IFA©2014 Seminar C IFA 68th Annual Congress Mumbai, India TUES DAY, DAY, DAY, DAY, 14 OCTOBER14 OCTOBER 14 OCTOBER 14 OCTOBER 201 4 FROM 1 2.30 -14.30 OUTLINE SEMINAR C The taxable residence of companies Chair Guglielmo Maisto (Italy) Panel Members Stéphane Austry (France) Nikhil Mehta (India/UK) Jens Schönfeld (Germany) Jefferson VanderWolk (USA) Michiel Van Kempen (Netherlands) Secretary Cesare Silvani (Italy) IFA©2014 Seminar C Page - 2 - of 4 Brief Introduction I. Review of Criteria for Tax Residence of Companies under Domestic Law a. Domestic rules on tax residence are generally viewed as a way to define worldwide tax liability under domestic law and rely traditionally on (i) place of incorporation (or other formal criteria, such as the place of statutory seat) and/or (ii) place of effective management (PoEM) (or other similar criteria). Other criteria will also be mentioned (e.g., control). b. Review of the status and expected moves (if any) of domestic tax laws (e.g., U.S. inversion rules). c. Analysis of corporate structures that may raise tax residence issues and their implications under the two main residence criteria. i. E.g., a parent company controls and monitors the business of its foreign subsidiaries (focus on listed companies, which are characterized by a tight control over their subsidiaries). ii. E.g., mergers among equals that may lead to a split location of governance and management functions. d. Can place of incorporation (or other formal criteria) possibly work better than PoEM under domestic law? Which criteria best suit the current governance of corporate groups? Should domestic tax laws adopt one tax residence criterion only? II. Domestic Tax Audits on Tax Residence of Companies a. Is tax residence a priority target for tax authorities? If so, is it included in high-risk assessment when addressing tax audit programs? b. Which alternatives do tax authorities consider in their strategy to make adjustments (e.g., residence claim, PE claim, or CFC claim)? i. Practical differences between an adjustment based on a residence claim and an adjustment based on a PE claim. IFA©2014 Seminar C Page - 3 - of 4 ii. Practical differences between an adjustment based on a residence claim and an adjustment based on a CFC claim. c. Have tax authorities developed guidelines for tax audits to detect tax residence of companies? i. How are tax audits carried out in practice and which evidence is being retrieved (e.g., interviews to management and key employees, email search, review of tax opinions, etc.)? d. Do tax auditors have any guidance on whether and how they should rely on (i) foreign tax residence certificates and (ii) evidence retrieved by foreign tax authorities during their tax audits? e. Is exchange of information activated during the tax audits? If so, which information or evidence is being requested? Is evidence being collected separately for each taxable period? f. What issues arise when a foreign company is regarded to be a tax resident in the course of a tax audit that concerns several previous taxable periods? The following issues may arise: i. Use and significance of the financial statements drawn up according to foreign law as a basis for determining the taxable income; ii. Retrospective use of methods to relieve international double taxation (e.g., foreign tax credit, exemption, etc.) in respect of foreign source income; iii. Retrospective use of elections that the company would have applied if it had been aware of its tax residence (e.g., election for group taxation, tonnage tax regimes, etc.); iv. Possible discontinuance of tax residence through taxable periods and exit taxes; and v. Withholding taxes and VAT ramifications. g. Are tax residence claims generally settled? If so, on which basis? Is the tax levied in the other State credited? IFA©2014 Seminar C Page - 4 - of 4 III. Pointers of Tax Residence of Companies under Case Law a. Review of the most recent case law on tax residence, assessment of the level of consistency of case law findings, and identification of the most relevant pointers of tax residence. IV. Treaty Issues Relating to Tax Residence of Companies a. The most fundamental issue is treaty entitlement, namely whether a company meets the requirement laid down by Article 4(1) OECD MC. The focus is on the attitude of the Contracting State other than the State of which the company is a resident. i. Reliance on the certificate of residence issued by the State of residence of the company: (i) Does the other Contracting State require the certificate to meet certain requirements? (ii) Is the tax residence challenged if the State of residence applies corporate tax solely on territorial income? b. Abuse of residence and ways to fight tax avoidance under treaties. i. Dual resident companies and companies resident of one Contracting State with a PE in a third State. c. Ways to resolve issues of dual residence when both Contracting States are claiming full liability to tax of the taxpayer. i. Measures to improve resolution of dual residence under treaties: advance rulings, rebuttable presumptions on tax residence, targeted safe harbor rules to escape tax residence on most frequent corporate governance patterns, and review of tie-breaker rules under treaties along the lines of tie-breaker rules for individuals. ii. Experience of concluded MAPs.
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