Monday 20 October 2014

Breaking down the proposed new international tax laws

In this post-GFC age of austerity, public anger has been steadily mounting over multinationals – especially high-profile technology companies such as Apple, Google and Microsoft – using elaborate cross-border tax structures to minimise their contributions to government revenues in many of the nations in which they operate.

Inevitably, democratically elected governments have become more determined to tackle profit shifting and tax avoidance. In early September, the Organisation for Economic Cooperation and Development (OECD) proposed a set of draft rules, as part of its ‘Base Erosion and Profit Shifting Project’ (BEPS),  to “end the erosion of tax bases and the artificial shifting of profits to avoid paying tax.”

The new normal

The OECD argues that the current situation, which involves around 3000 tax treaties, is no longer tenable, especially given the digital economy that nations – particularly first-world ones – are increasingly operating in.

In order for governments to easily identify patterns of tax avoidance, multinationals will need to divulge to tax authorities all earnings and activities for each country they operate in. Digital companies will be prevented from “inappropriately” benefiting from being excluded from permanent establishment status in a nation and entering into “artificial arrangements” relating to sales of their goods and services in order to avoid permanent establishment status.

As the OECD puts it: “This would be relevant where, for instance, an online seller of tangible products or an online provider of advertising services uses the sales force of a local subsidiary to negotiate and effectively conclude sales with prospective large clients.”

New rules

While yet to be fleshed out, new rules will be developed to embody the following principles. According to the BEPS report:

i) Companies will no longer be able to game the tax treaty system as the new rules will involve “ensuring the coherence of corporate income taxation at the international level”. This will be achieved “through new model tax and treaty provisions to neutralise hybrid mismatch arrangements”.

ii) Transfer pricing will be clamped down on with the new rules “assuring that transfer pricing outcomes are in line with value creation”. This will be done “through improved transfer pricing documentation and a template for country-by-country reporting”.

iii) Already wondering about loopholes in the new rules that could potentially be exploited? Be warned that the OECD proposal calls for “a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties” in order to “counter harmful tax practices”.

Of course, not all the proposed BEPS rules may be adopted, but given the political climate it seems almost certain that many will. And tax professionals, as well as those who provide tax courses and tax agent training, will need to adjust the way they do business appropriately.

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Monday 6 October 2014

Putting a wise head on a young career

Most people who are successful end up that way because they’ve sought out mentors to show them how to reach the top. Australia’s current prime minister, for example, always treated his old boss, John Howard, as a sort of father figure and regularly sought his advice during his quest to occupy The Lodge.

The advantages of having a sage adviser

A mentor can be viewed as a kind of workplace parent – someone who can warn you against making short-sighted moves that could damage your career and instead encourage you to do those things that may be uncomfortable at first but will reap great rewards in the future.

Experience is a valuable thing. And while there’s no substitute for earning it the hard way, there’s also no rule against leveraging the wisdom of others.

A true mentor will provide honest feedback on how you’re performing and offer suggestions on how to improve your performance. They may also introduce you to people in their own network who can further your career.

The right time for outside input

There is an old saying that when the student is ready, the teacher appears. The 21st century version is that when you feel you have something to learn – be it technical skills, management skills or even life skills – you’re ready to seek out a mentor.

The mentor marketplace

People often agonise over where to find an appropriate mentor, but it’s really not that hard. In fact, if you think about it, you’ve almost certainly been mentored throughout your life by relatives, former teachers and sports coaches.

Many companies have mentoring schemes in place. If yours doesn’t (or you’d prefer to venture outside it), you can find a mentor through Chartered Accountants Australia, CPA Australia or the Australian Businesswomen’s Network.

Alternatively, you can simply contact someone you admire – even if you don’t know them – and ask them if they would be interested in mentoring you. After all, imitation is the sincerest form of flattery.

There are no hard and fast rules about what makes a good mentor. If the individual in question is someone you respect, can teach you what you want to know and help you get where you want to be, they’re almost certainly good enough for your purposes, regardless of their location in the org chart, industry reputation or educational qualifications.

The mentor–mentee relationship

Like any other relationship, mentor–mentee relationships go through phases. In the early days, there may be a lot of enthusiasm on both sides, with the mentor flattered that someone is so interested in what they have to say and the mentee eager to learn all they can.

Over time, that initial enthusiasm will fade and interactions might become less frequent. And, if the mentor has done his or her job properly, at some point the mentee will have learnt all they can. At this stage, the parties involved may decide to stay in touch or go their separate ways.

However the relationship unfolds, the mentee should always show the appropriate gratitude and respect towards the person who has chosen to help them out.

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