Multinational companies likely face “overtaxation” as new tax rules emerge around the world without proper resolution tools in place, the tax chief for AB Volvo said.
The United States’ new international tax provisions, particularly the base erosion and anti-abuse tax, and the EU’s digital tax initiative are leading to “a small step” toward “gross-base tax principles,” Jesper Barenfeld, senior vice president and global head of tax at the Swedish multinational truck manufacturer, said June 5.
This overlapping gross taxation “means the same net income is taxed twice, which is double taxation,” Barenfeld said while speaking on a panel at the OECD international tax conference in Washington. Tax administrations and multinational companies lack the “means and tools” to resolve “that type of new double taxation,” he said.
“We need to take a multilateral approach to these unilateral developments if we are not to have too many distortions towards investments and jobs” to avoid international overtaxation, Barenfeld said.
Meanwhile, a key short-term concern is how to get certainty for transfer pricing purposes under the base erosion and anti-abuse tax, Barenfeld said.
The BEAT is a 10% minimum tax to stop companies from shifting profits overseas through “excessive” deductible payments. The tax increases to 12.5% after 2025.
“If I look at the APA institution, we have a longstanding APA with the U.S. and frankly, if I were to end up in a parallel BEAT situation to that, I would question why go through the whole hassle of trying to have an APA?” he said. Barenfled was referring to an advance pricing agreement.
An APA is a deal between a taxpayer and one or more tax authorities specifying the transfer pricing method to be applied to specific future cross-border transactions between the taxpayer and related parties for certain tax years. Taxpayers secure APAs to gain tax certainty.
Mike McDonald, executive director at EY, said he agreed with Barenfeld. He also said he’s concerned with multiple tax authorities interpreting transfer pricing rules in a way that causes rabid recharaterization.
“That’s a potential disaster that still might be moving on the horizon,” said McDonald, a former U.S. Treasury official.
“I’m hopeful that some of these mechanisms, and through the long-term self-interest of governments, that that’s avoided.”
EU Joint Transfer Pricing Forum Work
Barenfeld, who is a representative at the EU Commisision’s Joint Transfer Pricing Forum, also noted that the forum is working on a body of work addressing “multilateral controls and joint audits.”
The forum has three primary responsibilities, Barenfeld said. They are to advise the EU Commission on transfer pricing issues, monitor the arbitration convention, and issue guidelines and recommendations that follow Organization for Economic Cooperation and Development standards.
The body of work still is in the draft stage, and the forum is meeting June 26, the tax chief said. Barenfeld couldn’t reveal much information about the project, but he said the interim report will cover four areas:
• Encouragement for member nations to participate in bilateral or multilateral controls.
• Support for the legal basis for those kinds of interactions between authorities.
• Allowing taxpayers to participate in the fact-finding process.
• Guidelines for tax authorities to try to reach agreements with taxpayers.
The last two areas “really make a difference” for the business community, according to Barenfeld.
Even if tax authorities fail to reach an agreement with taxpayers, he said the goal of the report is to at least have agreed upon facts to streamline the mutual agreement procedure process that may result.
“That is really the key because that reduces the time to doing fact finding over and over again,” he said.
Barenfled added that an area for further improvement includes fair rules on tax collection.