THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES by by654321

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									THE ROLE OF TAX INTERMEDIARIES - OECD PERSPECTIVES



                         Elías Adam Bitar
                         eadam@tronabogados.com.mx
                         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.

								
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