method should be used instead of other methods; the new chapter 10 on financial transactions; and on hard-to-value intangibles. Manuel also announced that the OECD would soon undertake a study of taxation and global mobility as one of the key emerging issues

Current issues in transfer pricing

The first panel, led by Renata Ardous, Head of Global Transfer Pricing at Chanel, discussed current issues in transfer pricing. Phil Roper, Director at KPMG London, set the scene by providing a global context in numbers. Very interesting facts included that 55 countries have introduced transfer pricing documentation requirements in their domestic legislation in the form of a local file, and that the majority of these countries have fully aligned with BEPS Action 13 Country-by-country Reporting and documentation requirements, the most recent being the UK which is introducing new requirements from April 2023. Emerging economy developments included the conclusion of 29 APAs by China in 2020 (including 14 bilateral APAs) many of which were agreed within 24 months (compared to an average of 55.5 months for bilateral APAs agreed by the UK in 2020/21) and Brazilian plans to align its domestic transfer pricing legislation with OECD standards in 2023.

Jean Witters, PPO Transfer Pricing at Maersk, discussed the need for technology as part of an overall corporate strategy to monitor pricing conditions. He emphasized that when implementing technology solutions to address transfer pricing management it is just as important to also address essential process requirements. The timelines to implement these solutions can be very compressed. Therefore, it is important to use data analytics to identify the most important risks and to use the correct tools.

Joanna Kubińska, Head of Transfer Pricing, TPA, Poland, analysed the impact of COVID on the global economy and market conditions. She pointed out that the impact of COVID-19 should not automatically result in a change in risk allocation between related parties. The OECD TP Guidelines should still be followed to determine the allocation of risks, functions, and assets, supplemented by the OECD 2020guidance on TP implications of COVID-19. She explained that benchmarking performed before COVID-19 should be verified for use on transactions undertaken in 2020-2021 and adjusted or redone as appropriate. There may be challenges, mostly related to information deficiencies. Finally, renegotiation of APAs concluded prior to the pandemic should be considered when the terms of the APA are no longer appropriate.

Recent international tax cases

Recent international tax cases were discussed in the second panel led by Jonathan Schwarz, Barrister at Temple Tax Chambers and King's College London. Laurie Goldbach, tax litigation partner at BLG, Calgary in Canada, started with the recent decision in Canada v Alta Energy Luxembourg, where the Supreme Court of Canada confirmed the decision of the lower courts, that the domestic GAAR did not apply when a Luxembourg company was interposed and that it could rely on the tax treaty between Canada and Luxembourg to exempt Canadian capital gains. The main takeaway is that the GAAR cannot be used to search for broad overriding policies, since the GAAR (which is similar to the PPT in the MLI) cannot be used as a means of modifying the intention and the original bargain struck by the treaty parties. Canada had entered into a binding agreement with Luxembourg knowing that jurisdiction did not tax capital gains. The Supreme Court concluded that taxpayers are allowed to minimize their tax liability to the full extent of the law and to engage in “creative” tax avoidance planning, insofar as it is not abusive within the meaning of the GAAR.

Jason Collins, tax litigation partner at DLA Piper LLP, London, discussed G E Financial Investments v HMRC, regarding the interpretation of the tax treaty between the United States and the United Kingdom. The main issue was whether a share staple between GEFI ltd (UK company) and GEFI Inc (US company) which deemed the UK company to be US resident for US domestic law, had the effect that the company was a resident of the US for purposes of the treaty. The UK First-tier Tribunal concluded that not only full world-wide liability to tax was needed but also attachment to the State, which was not the case here, since the UK company was US resident because it was connected to a US corporation, and not because of some physical connection to the US itself.

Prof Philippe Malherbe, from UC Louvain, Brussels, concluded with three decisions of the Court of Justice of the European Union. C-694/20 Orde van Vlaamse Balies considered the balance between protection of the lawyer´s professional secrecy and combating aggressive tax planning in the context of DAC6.

Case C-437/19 État Luxembourgeois v L, examined the “foreseeably relevant” concept with deadlines and penalties where exchange of information was disputed. The French Tax Administration requested the identity of the shareholder of a Luxembourg company, that owned a French company from the Luxembourg Tax Authority. The Court held that information which is not manifestly devoid of any foreseeable relevance, where the persons under investigation are not identified individually by the requesting authority but it provides a clear and sufficient explanation that it is conducting a targeted investigation into a limited group of persons, justified by reasonable suspicions of non-compliance with a specific legal obligation is foreseeably relevant. Case C 186/20 Hydina SK centred on a taxpayer invoking the information exchange deadline to quash an audit. 

Pillar I and II - What about the rest of us?

The second day started with a panel led by Chair Jennie Rimmer, Group Head of Tax, for Canopius, London, which considered current issues for businesses outside the scope of Pillar 1 or 2, noting that 90% of the companies that will be affected by Pillar 1 are based in the United States. Eloise Walker, Global Head of Corporate Tax, Pinsent Masons, London focused on new VAT rules related to the termination of contracts and the payment of compensation and damages in the UK from 2020, to the effect that compensation follows the underlying nature of the contract to determine if it is VATable.

Tiago Rodrigues, Group Head of Tax, at Mantrac, explained tax issues for a Group that operates in the most challenging of territories according to the OECD Country Risk Classification. Main concerns were the increased number of queries with crossing of information, the inverted burden of proof that creates difficult challenges, permanent establishment challenges and the location of key strategic employees, double taxation of cross border payments and transfer pricing audits.

Giovanni Rolle, tax partner WTS R&A, Milan, focused on rule changes in the OECD and UN Model Tax Conventions, that will impact on businesses outside the scope of Pillar 1: modification of agency PE in Article 5; services PE in Article 5 of the UN Model and new Article 12B of the UN Model on automated digital services, highlighting its unlimited application. He noted that, even when Pillar 2 has limited application, CFC rules such as those in the ATAD, and ATAD 3 rules can have a similar effect, in attributing the income of an entity to its owner parent and intermediary companies.

Taxation and digital nomads, post-pandemic

Taxation and digital nomads, post-pandemic was the final panel, led by Jennifer Bravin, Head of Employment Taxes, BT plc. Tiago Cassiano Neves, Managing Partner, Kore Partners, Lisbon, discussed areas of concern and new trends and policies regarding digital nomads and taxation. He focused on areas of potential conflict for digital nomads, including immigration status, personal taxes, corporate taxes for employers, social security contributions, and labour rules. Digital nomads’ main concern is the possibility of being resident in more than one country with dual worldwide liability. Rachel Fox, Partner, William Fry, Dublin, focused on the tax risks for employers in generating new permanent establishments and changes to the tax residence of companies as well as transfer pricing considerations resulting from shifts in the location of functions and maintaining updated transfer pricing documentation.

Concluding keynote speech

Liselotte Kana, Co-Chair of the UN Tax Committee, gave the concluding keynote speech, with highlights of the UN work on the new UN Model with additions to the Commentary especially where it diverged from the OECD Model.

Liselotte explained that the new article 12B was designed to address the concerns of developing countries relating to the digital economy. The UN Tax Committee was looking at a Multilateral instrument to give rapid effect to the new article 12B. Pillar 1 would not bring benefits to some developing countries who saw digital services taxes as their solution. It was important to have treaties that reflected their concerns, to avoid a growth in treaty overrides, as part of maintaining the international rules-based order.

About the authors

Ana Cecilia Rojí Gómez is a tax lawyer who has international tax experience via her three years working for a top Mexican law firm. She is currently undertaking the LLM in International Tax Law at King´s College London. In addition to her tax experience, Ana has renewable energy credentials, having established her own start-up in this area which she ran between 2017 and 2019, having met her co-founders in Silicon Valley while on a US State Department scholarship.

María Alejandra Frías Arce is a lawyer from the University of Piura in Peru and an International Tax Law LLM student at King's College London. Her practice focuses on advising individuals and companies, analysing the tax aspects applicable to their business operations and investments, and tax planning in corporate reorganisations and acquisitions.