Key International tax developments: what lies ahead?

Sarah Fahy - Vice President , Sony Global Tax Office , Europe Guy France – Senior Director, Sony Global Tax Office, EuropeJoy Svasti-Salee - Executive Director, Ernst and Young LLP - Visiting Prof. Queen Mary University of London26 January 2011

Outline for discussion

Key influencers to-date

Issues faced by MNE’s today

Key influencers in the future

What lies ahead?

The principles of international tax

Global fundamental principles? Separate entity approach

An entity is taxed based on its residence

Source countries may tax income and gains – PE threshold

Withholding tax may be deducted at source on passive income

A parent company can only tax dividends from, and not profits of, a subsidiary

Interest is deductible and dividends are not

Emerging global principles?

1987

•CFC rules regarded as acceptable / encouraged by OECD

1990’s

•Thin capitalisation rules become commonplace

1992

•LOB concept starts (NL/US DTT) + anti conduit rules

1995

•Transfer pricing – OECD guidelines (major revision in 2010 )

2005

•Focus on exchange of information (Art 26 updated)

2010

•Update to MTC (including new Art 7)

Key influencers to date

“Individually powerful” countries, e.g. USA Japan

The OECD

Europe and the ECJ

The OECD and EuropeOECD Both European

Australia Austria Poland Bulgaria

Canada Belgium Portugal Cyprus

Chile (2010) Czech Republic Slovakia Estonia

Iceland Denmark Slovenia Latvia

Israel (2010) Finland Spain Lithuania

Japan France Sweden Malta

Korea (1996) Germany United Kingdom

Romania

Mexico Greece

New Zealand (1994) Hungary

Norway Ireland

Switzerland Italy

Turkey Luxembourg

United States Netherlands

Traditional outbound parent jurisdictions

Powerful

countries

Tax rules of parent dictate the structure

Continuing strong global powers: Complex legislation Anti-inversion rules CFC rules and GAARs Restrictions on interest

deductibility But recognition of

some that they need to be competitive ....

UK CT reform: delivering a more competitive system

Delivering a more competitive system: Creating the right conditions for business investment

and growth Responding to business concerns over instability and

unpredictability Reversing the trend of business leaving the UK

Principles: Lowering rates while maintaining the tax base Maintaining stability Being aligned with modern business practices Avoiding complexity Maintaining a level playing field for taxpayers

Issues faced by MNE’s today Cost Speed Globalisation

Technology

Centralisation of functions

Rapid growth in emerging markets

Increased tax transparency

Complex regulation and aggressive tax authorities

Future – “go East”?

Emerging Markets

OECD “outreach”

People getting

wealthier

New Stock Exchanges

Low cost of labour

Large populations attract activity

Trading “in” or “with” large markets

Increasing experience of international taxation

Pick and choose rules?

Tax a “toll” to do business?

Key influencers in the future The new “individually powerful” countries

India China Brazil Russia Others ...

G20

Campaigners ......

Fundstalk.co.uk

What lies ahead?

More competition to be the country of the parent?

A shift back to taxation at source?

CCCTB in (part of) Europe?

MNE’s recognised for their role as collectors of taxes?

What should the global fundamental principles of international tax law be?

What lies ahead - in the medium term?

Little cohesion?

MNE’s need to find new ways to engage with Governments particularly in relation to: Transfer pricing The avoidance of double taxation

Thank you