Taxpayers have moved on in the last 12 months, when the worst of the global economic downturn was taking place. While they are still focusing on tax efficiencies, particularly generating and saving cash through claiming refunds and exemptions, a fresh demand for transparency from tax authorities can be said to have taken even more importance.
One piece of paper has had much to do with this situation. The publication in April last year of a progress report about compliance with the OECD's standards on the exchange of tax information caused jurisdictions who were not deemed to have complied fully to start tax negotiations with other territories.
The movement towards more agreements on tax information exchange – even if some tax justice campaigners believe they have no strength to force any jurisdiction to be more open – has put taxpayers on notice that the use of tax havens, or international financial centres, in their tax planning needs to be fully transparent.
International tax has probably received more attention from governments, multilateral bodies, activists and the general public than at any time before. The scrutiny has focused on how much aggressive tax planning may have contributed to the disruption in the financial markets that sent countries around the world into recession.
Tax departments have tried to stay out of the limelight even more than ever, while trying to help their companies recover from some heavy financial blows.
A time like this usually sees a rush for trustworthy advice. Nowhere is this more evident in tax planning. And it is reflected in the results of International Tax Review's third annual poll to find the world's leading tax planning practices.
Strength in numbers, as well as expertise, is a strong selling point when accounting firms look to supply tax advice. It's something that law firms do not try to compete with. Accountants can send out large teams to deal with a client's tax affairs, tackling them from every angle – law, accounting, economics and the rest. Law firms and niche tax consultancies have to rely on their knowledge and thinking skills
Accounting firms occupy the leading tier in the majority of the countries in the poll. That is not to say all are in the top rank of the survey, but they do dominate. If the definition of planning referred to transfer pricing only, then there is no doubt all the accounting firms would be in the top tier. Baker & McKenzie is the only law firm that competes with accounting firms for the same transfer pricing work around the world, certainly if one is referring to the economics side of the discipline.
However, what International Tax Review means by tax planning for the purposes of this poll is not only transfer pricing, but indirect taxes and tax structuring.
The initiative for the polls arose from the annual awards dinners the magazine hosts on three continents and World Tax, the directory of the leading tax law and accounting firms, that the magazine publishes annually.
Both of these seek to reward firms for their work and reputation over different periods of time.
The awards dinners recognise complexity and innovation in a portfolio of work over the previous 12 months.
World Tax identifies the world's leading tax firms on the basis of complexity and innovation of their work, overall depth of practice, number of partners, international network and reputation over a period of years.
Neither of these give prominence to every firm in the market. Some firms, such as transfer pricing or indirect taxes consultancies, operate in a niche area that does not get the same recognition as others, have a small number of staff or do not have an international network, but still provide a valuable service for their clients.
The surveys are an attempt to answer the question: Who are those firms that provide specialist tax advice alongside the firms that house a deeper tax practice? The transactional survey was published in the March issue.
Methodology |
In December and January, readers of International Tax Review, which include tax executives from multinational companies, tax officials and advisers voted in an online poll for their top three tax planning firms in 47 jurisdictions on the basis of three points for the firm they considered the best, two points for second best and one point for third best. The votes were added up to produce the survey results. The 46 jurisdictions were those for which there was a commentary and tiers in World Tax 2010. Votes from advisers for their own firm were disqualified and firms could not send submissions to improve their chances of being ranked. The methodology was kept simple. Firms did not need to bring together large amounts of facts and figures in a submission. In fact, they were discouraged from doing so. A submission would not help them. This was not a submission-based exercise because we felt we had a good idea from our World Tax research who the best planning firms were. The objective was to find out were there others that did not appear in World Tax, for whatever reason, that the market regarded highly because they had a particular specialty. Or were there firms that appeared in World Tax and were known as dependable groups of tax advisers without having any star practitioners? Would they be rated for their excellence in planning work? |
ASIA PACIFIC
Asia takes tentative steps after the downturn
Taxpayers across Asia have come through the economic storms of the past 18 months and are now finding themselves adapting to a world with increased scrutiny and stricter tax planning rules. Jack Grocott speaks to some of the region's top tax professionals to discover why they believe tax planning will never be the same again.
Much has been written about the downturn and how companies across Asia struggled to survive. However, very little was reported on how companies actually managed to see off one of the worst financial periods in recent times. It is easy to say that companies consolidated and restructured, but this fails to do justice to the hard work that businesses undertook to ensure they could use 2010 as a platform to recover.
Integral to any recovery was effective and timely tax planning, where taxpayers organise their taxes as efficiently as possible, invariably to minimise the amount they pay. A year ago, Asian taxpayers were primarily focused on generating and saving cash, and how best to use what they had to secure financial stability. But now it seems that the focus for tax directors is reduction of their company's effective tax rate (ETR) reductions. Taxpayers are asking their advisers to perform strategic reviews to ensure the ETR rate is as low as possible and are seeking structuring advice on how to manage their pan-Asian supply chains.
All of this activity is taking place against the backdrop of increasingly active tax authorities that are hungry for revenue and are also faced with the challenge of implementing and enforcing new guidance and legislation issued by the region's governments.
The Chinese tax authorities have been particularly active in releasing numerous circulars about the booking and reporting of income after different activities. Circulars 601 and 18, which specifically prevent companies treaty shopping and clarify and update the taxation policies for representative offices respectively, have already caused concern for taxpayers and are likely to continue to do so during the rest of 2010.
Changes are expected later this year in some key Asian countries including further details on India's new Direct Tax Code, which is set to include a general anti-avoidance rule, and planned tax reform in Japan as well as efforts from the South Korean government to tackle aggressive tax planning.
This year will see companies adjusting their existing structures to comply with these rule changes and meet the various conditions for economic substance in the new laws. Despite surviving the downturn, taxpayers will once again find themselves restructuring and reorganising (including the transfer of activities into existing holding companies) to reach a position where these rules are satisfied and where they can build a platform for development from 2010 onwards.
International Tax Review: How has your advice to clients changed in the last 12 months? Matthew McKee: Advice has become slightly more conservative over the past 12 months in light of the developments indicated above and the general shift in the China tax environment. However, there are still many opportunities to legitimately minimise tax and the shift has been from blunt, crude structures to more subtle forms of tax minimisation. Our clients have also become more conscious of the legitimate tax opportunities in China, such as the lower tax rate for high tech approved companies. There is a general growing awareness of tax issues in China which is affecting the issues that we are asked to advise on. Clients are now more willing to explore more sophisticated tax planning.
As a result of the introduction of foreign invested partnerships we are also starting to provide more traditional structure choice tax advice. We expect to see this area grow quite significantly as investors become more accustomed the structuring options they now have available to them. Similarly, we have been giving a lot of advice to foreign investors who are looking to move away from a representative office structure to a company. There is a number of tax problems associated with shutting down a representative office. However, recent regulatory and tax changes have made representative offices are rather unattractive option in China and accordingly quite a few foreign investors are now looking to shift.
Matthew McKee, tax lawyer at Hwuason Lawyers, China
What significant changes have been made to Korean tax planning recently?
Daniel Lee: The most significant change in South Korea over the past year would be the Korean tax authority's increased efforts and emphasis to deter aggressive tax planning. Since August 2008, the National Tax Service (NTS) has imposed additional taxes over approximately KRW 177 billion ($157 million) based on the probe of overseas assets and investments held by large Korean corporations. Overseas assets and investment have often been used as an integral element of tax planning for Korean taxpayers. Also, in April 2009, the NTS became an observer of the Joint International Tax Shelter Information Centre and is looking to become a regular member soon. In addition, the NTS created the Offshore Tax Evasion Tracking Center directly under the assistant commissioner of the NTS in November 2009 to strengthen its crackdown on tax evasion involving aggressive tax planning and offshore transactions. In general, from the taxpayer's perspective, there tends to be a decreasing trend in tax planning which relies on application of tax treaty benefit, especially for acquisition and sale transactions.
The substance-over-form rule has been applied widely and aggressively by the NTS and a number of court cases concerning tax treaty application based on beneficial ownership have been ruled in favour of the tax authority at the administrative court level. As such, the taxpayers are reluctant to rely on tax planning and/or structuring which involves application of tax treaty benefits.
Daniel Lee, tax lawyer at Kim & Chang, South Korea
Since the downturn, how has tax planning changed for Japanese taxpayers?
Ken Okawara: As everyone knows, last year was extremely difficult and many companies were suffering because of the economic downturn. However, many Japanese taxpayers saw this as an opportunity to gather their thoughts and assess the situation. A lot of Japanese multinationals saw their overseas subsidiaries make profits and so large amounts of this were repatriated. This led to an increasing reliance on transfer pricing in tax planning as taxpayers sought to limit tax losses while maintaining maximum tax efficiency. However, all this movement prompted the Japanese government to begin amending the country's tax legislation.
The central mechanism of Japan's controlled-foreign company (CFC) rules is an effective rate test. This means income of foreign subsidiaries is subject to local tax below a threshold rate as CFC income is subject to immediate inclusion by the Japanese corporate shareholders unless an exception applies. Under proposed legislation, the threshold effective tax rate which triggers the immediate income inclusion will be lowered from 25% to 20%. For transfer pricing, the government hopes to adopt more specific rules regarding documentation that taxpayers must produce in transfer pricing audits, regarding the specifics of foreign related-party transactions and the manner in which the intercompany pricing for such transactions is determined. Taxpayers should also be aware that comprehensive tax reform is proposed for taxation of transactions conducted within a corporate group. The scope of such a corporate group will include the domestic parent and its domestic subsidiaries that are controlled 100% by the parent. Group taxation will apply whether or not the corporate group elects to consolidated tax filing status.
Ken Okawara, a partner at Baker & McKenzie, Japan
What tax planning advice are you giving to your clients for the upcoming year?
Niels Campbell: The change in attitudes since the downturn has meant that tax structured financing has virtually disappeared. Further, the Inland Revenue Department (IRDA) has naturally gone on the offensive, generating an upsurge of tax litigation. In response, some clients have also gone on the defensive, conducting wide ranging reviews of previous transactions to confirm they meet the new judicial approach. In response to the downturn, there initially was a focus on debt restructuring, followed by debt and equity placement programmes. This stage is now almost past, being replaced by cautious business expansions and acquisitions. In addition the first rounds of new employee share schemes are being proposed as confidence returns.
Although it is trite [to say] that tax planning should be undertaken in a context where the commercial rationale necessitates the tax outcome, particular attention needs to be given to tax avoidance, especially as the IRD now seeks to impose the maximum amount of late interest and penalties. As the economy improves, tax planning will refocus on mergers and acquisitions. In addition, infrastructure projects will commence. This signals a move towards greater private sector involvement in infrastructure procurement and management, so that PPPs (public private partnerships) may be introduced in New Zealand for the first time. Based on overseas experience, considerable tax planning will be required to implement PPPs efficiently.
Niels Campbell, a partner at Bell Gully, New Zealand
What trends and developments will affect tax planning in China in 2010 and beyond?
Khoonming Ho: Tax planning in China has changed dramatically over the past 12 months and this is forcing taxpayers to think twice about what techniques and strategies to adopt. We have seen the tightening of the rules governing the administration of tax treaty relief as well as the closer communication with and monitoring of local level tax authorities over the enforcement of such rules by the State Administration of Taxation (SAT). The introduction of general anti-avoidance rules (GAAR) in the use of conduit companies for tax treaty relief on dividends and capital gains has certainly adjusted traditional planning methods.
The impact of increased scrutiny of cross-border transactions such as permanent establishment exposures and the extension of the tax authorities' powers to investigate overseas transactions (circular 698) involving offshore indirect disposal of equity interests in China will be two interesting developments in 2010. Taxpayers should also be aware of the use of the self review mechanism to disclose non-compliances, including those initiated by the Large Enterprise Division and Tax Audit Bureau of SAT.
With all these changes my advice would be to plan for the long term in anticipation of continued tightening and enforcement of tax rules and the growing sophistication of tax legislation and administration.
Khoonming Ho, a tax partner at KPMG, in China
Australia
Tier 1 |
Deloitte |
KPMG |
PricewaterhouseCoopers |
Transfer Pricing Associates |
Tier 2 |
Allens Arthur Robinson |
Arnold Bloch Leibler |
Baker & McKenzie |
Blake Dawson Waldron |
Clayton Utz |
Ernst & Young |
Greenwoods & Freehills - Taxand |
KPMG |
Mallesons Stephen Jaques |
China
Tier 1 |
Baker & McKenzie |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Transfer Pricing Associates |
Tier 2 |
Hendersen Consulting - Taxand |
Hong Kong
Tier 1 |
Baker & McKenzie |
Deloitte |
DLA Piper |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
White & Case |
India
Tier 1 |
BMR Advisors - Taxand |
Deloitte |
Ernst & Young |
Grant Thornton |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Bansi S Mehta & Co |
Nishith Desai Associates |
TP Ostwal & Associates |
Seth Dua & Associates |
Indonesia
Tier 1 |
Hadiputranto Hadinoto & Partners (Baker & McKenzie) |
PB Taxand |
PricewaterhouseCoopers |
Japan
Tier 1 |
KPMG |
Ernst & Young |
PricewaterhouseCoopers |
White & Case |
Tier 2 |
Allen & Overy |
Anderson Mori & Tomotsune |
Baker & McKenzie |
Jones Day |
Kojima Law Offices - Taxand |
Malaysia
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Shearn Delamore & Co |
Taxand Malaysia |
New Zealand
Tier 1 |
Bell Gully |
Deloitte |
Ernst & Young |
PricewaterhouseCoopers |
Tier 2 |
Buddle Findlay |
Minter Ellison Rudd Watts |
Russell McVeagh |
Singapore
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Allen & Gledhill |
KhattarWong - Taxand |
South Korea
Tier 1 |
Ernst & Young |
Kim & Chang |
Samil PricewaterhouseCoopers |
Tier 2 |
Deloitte Anjin |
KPMG |
Sojong Partners - Taxand |
Taiwan
Tier 1 |
Ernst & Young |
Deloitte |
PricewaterhouseCoopers |
Tier 2 |
Baker & McKenzie |
Jones Day |
KPMG |
LCS & Partners |
Tsar & Tsai |
Thailand
Tier 1 |
Deloitte |
KPMG |
Law Alliance |
PricewaterhouseCoopers |
International Legal Counsellors Thailand |
EUROPE, MIDDLE EAST AND AFRICA
Tax planners get warning to watch out
The London summit of heads of government of the G20 in April 2009 has shaken the world of tax planning
For decades, tax planning – structuring to minimise the amount of tax paid is another phrase – has been one of the most critical, demanding and lucrative of the services that advisers, whether lawyers, accountants or other professionals, provide to clients. For advisory firms, such services have been and remain a key business area and a source of substantial fees that have been hard won.
Yet now, this once thriving area of advisory work is facing awkward questions over its future, some experts say, and its very existence.
The crucial shift in the legal and accounting landscape has been the success of politicians from the world's biggest economies in making out that all tax planning is harmful and has a whiff of illegality about it. The meeting of the G7 – now the G8 with the addition of Russia – was traditionally seen as the most important annual gathering of the world's biggest economies. During the global economic crisis of the past two years, the growth in importance to world trade of countries such as China, India and Brazil, who are not members of the G8, has seen the G20 change itself into a serious force in monetary and fiscal policy-making.
Central to the G20's influence on tax compliance has been its campaign against the use of tax havens and techniques such as abusive transfer pricing.
Tax planners are still attempting to extract maximum gain for clients from the full toolkit of methods they can use to try to cut corporate tax liabilities, exploiting allowances, deductions, exclusions and exemptions, and seeking to minimise the taxable income and capital gains.
"There has been a definite change since the G20 meeting. The outcome of the G20 meeting was a clampdown on tax havens and abusive transfer pricing policies," says Frederic Donnedieu, a partner at Arsene-Taxand in France.
"Transfer pricing was a main tool for tax planning. Companies had to get rid of subsidiaries in tax havens," he adds.
Some already believe that the whole nature of tax planning will change due to the G20's focus on tax havens.
"The whole notion of tax havens is less practical. There is greater transparency and banking secrecy has collapsed," says Niklas Schmidt, a partner at Wolf Theiss in Austria.
Schmidt speculates that tax planning _ at least in its traditional form, could cease to exist as most clients and practitioners understand it.
This pessimism is not the consensus view.
"There will always be people trying to organise business and therefore there will always be tax planning," says Mark Kingstone, a partner at Linklaters in the UK.
Legislation changes tax planning
Apart from G20 attempts to achieve multinational agreement on how to combat abusive tax planning, the other momentum is coming from changes to national legislation.
For example, the new German government used the annual Tax Act this year to introduce far-reaching changes for tax planning. However, it is not all bad news for tax advisers.
"More than 50% of tax laws are changed each year. The new government radically changed the old tax system. Every change creates new tax planning opportunities," says Christian Brodersen, a partner at Baker & McKenzie in Germany.
In the UK, the Treasury and Revenue & Customs have attempted to implement the government's anti-avoidance initiatives.
"There have been a lot of UK tax changes which have impacted on tax planning such as dividend exemption. Lots of companies brought money into the UK so HMRC, rewrote [the rules on] capital dividends. Advisers thought it was wrong on a point of law," said Kingstone.
In Greece, the wait for tax reform has led to uncertainty about acceptable forms of tax planning.
"Tax planning has been heavily affected by the wait for tax reform. Thin capitalisation rules came in recently and now tax planning concerns financing," said Daphne Cozonis, a partner at Zepos & Yannopoulos – Taxand in Greece.
| International Tax Review: What has changed about tax planning in the last year in Cyprus? The big developments in Cyprus were the conclusion of the protocol to the Russia/Cyprus double tax treaty (DTT) and the conclusion of a new DTT with the Czech Republic. Both close potential loopholes on capital gains tax for property-rich companies but maintain, and in some areas improve on, existing benefits. What are the new trends and developments in tax planning? The main trend is that although Central and Eastern Europe, particularly Russia, continue to be the mainstay of activities here, other areas of the world are increasingly using Cyprus as a portal for investment, not only to and from the EU, but globally. China has increased considerably in importance over the past couple of years. The Cyprus government, while maintaining the highest standards of transparency and avoidance of unfair tax competition, is determined to maintain Cyprus's high standing and competitiveness as an international financial centre. It has recently proposed changes to the taxation of maritime transport activities which will significantly reduce the tax burden on shipping activities. These proposals have been approved by the EU and details are expected to be announced shortly. What attitude are clients taking to planning? Clients want efficiency and certainty. They do not want to do anything that could impact them unfavourably at a later stage. They are therefore conservative and wish to ensure that every aspect has been explored thoroughly. What tax planning is going on at the moment? There is an appetite for buyers. Russia is trying to make its tax system more sophisticated with exchange of information, transfer pricing and capital gains tax on real estate. Clients are becoming less aggressive as most countries are trying to increase revenues. What is the future of tax planning? Despite attacks from the larger economies, which have seen tax revenues shrink in the downturn, who are intent on protecting their income, legitimate tax planning should have a role in the strategy of every business, as it can significantly enhance shareholder returns. David Stokes, a partner with Andreas Neocleous & Co |
Clients react
The G20's tax initiatives, which are being undertaken by the OECD, have caused taxpayers, as well as their advisers, to rethink their tax planning strategy and implementation.
"Clients have been cautious; they have to learn what practices are acceptable. They are being more prudent. Clients are less aggressive and not interested in artificial structures. We have a range of clients and we tend to advise them from a commercial perspective in a tax efficient way," said Kingstone.
"Some clients, such as banks, are risk averse. They don't want to be linked to tax avoidance," said Schmidt.
Some advisers believe that clients have always been cautious.
"Multinationals are very cautious. The advice we provide for tax planning is not to be risky although there is a certain threshold of risk," said Cozonis.
New thinking
Advisers believe taxpayers are less inclined now to take risks with their tax planning.
"There will be more group tax rate review and seeing what other companies are doing, as well as internal analysis so companies know what's being done. Risk is a factor of cost structuring, though taxpayers are less inclined to take a risk," said Brodersen.
Some think that certain features of tax planning will never make a return.
"We will never be back to using tax havens, there will be more technical analysis and more complex hybrid instruments," said Donnedieu.
| What's changed about your tax planning in the last year? I guess it is not a critical change but a continuous evolution toward a world with more compliance and control. Planning remains an important component of the tax question. It is a professional function to be managed with appropriate dedicated resources who have a global view and are trained accordingly. Planning derives from business transactions and should not be considered on a standalone basis. What are the new trends and developments? Lots of tax audits are going on that require more resources to be used and costs to be engaged. This is an important organisational point. You should not engage in any planning resulting in transactions that an operational business manager would not consider. You should pay attention to the wording of the law as well as its intent. These are the drivers that will continue over time. Where are the risks and opportunities in tax planning now? Tax planning has to be viewed more as a cost optimisation. Companies should look at their presence in a country as a matrix decision: First is the need for them to be competitive and cost mitigation is part of it. Second, multinational companies have to give value to their shareholders in a global market and deliver appropriate returns. Third, companies are in a country on a long-term basis and have to manage their relations with local tax authorities and their reputation taking into account this long term view. The balance of this requires high quality compliance with high maintenance and control to make sure that you tax strategy fits into global profile. You need to be ready to disclose 100% of what you are doing to the tax authorities. What is the future of tax planning? Tax optimisation will remain. It is now on the condition that tax is part of the global governance and requires to take into account any, even small, impact on the reputation of your company. Raphael Coin, tax director of General Electric, in France |
Austria
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Wolf Theiss |
Tier 2 |
Binder Grösswang |
DLA Piper Weiss-Tessbach |
Leitner & Leitner |
Schönherr Attorneys |
Belgium
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Liedekerke |
Loyens & Loeff |
Cyprus
Tier 1 |
Andreas Neocleous and Co |
Eurofast Taxand |
KPMG |
PricewaterhouseCoopers |
Denmark
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Accura |
Bech-Bruun – Taxand |
Kromann Reumert |
Finland
Tier 1 |
Deloitte |
Ernst & Young |
PricewaterhouseCoopers |
KPMG |
Tier 2 |
Castrén & Snellman |
Hannes Snellman |
France
Tier 1 |
Arsene Taxand |
CMS Bureau Francis Lefebvre |
Ernst & Young |
Fidal Direction Internationale |
Landwell & Associes |
Taj |
Tier 2 |
Bredin Prat |
Gide Loyrette Nouel |
Linklaters |
Germany
Tier 1 |
Baker & McKenzie |
Deloitte |
PricewaterhouseCoopers |
Tier 2 |
Ernst & Young |
Flick Gocke Schaumburg |
Freshfields Bruckhaus Deringer |
Hengeler Mueller |
KPMG |
Luther – Taxand |
WTS |
Greece
Tier 1 |
Ernst & Young |
Zepos & Yannopoulos – Taxand |
Tier 2 |
Photopoulos & Associates |
Gulf Cooperation Council
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Cragus Group |
Ireland
Tier 1 |
Arthur Cox |
A&L Goodbody |
Deloitte |
Ernst & Young |
KPMG |
Matheson Ormsby Prentice |
PricewaterhouseCoopers |
William Fry Tax Advisors – Taxand |
Tier 2 |
Grant Thornton |
McCann Fitzgerald |
Israel
Tier 1 |
Ernst & Young |
Herzog Fox & Neeman |
KPMG Somekh Chaikin |
PricewaterhouseCoopers |
Tier 2 |
Alter Attorneys at Law |
Goldfarb Levy Eran & Co |
Italy
Tier 1 |
Chiomenti Studio Legale |
Deloitte |
Ernst & Young |
K Studio Associato |
Maisto e Associati |
Vitali Romagnoli Piccardi e Associati |
Tier 2 |
Freshfields Bruckhaus Deringer |
Gianni Origoni Grippo & Partners |
Bonelli Erede & Pappalardo |
Luxembourg
Tier 1 |
ATOZ – Taxand |
Deloitte |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Bonn Schmitt Steichen |
Linklaters |
Loyens & Loeff |
Malta
Tier 1 |
Deloitte |
PricewaterhouseCoopers |
Tier 2 |
Avanzia Tax Advisors – Taxand |
Ganado & Associates |
Camilleri & Preziosi |
The Netherlands
Tier 1 |
Baker & McKenzie |
Ernst & Young |
KPMG |
Loyens & Loeff |
PricewaterhouseCoopers |
Transfer Pricing Associates |
Tier 2 |
BDO |
Nauta Dutilh |
Stibbe |
VMW Taxand |
Norway
Tier 1 |
BA-HR |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Raeder |
Thommessen |
Poland
Tier 1 |
Baker & McKenzie |
Deloitte |
Ernst & Young |
MDDP |
PricewaterhouseCoopers |
Tier 2 |
Accreo Taxand |
Weil Gotshal & Manges |
Portugal
Tier 1 |
Deloitte |
Ernst & Young |
Garrigues – Taxand |
PLMJ |
PricewaterhouseCoopers |
Tier 2 |
Abreu Advogados |
Morais Leitão, Galvão Teles, Soares da Silva & Associados |
Russia
Tier 1 |
Baker & McKenzie |
Deloitte |
Ernst & Young |
Pepeliaev Group – Taxand |
PricewaterhouseCoopers |
Tier 2 |
Herbert Smith |
Salans |
White & Case |
Sweden
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
Mannheimer Swartling |
PricewaterhouseCoopers |
Tier 2 |
Baker & McKenzie |
Lindahls |
Skeppsbron Skatt - Taxand |
South Africa
Tier 1 |
Bell Dewar & Hall |
Bowman Gilfillan |
Deloitte |
Edward Nathan Sonnenbergs |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Webber Wentzel |
Spain
Tier 1 |
Ashurst |
Baker & McKenzie |
Cuatrecasas |
Deloitte |
Garrigues – Taxand |
KPMG |
Landwell |
Uria Menendez |
Switzerland
Tier 1 |
Baker & McKenzie |
Ernst & Young |
Homburger |
PricewaterhouseCoopers |
Tier 2 |
Lenz & Staehelin |
Niederer Kraft & Frey |
Oberson |
Pestalozzi |
Poledna Boss Kurer |
Tax Partner – Taxand |
Turkey
Tier 1 |
Deloitte |
Ernst & Young |
Gide |
Mazars (Denge) |
PricewaterhouseCoopers |
Tier 2 |
Erdikler – Taxand |
White & Case |
United Kingdom
Tier 1 |
Baker & McKenzie |
Deloitte |
Ernst & Young |
Linklaters |
PricewaterhouseCoopers |
Tier 2 |
Allen & Overy |
Alvarez & Marsal Taxand UK |
Freshfields Bruckhaus Deringer |
KPMG |
Lovells |
LATIN AMERICA
Tax reform and a more interventionist approach by the authorities have held the interest of planners recently. Taxpayers also have some important planning questions to answer when considering a purchase.
Over the past 12 to 18 months, multinationals doing business or considering investment in Latin America had to consider the impact of the global economic crisis.
When the credit crunch was in full swing, companies were unable to fund expansion, and so repatriation became the priority in terms of tax planning.
"In the past couple of years, the deal market was at a standstill, there was little M&A in the region and internal restructurings were on hold," explained John Salerno, a tax partner at PricewaterhouseCoopers.
"In Mexico, we didn't have an economic problem in 2009, but more of a psychological problem," explains Julio Ysusi, tax partner at the Mexican law firm of Ortiz, Sosa, Ysusi y Cía.
"People kept saying, 'The wolf is coming!', but it never came. Still, this had an effect on businessmen. They kept cash in the company and in the first semester of 2009 transactions were frozen."
Some technical tax changes will also affect US based multinationals concerning how they will structure deals in Latin America.
The tax authorities in Mexico, for instance, are relying on changes to the tax laws in order to collect more revenue. Changes in Mexican law will affect recapture rules for Mexican consolidated companies.
Companies must also evaluate the impact of these rules on US foreign tax credits. "Considering the extent to which Mexican tax is paid on recapture items, a company needs to ask how that might affect the pool of foreign taxes that a US company can claim for federal tax purposes," said Salerno.
High rates
In dealing with repatriation from Latin America, companies must consider the high withholding tax rates in local countries in connection with certain payment types.
Dividends, for example, are often not subject to withholding tax at all, in countries such as Brazil. To the extent that they are subject to withholding tax they are often paid out of previously taxed earnings, as they are in Argentina.
"The message here is that tax treaty planning can be helpful in some cases, and it presents an area of opportunity," said Salerno.
Securing new money
As economies begin to climb out of the crisis, there will be opportunities for growth, and companies will need to consider financing for future and expansion.
There are important new reforms to be considered in this area. Brazil recently enacted new thin capitalisation rules that will cause companies to consider how they structure the funding of their operations.
These rules will require a two-to-one debt to equity ratio with respect to related party loans into Brazil, and even stronger rules for loans coming from tax haven jurisdictions.
The deal market is also reviving and companies will need to consider how to structure the deals that are getting done.
"Companies will need to ask themselves: 'From where should I purchase a Latin American target?' Should I purchase from my home jurisdiction or from a holding company, and what is the most appropriate jurisdiction for the holding company?'" said Salerno.
He also pointed out that the ability to amortise goodwill or other intangibles may vary in different jurisdictions, and this may affect where a company decides to structure a deal.
Tax authorities take notice
There has also been a noticeable shift in some Latin American countries with the way that the tax authorities are reacting to tax planning.
"There is now a strong trend in the case law that tax planning is only valid in Brazil if it has a valid business purpose," explains Luís Rogério Farinelli, tax partner at the Brazilian law firm, Machado Associados.
"Companies need to be more careful in developing tax structures because the tax authorities are trying a new approach and attacking companies based on accounting principles, rather than legal principles," he said.
Argentina
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Mitrani, Caballero, Rosso Alba, Francia Ojam & Ruiz Moreno |
Tier 2 |
Baker & McKenzie |
Bruchou, Fernández Madero & Lombardi – Taxand |
Malumian & Fossati |
Marval O'Farrell & Mairal |
Brazil
Tier 1 |
Deloitte |
Ernst & Young |
Lacazs Martins, Halembeck, Pereira, Neto, Gurevich & Schoueri |
PricewaterhouseCoopers |
Trench Rossi e Watanabe/Baker & McKenzie |
Tier 2 |
Demarest & Almeida |
Lefosse in cooperation with Linklaters |
Machado, Sendacz e Opice |
Veirano Advogados |
Pinheiro Neto Advogados |
Xavier, Bernardes, Bragança |
Chile
Tier 1 |
Deloitte |
Ernst & Young |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Claro & Cía |
Espinosa, Porte & Canales, Abogados y Consultores |
Philippi, Yrarrazaval, Pulido & Brunner |
Baraona Marré |
Colombia
Tier 1 |
Deloitte |
Ernst & Young |
PricewaterhouseCoopers |
Tier 2 |
Gomez-Pinzón Zuleta – Taxand |
Lewin & Wills |
Baker & McKenzie Colombia |
Mexico
Tier 1 |
Baker & McKenzie |
Chevez, Ruiz, Zamarripa y Cia |
Deloitte |
PricewaterhouseCoopers |
Tier 2 |
Basham Ringe y Correa |
Ernst & Young |
Mijares, Angoitia, Cortés y Fuentes – Taxand |
Ortíz, Sosa, Ysusi |
Peru
Tier 1 |
Estudio Ferrero |
Miranda & Amado – Taxand |
Muniz Ramirez Perez Taiman & Luna Victoria |
PricewaterhouseCoopers |
Rodrigo, Elias & Medrano |
Venezuela
Tier 1 |
Candal Taxand |
Cifuentes, Lemus & Asociados (Moore Stephens) |
Deloitte |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Despacho De Abogados Miembro De Hogan & Hartson |
Torres, Plaz y Araujo |
NORTH AMERICA
US tax planning
International Tax Review asked a variety of tax professionals to respond to questions about how tax planning in the US has evolved over the past year and where it is heading. Two tax lawyers, a tax adviser, and a tax director at a large US multinational share their opinions below. Taken together, their views provide a comprehensive account of the most significant issues in corporate tax planning facing US companies.
International Tax Review: What has changed in tax planning over the last year? How is the economy a factor in corporate tax planning?
James Fuller and David Forst, tax partners at Fenwick & West: We don't see the economy as a factor in corporate tax planning. Companies don't plan for the short term, for example, in setting up or modifying a corporate structure. So things have not really changed. Given the IRS' challenges to tax-motivated transactions and changes in accounting rules in recent years, however, the appetite for promoted structures has certainly decreased.
Simon Beaumont, vice president, tax at IBM: Most tax planning today is focused around the business operations. The tax position of the company needs to keep aligned with the business changes that arise as the company moves further towards a globalised and integrated company.
Michael Urse, international tax services partner and leader of US outbound tax practice at PricewaterhouseCoopers: Before the release of the Administration's 2011 Budget, many companies were not sure whether, or how, to proceed with their global business planning. Until then, the continued availability of check-the-box structuring in business transactional planning was unclear and the other two significant financial year 2010 budget proposals (expense deferral and section 902 blending) created less certainty when planning. The decision to (presumably) leave the check-the-box rules intact has provided some degree of certainty in implementing business-driven structures. This may permit US multinationals to achieve some of the foreign tax savings that non-US based multinationals can generally already achieve under their respective local laws.
Have you observed any trends or developments in US tax planning over the last year?
James Fuller and David Forst: We don't see any particularly different trends in corporate tax planning. Corporate taxpayers are generally pleased that the new Obama proposals (2011 budget) do not attack international check-the-box structures, as did the Administration's proposals last year (2010 budget). This often relates to foreign-tax savings and cross-border tax planning. The Administration may have dropped last year's proposal realising it could cost the US government revenues in the form of additional foreign tax credits.
Simon Beaumont: Tax planning today is taking place in a fairly transparent way and there is an open dialogue and discussion with the taxing authorities. We assume that all transactions we enter into are fully disclosed and audited – in complete sunshine – by every interested taxing jurisdiction. This includes federal, state and foreign tax authorities.
Michael Urse: Companies seem most interested in implementing business-focused strategies that will make sense whether or not tax laws change. Companies do not want to revamp their global structure every two to three years. Of course, we see operational business changes (such as centralisation of treasury, accounting or other services) requiring commensurate tax planning.
What attitude are clients taking to planning?
James Fuller and David Forst: Tax planning is a necessary part of a country's economy when that country has the second highest corporate tax rate of all OECD developed countries. US companies that want to remain competitive with their counterparts around the world recognise this. The US ought to lower its corporate tax rate. It also ought to get with the rest of the developed world and move towards a territorial tax system, at least in so far as not taxing repatriated foreign earnings.
Michael Urse: The consistent theme we hear is that companies want to implement business-focused structures that will last a number of years, no matter what happens legislatively.
What kind of tax planning is going on at the moment?
James Fuller and David Forst: Nothing unusual. Most taxpayers would like to keep their corporate tax to reasonably low levels. There are established rules that can be followed to achieve these goals. After all, these companies are often competing with foreign based companies that are in countries that have lower corporate tax rates and territorial systems, at least when it comes to repatriating foreign earnings.
Simon Beaumont: Part of the challenge is ensuring that companies are not double taxed. As countries and taxing jurisdictions face increasing deficits there is greater pressure to increase their share of the global tax receipts. This places significant pressure on companies to ensure that each jurisdiction only taxes the income to which it is entitled. Transfer pricing has become the number one area of focus.
Michael Urse: Most tax planning is focused on the various business changes that companies are experiencing. Also, companies are cognisant of the possible impact of potential tax law changes, such as expiring tax provisions.
What are the risks and opportunities for tax planning in this economy?
James Fuller and David Forst: Planning with economic substance in mind can be important. It's not related to the economy, but to the need to satisfy the current tax rules with respect to having economically sound structures and planning. Transfer pricing also must be sound economically.
Simon Beaumont: It is difficult to plan with so much uncertainty from a legislative perspective. We are now in April and we still don't have a US research tax credit and certain other tax provisions have also sunset.
Michael Urse: The impact of legislative changes always needs to be assessed. In addition, there are often multiple ways to implement business structures, and companies should understand the different tax risks associated with those implementation variations.
Companies are evaluating the uncertainty introduced into business planning by the recent codification of the economic substance doctrine and the potential associated penalties. Although it will take some time to see how the codified doctrine is ultimately applied by the courts, there is reason to hope that they will apply it judiciously, limiting its application to the types of abusive planning that gave rise to the common law doctrine.
What is the future of tax planning?
James Fuller and David Forst: The economic substance doctrine was just codified. It could have an effect on future tax planning. However, for those corporate taxpayers who have adhered to this doctrine all along, it might have little effect. It could lead to an increase in tax litigation, however, to the extent the IRS abuses the new statutory provisions in future audits.
Simon Beaumont: One thing is for certain – the US must move towards comprehensive tax reform such that our tax system is aligned with the rest of the world. Ultimately this means a competitive territorial tax system combined with a competitive tax rate.
Michael Urse: There is a much greater focus on integrated global business planning-planning that achieves a number of business and tax objectives across regions or globally, as opposed to one-off country planning. Tax planning that is aligned with business operations is a key to success and can achieve broad corporate objectives.
Canada tax planning
Restructuring and M&A have kept tax planners busy, though less debt is being used in buying companies.
Since the recession hit Canada, the country has seen an increase in restructuring, which predictably has had an impact on tax planning.
Tax lawyers and advisers in Canada have observed a greater focus on loss utilisation or tax attribute preservation as a consequence of companies facing losses due to the global economic crisis.
"While the March 2010 Canadian federal budget proposed to study the introduction of a loss transfer or consolidation regime in Canada, it is not yet clear when (or if) any such rules will be introduced," explained Patrick Marley, a tax partner at Osler, Hoskin & Harcourt, a law firm.
Under the tax rules, taxpayers in Canada need to engage in a fair amount of tax planning to ensure that losses are used efficiently.
"The impact of tax planning can be very different when taxpayers experience losses," said Marley. "Taxpayers should be mindful of the limitations on the use of losses, both under the domestic rules and the outbound investment rules."
And as a result of the recession and credit crunch, M&A deals that are going forward have less leverage than they did two years ago. The fact that there is less debt financing in place for these transactions has an impact on tax planning.
"We are seeing M&A, but more of the deals are long term, strategic acquisitions of companies that may not be bringing in much income, but are seen as having value for strategic reasons," explains Jeffrey Trossman, a tax partner at Blake, Cassels & Graydon, a law firm.
"It will be a long time before we see the kind of leverage ratios we saw in 2001 and 2008," he said.
Government steps in
The government also announced significant changes to in the Canadian federal budget on March 4.
The most lasting impact will be the change in the rules for taxable Canadian property. The budget proposals will significantly narrow the circumstances in which shares of Canadian corporations will be considered taxable Canadian property.
This change will likely encourage investment by non-residents in Canadian corporations.
"Narrowing the definition of taxable Canadian property allows more non-residents to be exempt from tax in Canada on the sales of shares, and removes the administrative burden on such non-residents by not having to comply with the Canadian clearance certificate and income tax return filing obligations," said Marley.
"This change will be especially relevant for inbound private equity investments," said Trossman.
"Many private equity funds stayed away from Canada to avoid the hassle and meddlesome procedures associated with the previous regime," he added. The new law will facilitate access to capital for Canadian private companies."
Some of the stringent accounting requirements across the border in the US will affect Canadian companies. FIN 48 requirements have a spill-over effect in Canada because subsidiaries of US multinationals are subject to FIN 48.
"Even for companies that are not directly subject to FIN 48, these requirements require companies to give additional scrutiny to tax reserves and uncertain tax positions," said Trossman.
Canada
Tier 1 |
Blake Cassels & Graydon |
Deloitte |
Ernst & Young |
Gowlings – Taxand |
KPMG |
McCarthy Tétrault |
PricewaterhouseCoopers |
Tier 2 |
Davies Ward Phillips & Vineberg |
Osler Hoskin & Harcourt |
Stikeman Elliott |
Goodmans |
Thorsteinssons |
United States
Tier 1 |
Baker & McKenzie |
Deloitte |
Ernst & Young |
Fenwick & West |
KPMG |
PricewaterhouseCoopers |
Tier 2 |
Alston & Bird |
Baker Botts |
Ballentine Barbera |
Caplin & Drysdale |
Ceteris |
Cleary Gottlieb Steen & Hamilton |
Gibson Dunn & Crutcher |
Shearman & Sterling |
Sullivan & Cromwell |
Vinson & Elkins |
