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By Ben Stupples
A new OECD initiative is giving global businesses a “trusted space” to review their tax risks with multiple countries at once, according to a senior official.
“Businesses said to us: ‘If we could have some sort of a trusted space, we could explain” our cross-border tax affairs further to “a number of tax administrations at once,’” Achim Pross, the organization’s head of international cooperation and tax administration, told Bloomberg Tax. “If this works, I think it will be big.”
The OECD Jan. 23 launched a pilot scheme derived from this idea that will see tax authorities from eight jurisdictions, including the U.S. and the U.K., work together in simultaneously reviewing the tax risks of multinational companies.
Partly aiming to give companies earlier certainty on their international tax risks, the scheme marks a shift in global tax policy and is the OECD’s boldest effort yet to foster collaboration between governments and multinational businesses.
“Ten years ago, we wouldn’t have had the infrastructure among tax authorities to have pulled this off, but now it’s a different environment,” Pross told Bloomberg Tax in a telephone interview. “I have yet to find a taxpayer who says this way isn’t the right direction of travel,” he added on the response from businesses.
To prepare for the pilot scheme, the eight countries—Australia, Canada, Italy, Japan, the Netherlands, Spain, the U.K., and the U.S.—sought out last year global businesses headquartered in their jurisdictions to take part as volunteers.
After last week’s launch event, participating businesses will submit documents to the authorities that outline their international tax risks in the past two financial years. The authorities will then carry out a tax risk assessment on these risks for each company, with a second one following if there are any outstanding issues.
According to the OECD’s handbook on the program, the authorities will focus mostly on reviewing companies’ taxable presence in foreign jurisdictions and the pricing of their intra-group transactions, otherwise known as transfer pricing.
A business taking part in the International Compliance Assurance Program (ICAP) will get assurance on their tax risks “clearly and promptly,” the OECD said in a Jan. 23 news release. In addition, the scheme aims to maximize the use of companies’ cross-border tax data and equally limit international tax disputes.
“If this pilot works well, I’m sure the tax authorities will invite other companies to take part,” Bill Dodwell, head of U.K. tax policy at global accounting firm Deloitte LLP, told Bloomberg Tax. “One issue to consider is to what extent is this going to save resources? If it doesn’t, it won’t work for tax authorities,” he added.
The International Compliance Assurance Program, or ICAP, originates with the global tax reports that multinational companies have to submit as part of the OECD’s 15-action project to curb tax avoidance among large corporations.
In the filings, known as country-by-country reports, companies have a space where they can include written comments that further explain their tax data.
This section has made businesses nervous due to fears that what they say may attract further scrutiny on their global tax affairs, Pross told Bloomberg Tax.
“This debate has gone back and forth as it’s equally clear that someone reading a CbC report may draw the wrong conclusion if you don’t provide an explanation,” he said. The ICAP was a result of this debate, with country-by-country reports a key part of the files that business have to submit to the authorities, he added.
According to the OECD’s handbook, the tax authorities’ risk assessments can be completed in 17 weeks. Most tax disputes, by contrast, take at least 12 months.
While they will firstly focus on companies’ tax risks in 2016 and 2017, the eight authorities will also aim to give them assurance on the next two financial years.
“This is just an assessment, so you won’t get any official agreement,” Dodwell told Bloomberg Tax. “But this is a valuable program as essentially, if you satisfy the authorities, you have confirmation that you’re OK for the year” in question.
“We’re looking at 12-months plus here,” Pross told Bloomberg Tax about how long the pilot will last. “For this to work, you need full confidence in the system and believe that everyone involved has all of their cards on the table,” he added.
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