Actueel

On 11^th February, OECD has published a new guidance on transferring pricing, the Transfer Pricing Guidance on Financial Transactions, which was a new development under the BEPS Action Plans, specifically under Actions 4 and 8-10. It signifies the first attempt to update the existing OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations for further specification of transfer pricing in financial transactions to improving efficiency and consistency of applying transfer pricing principles and preventing both disputes and double taxation.

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Transfer Pricing refers to the behaviours typically found in intra-group trade within multinational enterprises (MNEs) to allocate costs and profits to more favourable tax jurisdictions for tax avoidance purposes. Transfer Pricing Principle is better known by the term arm’s length principle, which refers to a rule that the price of the goods or services traded within one MNE between different entities located in different tax jurisdictions should be determined as if they are independently functioning companies in the market. If prices can be freely decided between group subsidiaries or affiliated companies, market distortion or monopoly can be easily achieved by MNEs or such groups holding dominant market shares by means of profit shifting and tax evasion.

Here is a simplified overview of new contents in this new guidance. Actions 4 and 8-10 of BEPS Action Plans talk about interest deduction limitations, intangibles, risks & capital, and high-risk transaction respectively. Transfer Pricing Guidance on Financial Transactions being part of the Inclusive Framework on BEPS regarding these Actions has provided for more clarity in section B on the application of the accurate delineation analysis to capital structure of an MNE within an MNE group. Meanwhile it is also made clear that this section does not prevent countries from implementing domestic measures to address capital structure and interest deductibility. Other clarifications include outlining economically relevant characteristics for analysing terms and conditions of financial transactions, such as contractual clauses, functionality analysis, characteristics of financial instrument, economic environment and operational strategies. Sections C-E has addressed specific issues in relation to the pricing of financial transactions, include but not limited to treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance, which are highly elaborative on both the accurate delineation and the pricing of the controlled financial transactions. Section F, as the last part of the main body, provides for determinations of a risk-free rate of return and a risk-adjusted rate of return. This guidance is annexed into the OECD Transfer Pricing Guidelines as Chapter X in entirety with adjusted numbering.

For many, OECD rules and BEPS updates are of high relevance due to boosting trade between MNE groups and affiliated companies. Stay on top of news and seek professional assistance are always helpful to avoid the avoidable and keep your business as stable as possible. We are always here to hear your needs.

Global Connect Admin B.V. | Xuan Hao

In mid-February, GCA joined a cultural intelligence workshop event organized by DUJAT for Dutch- and Japanese-oriented organizations and international expats. It was a great pleasure to be part of the speakers’ team facilitating the whole session altogether. While many participants considered the workshop to be very helpful and practical in different ways, there are some take-aways that the majority agreed on.

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Cultural intelligence is an ability that would enable one to understand the other in a cultural context foreign to the former. It consists of motivation, knowledge and actions. To improve this ability, an organization should bring this topic across; a team should come up with practical action plans to encourage communication and inclusiveness among local and foreign members; each individual should remain curious and respectful to unknown behaviours and try informal contacts or activities to understand the other side better. To be more specific, some tangible plans discussed during the workshop were thought to be helpful by many. We would like to share with you some take-aways in relation to the three key aspects of cultural intelligence: motivation, knowledge and actions.

1. Compose brochures containing cultural intelligence knowledge and information about both cultures to invite interests and curiosity, which can build up motivation and knowledge in learning about the other culture.
2. Initiate prior communication on what and how to proceed before real interactions take place between two cultures, which helps with both knowledge and actions.
3. Improve process management regarding behaviours, communication channels, decision-making procedures, information disclosure, and feedback control, which also helps with knowledge and actions.
4. Select a cultural ombudsman who has understandings of both cultures and behaviours to interpret messages and contexts to one another, which could help with both motivation and knowledge, or sometimes actions.
5. Field trip and visits to each other in person and on site, which gives people, especially the management, a real sense of the other culture and behaviours attached to it. This action could increase the motivation to understand and the knowledge to make better decisions.
6. Participate in trainings and workshops, which could offer a good opportunity to involve as many as possible at once. This action helps people seriously and openly discuss things confuse or bother them and generate a better understanding, which helps with knowledge and actions, or possibly motivations if someone is new to cultural differences.

Cultural intelligence is very intangible, but to make it more tangible so that plans are implemented through actions to take real effects, professional trainings are very useful to learn more or to improve more. GCA is constantly learning, improving, and sharing, despite of our experiences in dealing with cultural differences from many clients. If you are an international business, we are here to understand you and bring your business further by providing reliable financial services with an inclusive and respectful attitude.

Global Connect Admin B.V. | Xuan Hao

Cultural Intelligence, or Cultural Quotient (CQ) is an ability of an outsider to interpret another culture, another behaviour, another rationality and irrationality. We would like to bring this topic to you because crossing border has certainly become a routine in most businesses and sectors, also because this soft factor is not easy to grasp at once but is playing an important role in becoming a successful business.

This concept was initially developed by Professor Christopher Earley and Soon Ang in their book Cultural Intelligence in 2003. It was defined as the ability to adapt to new cultural settings. It is the ability to understand unfamiliar or ambiguous behaviours and recognize shared influences but yet not to make assumptions or generalizations based on any single aspect. Because people coming from the same country or the same cultural group could behave differently due to their positions in a business, their situations, their age or gender, their education and backgrounds, and sometimes their personalities.

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How tell if an employee has CQ or how to develop CQ when lacking? It is essential to look at the three components of CQ first. The Harvard Business Review identified Head – cognitive, Body – behavioural, and Heart – motivational as the key components of CQ. In simple terms, a person should understand a foreign culture, adapt the right physical behaviours, and take actions accordingly for a success in result.

Take an example of the Dutch and the German. If one would run a quick comparison on the Hofstede Insights on these two countries on the six cultural dimensions, in which Germany is considered more masculine and the Netherlands more feminine. This suggests that the German prioritize career development and high achievements over private life, and the Dutch in the contrary. However, this is only a generalized conclusion. Approach to a cultural group individually, it is also not surprising to see not everyone from that culture follows the same mindset and behaviours. This could vary between subgroups or communities, sometimes in corporations or families. Making appropriate research and observation or gathering the right information and knowledge is usually the first step. Because general ideas do not help as much as expected on an individual basis. Upon necessary knowledge, thinking towards understanding is the next step. From understanding to strategies and then to actions are the last two steps to complete the CQ management.

On 12^th February, we will be speaking more about this topic in Amsterdam with three other speakers under the organization of the Dutch Japanese Trade Federation. Please join us for more discussions in the event or stay tuned for our next article summarizing the discussion and findings in that event.

Global Connect Admin B.V. | Xuan Hao

According to recent information from Reuters, the EU has agreed to remove UAE, Switzerland and the Marshall Islands from the tax haven blacklist in October 2019, which signified another step forward on the journey to global transparency on assets. In the following month, Hong Kong has taken actions and has shut down a large number of offshore accounts. Large-scale tax avoidance has becoming more and more restricted and riskier as the Common Reporting Standards (CRS) are being widely implemented and the trend on global information transparency is growing.

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The EU tax haven list can be viewed in two lines, the blacklist and the grey list. The blacklist was initiated in 2017 and 25 countries has been removed from that list so far. The grey list consists of another 34 countries or regions. They are on grey list because they have agreed at the end of 2019 to commit to improve tax compliance in upcoming years. If their commitments are fulfilled soon, they will be removed from the grey list; Otherwise they will be replaced into the blacklist.

The EU issues these two lists based on three main criteria:

1. Transparency
2. Fair Tax Competition
3. BEPS Implementation

The remaining tax havens which have not committed to improving tax compliance or information exchange mechanism are American Samoa, Guam, Fiji, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu and Oman.

Global assets transparency is a result of automatic exchange of financial information based on CSR, which might bring more tax burdens or even fines, if failure to report timely, onto taxpayers possessing various assets in different countries or regions. Passive non-financial companies (aka shell companies) established in favourable tax jurisdictions for assets management or tax avoidance could face more information disclosure to the authorities, which lead to an inhibiting effect on tax avoidance behaviours. Family trusts, large insurances, trade businesses and so forth are all belonging to the information that are being made transparent to many authorities. Tax authorities certainly pay more attention to capital flows and acquisition. Capitals from unknown sources or irregular cash flows are also being exposed, especially regarding those capital activities in relation to tax avoidance.

If you have questions on assets management or cross-border tax issues, please feel free to contact us, we are your GCA team who is always willing to help on your business journey.

Global Connect Admin B.V. | Xuan Hao

2020 has begun. Financial agencies and authorities in China discussed the 2020 financial agenda before the new year has started. Some documents were published very early in the very first week. The Central Bank, the China Securities Regulatory Commission (CSRS), the China Banking and Insurance Regulatory Commission (CBIRC) and the State-owned Assets Supervision and Administration of the State Council (SASAC) have made various announcements on 2020 plans.

The 14^th Conference was held by the Financial Stability and Development Committee under the State Council (the FSD Committee) on 7^th January. The main topic discussed was easing accessibility and affordability of funds in SMEs financing. This general focus entails that efforts will be primarily vested in the following three directions:

1. Highlighting the directory functions of monetary policies;
2. Promoting reforms on financial supplies to stimulate vitality of the financial market in entirety and to bring actual support to real economy; and
3. Supervision will closely follow development by means of differentiated supervision and incentives to help with market polarization.

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The Central Bank moved forward before the official conference by reducing the reserve ratio (also referred to as “RRR”) on 1^st January, which will amount to 800 billion RMB. This RRR in consequence lowers the cost in bank funds by 15 billion per year and will be conducted into support in financing by micro, small and private companies.

The CSRC published a draft Directive on Public Securities Investment Funds investing in Quoted Shares of National SMEs in Transfer System on 3^rd January to openly draw opinions from the public. Introducing public funds is a means to amplify investors pool and increase the liquidity of quoted shares. The CBIRC also published Guidance on Promoting Premium Development in Banking and Insurance Industries, which depicts a five-year plan for an optimized financial structure in banking and insurance institutional system. The SASAC is working on a better and more updated supervision mechanism with its first step dipping into Trial Measures on Administration of Prohibited or Limited Personnel Entrance in State Enterprises. This is aiming at a stricter policy ensuring unjeopardized supervision in upcoming years.

A signal from all these new year resolutions is that more reforms are expected in China’s financial market. What new things are to come in 2020 that might lead an impact on your (expected) business in China? Stay tuned and ask us to help with your financials when you cross borders.

Global Connect Admin B.V. | Xuan Hao

On 22^nd November, a public consultation was held in Paris by the OCED (the Organization for Economic Cooperation and Development), in which a plan on reforming the global tax system was proposed. More dispute resolution mechanisms are desired for increasing the certainty of outcomes in international tax disputes.

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Tax is a dynamic matter worldwide. For the global tax system to move forward, the OECD is seeking a new dispute resolution mechanism that would include more options for multinationals to solve disagreements between them and governments. The currently available mandatory binding arbitration is in place to ensure the dispute resolution between taxpayers and tax authorities to resolve issues in a given period of time. Having a mandatory arbitration mechanism is to prevent any undue delay. Any new options to be in place should have an equivalent effect as of the mandatory arbitration, said by the deputy director at the OECD’s Centre for Tax Policy and Administration.

The proposed reforms on dispute resolution are a follow up work under Action 14 of the BEPS Action Plan (Action Plan on Base Erosion and Profit Shifting) in 14 countries: Aruba, Bahrain, Barbados, Gibraltar, Greenland, Kazakhstan, Oman, Qatar, Saint Kitts and Nevis, Thailand, Trinidad and Tobago, the United Arab Emirates, and Vietnam. The attitudes from companies and some countries differ widely. Most companies consider reforms on enlarging possibilities in dispute resolution a desirable way to go in global tax system. Oppositions are mostly from development countries due to a concern of infringed sovereignty.

At this moment, the Mutual Agreement Procedure (MAP) peer review is in process. Taxpayers’ perspectives and opinions are being gathered for the above 14 countries. This process will be finished by 16^th December 2019.

Are you interested in knowing what will come afterwards? Then stay tuned for updates in our further articles. If you have any questions concerning the OECD tax regulation or if your organization is to be affected, please contact us for assistance.

Global Connect Admin B.V. | Xuan Hao

This month, a new tax ruling on small businesses flushed into the many medias, which is the Small Business Scheme (kleineondernemingsregeling, KOR). This ruling is a new amendment of the existing rules on VAT taxes, which will bring down the VAT taxes to be paid by small undertakings as of 1^st January 2020. In some cases, there could be no VAT tax to be paid.

Four main conditions must be met to enjoy this new ruling.

1. Being registered in the Dutch Chamber of Commerce as a small business or at least a permanent establishment in The Netherlands.
2. The business must be either a one-man business (eenmanszaak) or an entity formed by natural persons, such as partnerships (maatschap or vennotschap onder firma).
3. Annual VAT threshold under €1,883 after deducting the input tax (voorbelasting).
4. All tax obligations under the Tax Authority and the Custom Administration are up to date, including any exemption.

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This KOR ruling does not apply to private limited companies (BV), foundations (stichting), associations and professional partnerships in which one partner is a legal entity.

The calculation of the VAT tax to be deducted is done under two thresholds, respectively €1,883 and €1,345. With VAT due in between €1,883 and €1,345, the tax deductible should be 2.5*(1.883 – (VAT tax declaration 5a – input tax declaration 5b)). With VAT amount falling under €1,345, declaration is needed but the whole amount is not expected to be paid any more. (further information here)

A kind reminder would be to register yourself to the new small business scheme before 20^th November 2019, if you haven’t yet. The next step is to apply for the definite VAT deduction, where you can apply the deduction to the last return of this year or the first return of next year. There is also a provisional option that you could apply the deduction monthly or quarterly.

Global Connect Admin B.V. | Xuan Hao