THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES Elías Adam Bitar firstname.lastname@example.org TRON ABOGADOS, S.C. Prado Sur 555 Lomas de Chapultepec México, D.F., 11000 TAX PLANNING To this day there is no definition of tax planning; however, the following terms have been highly associated with it: 1. Tax havens 2. Low tax collection 3. Tax intermediaries 4. Necessity of tax reforms THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES LEGITIMATE TAX PLANNING VS. TAX FRAUD / TAX AVOIDANCE Any transaction carried out will derive in a number of tax effects. These tax effects can be diminished or eliminated: • Tax fraud • Sham or simulation • Tax planning TAX IMPACT (TAXPAYER) VS. EXPECTED REVUENUE (TAX AUTHORITY) THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES BUSINESS TARGET: TO MINIMIZE COSTS TAX = COST Therefore to minimize taxes is a business target. PROBLEM: How to achieve it? ROAD 1 BUSINESS ROAD 2 SAME RESULT ROAD 3 A business decision is based in the evaluation of the related costs vs. the benefits obtained. THERE IS NO CORRECT OR INCORRECT ROAD TO CARRY ON A BUSINESS THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES NOT EVERY ACTION IS VALID FOR TAX PLANNING - Simulated acts - Sham transactions These activities shall be discouraged and attacked REAL ACT VS. SIMULATED ACT/SHAM TAX DUE VS. UNDUE TAX BENEFIT TAX FRAUD: not a tool for tax planning, but a criminal activity THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES SUBSTANCE OVER FORM PRINCIPLE Principle to recharacterize the form of an act based on its economic substance. This principle is hard to apply in civil law countries. Civil law countries: form is of the essence of the act. Mexico: not applicable. FORM: CAN A TAXPAYER CHOOSE? Individuals: are restricted not to do what the law expressly forbids them. Authorities: are entitled to do only what the law allows them. A taxpayer is not forbidden to make a decision when doing business, to the extent this decision is not an act forbidden by the law (i.e. criminal offense). THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES TAX AVOIDANCE Subjective element: intention to diminish the tax due Objective element: illegal action (i.e. simulation of acts) Consequence: undue tax benefit To the extent the taxpayer has a legitimate business purpose to structure its transaction in a given way, despite the fact that the same result could be obtained through different and possibility more tax expensive structures, no tax avoidance will be considered done. A taxpayer is entitled to choose the legal form of its transactions and to the extent the rights and obligations assumed are properly characterized and are enforceable (meaning that no simulation exists), a transaction should not be disqualified based on the existence of other more tax expensive alternatives. There is no obligation to choose the more tax expensive structure. SUBSTANCE OVER FORM VS. LEGAL CERTAINTY THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES Tax administrations’ general measures against tax avoidance 1. GAARS (general anti-avoidance rules). 2. Sham and simulation of acts doctrines. 3. Judicial Interpretations. 4. General rulings. 5. Exchange of information. Mexico 1. Sham and simulation of acts. 2. Judicial and administrative precedents. 3. General rulings issued by the tax authorities. 4. Published and unpublished non binding internal criteria of the tax authorities (also known as unlawful tax practices). 5. Obligation of the tax advisor to disclose to their clients (taxpayers) the relevant internal criterions of the tax authorities. 6. Obligation of the taxpayers to prepare and submit tax reports. 7. Tax authorities are empowered to declare the simulation of acts within certain boundaries. 8. Exchange of information. THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES GENERAL TENDENCY TOWARDS TAX PLANNING (OECD) 1. To keep a close look on tax planning activities. 2. To establish anti-avoidance rules (GARRS). 3. To develop and establish an actual control on tax planning activities (i.e. registration and forced disclosure by the taxpayers, advisors and auditors). 4. International exchange of information. 5. Seoul Declaration 2006 (signed by member countries): considered as a true challenge for revenue bodies: (i) the integration of national economies, (ii) the communication technology, (iii) the electronic finance and (iv) the dominance of multinational firms (law and accounting firms). PRINCIPLES TO RESTRICT LIBERTY 1. Fair market values. 2. Arm’s length principle. 3. Recharacterization or disallowance of back to back loans. THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES STUDY INTO THE ROLE OF TAX INTERMEDIARIES (OCDE) - Aggressive tax planning typically requires the involvement of tax professionals: accounting firms, law firms, financial institutions (tax intermediaries). - Tax intermediaries play a vital role helping taxpayers understand and comply with their tax obligations. - Tax intermediaries represent the supply side of aggressive tax planning. - Taxpayers represent the demand side of aggressive tax planning. - There is a tripartite relation between revenue bodies, taxpayers and tax intermediaries. - Target: to influence the demand side. - Taxpayers determine their own appetite for tax risk. - Revenue bodies need to manage the risk, encouraging disclosure from taxpayers. THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES GENERAL CONCLUSSIONS - Tax planning is not forbidden. - There is no obligation to carry on a business in the most tax expensive way. - The general tendency is to discourage tax planning. - Sham transactions and simulation of acts are forbidden by the law and when an undue tax benefit is obtained, they are considered as a tax fraud and a criminal offense. - A tax is not due unless: - It is provided for within a law, and - The relevant activity giving rise to the tax is carried on. - Therefore, to the extent no illegal action is carried on, the taxpayer will be compelled to pay the taxes arising from its specific acts, despite the fact that the same result could be obtained in a more tax expensive structure.
Pages to are hidden for
"THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES"Please download to view full document