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TEI Roundtable on the Biggest Issues in International Tax
Source: WG&L Journal of International Taxation
WG&L Journals Journal of International Taxation (WG&L) Journal of International Taxation 2008 Volume 19, Number 03, March 2008
A panel of experts from Tax Executives Institute (TEI) recently held an exclusive roundtable with Thomson Tax & Accounting (TTA) to discuss the most complex and time-consuming international tax planning issues for corporate tax departments. TEI is the preeminent association of business tax executives in North America. Its nearly 7,000 members represent 3,200 of the leading corporations in the United States, Canada, Europe, and Asia. The topics discussed below came up most often in a preliminary poll of TEI's members. Moderating for Thomson Tax & Accounting during the teleconference were Steven A. Zelman, Senior Vice President and General Manager, and Linda Scheffel, Vice President and Publisher.
Overview
According to Timothy McCormally, Executive Director of TEI, “VAT, withholding, sourcing, thin capitalization, permanent establishment [PE], apportionment, and tax credits have been challenges for tax executives for years. FIN 48 1 issues are newer but now provide a complicating overlay to many problematic tax planning and compliance issues.”
The consensus of the panelists was that transfer pricing (both U.S. and non-U.S.) topped the list of issues. McCormally said that “Transfer pricing takes a significant amount of time and training in many of the multi-national enterprises in our membership. According to TEI's most recent Corporate Tax Department Survey, TEI's members have substantial tax planning responsibility, and in over 80% of the cases our members have significant responsibility for planning with respect to transfer pricing. Moreover, as several of the TEI panelists said, we do expect transfer pricing to get more scrutiny in countries around the world.”
On the PE issue, among the significant challenges identified was tax authorities' expanded use of the concept of PE based on computer server location and transfer pricing regimes. According to McCormally, “the evolution of the OECD model treaty commentary, in order to address changing forms of doing business, has expanded traditional parameters of concepts key to determining permanent establishment. In turn, tax authorities in various jurisdictions are changing the interpretations related to well-established rules associated with permanent establishment. One key challenge for tax executives working in MNEs is keeping up with those changing rules and the planning necessary to operate in a changing environment.”
Problems related to the management of multinational tax departments, like maintaining control over far-flung local tax resources, were seen as less severe due to the Internet, e-mail, organized tax department teleconferences and other recent communication advances. Said McCormally, “the tax department in any well-run corporation will spend a significant amount of time considering management issues, like the tax department management issues that this TEI/TTA panel discussed. Education of business partners, for instance, has become significantly more important as domestic and international accounting issues have become part of the realm of the tax departments of MNEs.” Some of the other issues that the TEI panel raised during the discussion in this area were:
- Maintaining connectivity between regional tax teams and U.S. colleagues.
- Educating business partners on international tax issues.
- Policing internal company risk management policies (e.g., making sure policies are followed) to avoid tax risks.
- Monitoring current tax law changes across multiple jurisdictions.
- Consistently complying with administrative and statutory rules in all countries.
With regard to FIN 48 compliance, the panel identified international tax positions as the most challenging issue for corporate tax departments. According to McCormally, "increasingly, tax executives are faced with meeting regulatory and compliance requirements, while continuing to provide value-added strategic services to the corporation. The best way for tax executives to handle a new area like FIN 48 is to make sure their staffs, including international staffs, are fully trained, and up to date on the latest guidance. They can do this by networking with peers on best practices and by looking at other company filings."
Although the TEI panel did not suggest that transfer pricing was a key U.S./international tax issue with regard to FIN 48, it appears, based on general SEC filings of MNEs, that transfer pricing issues (either U.S. or foreign jurisdiction) already existed for many companies before FIN 48.
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