Summary
Samenvatting Tax Management
- Course
- Institution
Dit document is een samenvatting van het vak Tax Management waarin de informatie van de slides en mijn notities vervat zijn. Ik behaalde een 18/20 voor dit vak.
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Inhoudstafel Tax Management0. Introduction ....................................................................................................................................................... 2
1. (Cross border) Re-organizations and M&A ........................................................................................................ 2
1.1. Parties involved .......................................................................................................................................... 3
1.1.1. Indirect parties involved (we won’t tackle these).............................................................................. 3
1.1.2. Vendor/Target Co: Advantages .......................................................................................................... 4
1.1.3. Vendor/Target Co: Disadvantages ..................................................................................................... 5
1.1.4. Bid Co Considerations: Advantages ................................................................................................... 6
1.1.5. Bid Co Considerations: Disadvantages ............................................................................................... 2
1.1.6. Acquisition of Shares by Bid Co .......................................................................................................... 2
1.1.7. Sale of Shares by Vendor ................................................................................................................... 3
1.1.8. Acquisition of assets by Bid Co........................................................................................................... 4
1.1.9. Corporate Reorganisations-Mergers.................................................................................................. 5
2. Basic concepts and fundamentals of Transfer Pricing ....................................................................................... 7
2.1. Arm’s Length Principle (ALP) ...................................................................................................................... 7
2.1.1. What can a Transfer Price relate to? ................................................................................................. 7
2.1.2. Why Transfer Pricing Is Important? ................................................................................................... 8
2.1.3. International recognition of transfer pricing ..................................................................................... 9
2.1.4. “Arm’s length”‐principle (ALP) .........................................................................................................10
2.1.5. OECD – its main guidelines and reports ...........................................................................................11
2.1.6. OECD Report – Base Erosion Profit Shifting (“BEPS”) ......................................................................11
2.2. OECD – Key Terms and Transfer Pricing Methods ...................................................................................17
2.2.1. Basic principles .................................................................................................................................17
2.2.2. OECD – Comparability Factors .........................................................................................................18
2.2.3. Key Terms .........................................................................................................................................18
2.2.4. Business Model ................................................................................................................................18
2.2.5. Transfer Pricing Policy ......................................................................................................................19
2.2.6. OECD Transfer Pricing Methods .......................................................................................................20
2.2.7. Typical stages in a transfer pricing analysis .....................................................................................24
2.2.8. Consequences of the stages for the taxpayers .................................................................................. 5
2.2.9. EU Joint Transfer Pricing Forum ......................................................................................................... 6
2.2.10. Transfer Pricing Documentation – OECD – BEPS – Action 13 ........................................................ 7
2.2.11. Belgium’s implementation –BEPS – Action 13 (Law 1 July 2016) ........................................................10
3. Exam .................................................................................................................................................................13
Prof is a partner of KMPN and gives course for free. The text in italic are my course notations and the rest comes
from the slides.
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,0. Introduction
AB InBev
Located in Brussels → pragmatic consequence: better be big in a big city, because you disappear in the crowd.
Whereas in a small town, you are much more visible, and you have a higher risk of getting audits. The tax
authorities of Brussels have a lot of work which decreases the risk of getting an audit.
Companies with limited liabilities (NV, have to disclose financial statements, transparent, AB InBev) >< unlimited
liabilities (comm V, doesn’t have to publish financial statements.)
If this company would disclose their financial year 1 day earlier (30/12/2020 instead of 31/12/2020), it would
relate to assessment year 2020. It may that other tax provisions are applicable, so 1 day may make a difference in
the application of tax provisions. (AY 2020 → CIT = 29%, AY 2021 → CIT = 25%)
Permanent Establishment (PE). Example office abroad used for commercial activities. The Belgian company has a
PE in France and is renting the office in France. We are still operating in the same legal entity, but from the tax
point of view there are 2 entities. Belgian entity paying taxes for their operations in Belgium, but Belgian entity
would also become a tax payer in France and the results which will be attributed to that PE will be taxed in France
(double tax decreet). A place of management may result in a PE. It is even investigated whether this Belgium
company is still managed from Belgium or in France. Be careful board of directors has to make decisions in Belgium.
Transfer pricing is really important in a multinational environment. Both turnover and expenses can be influenced
by the relations with related entities. These costs may be artificially influenced by this relationship.
Profit/loss is a small amount (3mil), profit before tax (150mil), however negative tax amount → how does it come?
Normal, because 99% of the profit before tax stands from dividend income, respecting some conditions (2.5 mil,
minimum participations of 10%, …), a tax payer can benefit from dividend received deduction (100% of the dividend
is exempted from tax). Non bis in idem principle: you may not tax same taxable income twice. The dividend income
that Ab InBev received has already been taxed according to the rules at the level of the subsidiaries.
Exam!!! Capital reduction what is the tax liability? Depends on elements included.
1. (Cross border) Re-organizations and M&A
Objectives of Session
To identify and discuss the issues of corporate acquisitions Share vs asset purchase
Funding the acquisition
Identifying the tax implications of acquisitions for all parties involved
Outlining briefly other methods of corporate reorganizations
Example Keyman islands = tax haven. Tax havens have consequences for the tax structure. If you have transactions
with tax havens, you are increasing the risk that the interest paid on the financing/loan is non-deductible. Any
payment to tax havens in excess of 100.000€ need to be reported to BE tax authorities. The chance the tax
authority will audit the company will be higher.
Withholding tax
During the financial year you have incomes and costs resulting in a profit, loss or break even (financial year ending
31/12/2020 is AY 2021). Profit is subject to corporate income tax, CIT = 25%. For example, profit before tax = 100,
tax liability = 25 (CIT) and profit after tax = 75. Either book the profit after tax in retained earnings or pay out a
dividend to shareholders. The withholding tax on a dividend is 30% (roerende voorheffing).
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,Many exceptions: when certain conditions are fulfilled for SME the withholding tax goes down to 15%. If the
dividend goes to other companies and conditions are fulfilled, the withholding tax even goes down to 0%.
If the company receives its financing from a company in the Keyman islands, than the exemptions in withholding
taxes can’t be activated and there is a tax leakage. If an interest of € 100 is due on the loan, you also need to retain
the 30% of withholding tax and you can not pay the whole € 100.
Thus impact of tax haven
- Non deductibility of interest
- Withholding tax liability
- Reporting liability to tax authority
The financing of acquisition is important
Benefits of tax havens: no or low CIT to be paid
Disadvantages of tax havens
- Countries do not have double tax treaties with tax havens.
- Black list with tax havens -> transactions with those will result in a non deductibility + withholding tax issues.
1.1. Parties involved
1. Target Co= corporation which a third party is interested in buying shares or assets.
Corporation= separate legal entity, ownership is represented by shares.
2. Vendor= shareholders of Target Co, can either be physical persons or corporations.
3. Bid Co = Potential purchasers of Target Co.
- Either they takeover Target Co as by purchasing the shares.
- There can be legal or financial reasons that this is not possible and the assets are
being bought by Bid Co and Target Co is left as an empty company or that only parts of the company are
bought by Bid Co and that the other assets/liabilities remain in Target Co.
Cross-border interest payment: check double tax treaty with country where the recipient of the interest income is
residing/living → reduction of withholding tax.
! We will compare two scenarios from the perspective of the vendor and Target Co.
1.1.1. Indirect parties involved (we won’t tackle these)
- Tax authorities= the tax authorities of the countries where the company is located. Target Co operates by means
of permanent establishments, thus with cross border transactions, more tax authorities are involved.
- Antitrust agencies = if Bid Co gets an oligopoly or monopoly in a certain industry by taking over Target Co, then
the European Commission can intervene and say they cannot take it over. Or they can but after the acquisition
parts of the business need to be sold back to the market.
➔ The European Commission want to avoid a company becomes too strong on the market.
- Other governmental bodies. If a company is taken over there is always a risk of being closed down because
they just bought a competitor to get the monopoly on the market. Politicians don’t like disclosure.
- Bid Co shareholders
- Unions/employees (when the new owner restructure or tries to lower labor costs)
- Customers, Creditors -> new owner may have an impact on agreed conditions.
- Brokers, Suppliers
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, 1.1.2. Vendor/Target Co: Advantages
Exam. What are advantages for shareholders of Target Co by selling the shares to Bid Co?
1.1.2.1. Shares
- Transfer any previous tax liability or other claims
Target Co is transferring tax liability or other claims by means of share deal. The new buyer takes over tax liability
by acquiring the shares of Target Co. For example. If an audit finds mistakes in the tax return of Target Co, which
implies Target Co will have to pay extra taxes, than Vendor is no longer responsible for old liabilities and Bid Co
will have to pay for it.
- Likelihood of reduced tax on sale
In a lot of countries (in Belgium), taxes due on the sale of shares is lower or even zero in some cases which is lower
than the tax you would encounter if you would sell assets of Target Co. ⇒ big advantage that tax is low or even 0.
As a physical person sells shares with a capital gain you will have to pay an exchange tax, but you will not have to
pay extra income tax. However there is a tax levied (16%) in case an important participation (25%) is sold of to a
foreign Bid Co outside the EU. There is a way around it. The foreign Bid Co has to establish a Belgian holding and
than Vendor will sell the important participation to the Belgian holding company, keep the Belgian holding
company for a certain period (5 years) and then there are no taxes levied. It is tax free. If you are a day trader, you
are classified as a professional and you will need to pay progressive taxes.
If Belgium corporations sell their shares in target Co and that participation fulfills certain conditions being an
important participation (10% of shares or value of 2.5 million) and the underlying dividend needs to qualify for a
dividend reduction deduction it is again tax free. It is a big advantage for the shareholder that selling shares will
only be moderately taxed.
- Transfers existing tax liability on retained earnings
Earnings which already have been taxed. If it would have been paid out as a dividend, a tax liability imposes on
that. This is the withholding tax (roerende voorheffing). If well negotiated that tax liability can be shifted to the
new shareholder, by simply letting it in the retained earnings.
- Transfer unrealized CGT (Capital Gain Tax) liability on underlying assets
Example. Target Co owns a factory with an operational value but the accounting life time has already elapsed, so
it is on the balance sheet for 0 euros. It can still be used for the production of the goods. Bid Co is interested in
acquiring that asset. The market value of that factory is 100. What would be the accounting treatment?
The 100 enters into the books of Target Co as a turnover and the tax value is 0, thus that 100 becomes a profit.
There is a capital gain of 100 euro and 25% of taxes needs to be paid. In case of a share deal, the book value
remains 0 but parties will start to negotiate and in combination with the favorable tax treatment of sales of shares.
That 100 euro is not taxed. That is much better than an asset deal.
Example. Bread company has a bakery in Brussels, where the book value of machines and building is zero but it is
still baking a lot of cakes. The machines and the building still have a big value.
- If a buyer is interested to buy the land, the machines and the building. The book value is zero, so whatever price
the buyer is paying there will be a gain, which will be taxed at 25% CIT. Let’s assume tax value is book value.
Afterwards, still withholding taxes need to be paid when the dividend is paid out. -> sale of assets.
- If buyer is interested in buying everything (company, land, machines) -> sale of shares -> 0 taxes.
A tax value can be different from a book value. From accounting perspective, linear depreciation over 10 years and
every year 1/10th of the acquisition value goes to expenses and the acquisition value is written off, the book value
decreases and after 10 years the book value is 0. Tax authorities can based on real data try to force you to
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