Tuesday, May 27, 2008

EU to Modernize VAT Rules on Financial and Insurance Services

Excerpt from Practical European Tax Strategies by Tracey Paveley (Baker & McKenzie)

The European Union (EU) has recognized that the EU VAT legislation in relation to financial and insurance services is becoming increasingly out of date as providers introduce more sophisticated and diverse financial products into the marketplace. Businesses are finding it difficult to define these products for VAT purposes within the confines of the current legislation.

This uncertainty surrounding the VAT treatment of financial and insurance products has led to an increased amount of tax litigation, particularly as businesses are often required to negotiate the application of the VAT exemption in multiple Member States. This process can be very costly for businesses.

In addition, there is growing concern that EU financial institutions are less efficient than their U.S. counterparts. The embedded irrecoverable VAT cost suffered by EU providers of financial or insurance services is considered one of the factors contributing to this perceived inefficiency.

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Tuesday, May 20, 2008

Brazilian Exporters Surprised by Change of Position on Inflation Correction

Excerpt from Practical Latin American Tax Strategies
published by WorldTrade Executive

Brazilian exporting firms have been surprised by the sudden reversal of a longstanding policy correcting tax credits for inflation.

For years, exporters have been able to use credits from their “presumed” excise tax (IPI) to compensate for payments of Brazil’s PIS-Cofins corporate social security taxes. This compensation was created as a fiscal incentive for exporters. Rather than exempt exporters from PIS/Cofins, which would have required legislation, the government adopted an administrative approach, granting a credit for what companies would have paid in excise taxes, the reason why it is referred to as the “presumed IPI.”

In practice, exporters have commonly allowed these credits to accumulate over several years before claiming them. Since these credits often date back six or seven years, the tax department has permitted companies to adjust their credits for inflation, using the country’s base interest rate.

But starting last December, the tax department has rejected this practice. In a series of decisions in February and March of this year, the department’s Superior Chamber of Fiscal Appeals, the last administrative recourse for companies, has supported this new policy, turning down the appeals of exporting firms.

More: How does this affect compensation for exporters?>

Wednesday, May 14, 2008

Mexico's Dictamen Fiscal Is Similar to New Fin 48 in the US

Excerpt from Practical Mexican Tax Strategies by Steve Axler & Dinorah Gonzalez (Halliburton)

One of the concerns resulting from the introduction of FIN 48 for many in-house tax practitioners, especially for US based multinational companies, is that the US Internal Revenue Service would now essentially have a road map to various tax positions taken by the taxpayer. However, the disclosure of tax positions to the tax authorities is not a new or unusual event in Mexico. In fact, for large taxpayers in Mexico this is an annual occurrence known in Spanish as the Dictamen Fiscal.

Often simply referred to just as “the Dictamen”, this is a tax audit of a Mexican legal entity or person that carries out business activities or any foreign residents with a permanent establishment in Mexico. The Dictamen Fiscal can only be performed by a registered and certified Mexican public accountant. Upon completion of the Dictamen, the accountant will issue a report which will be filed with the Mexican tax authorities (Servicio Administraci√≥n Tributaria or “SAT”) stating whether, according to the applicable tax regulations and audit standards, the taxpayer has complied with its obligations. The public accountant is required to sign the Dictamen under penalty of perjury.

It cannot be emphasized enough the influence that a Mexican statutory auditor has regarding the tax positions taken by a taxpayer in Mexico.

More on Dictamen Fiscal

Tuesday, May 6, 2008

The Pot Calling the Pot Black: Congress Points a Finger at the Internal Revenue Code (and Itself)

Excerpt from Practical US/Domestic Tax Strategies by Joseph B. Darby III (Greenberg Traurig LLP)

On April 10, 2008, the Small Business Committee of the U.S. House of Representatives released a Report stating that small businesses, which could otherwise help the U.S. economy get “back on track,” are burdened by a variety of barriers under the “remarkably outdated tax code.”

In the legendarily famous words of Homer Simpson himself, “Duh!”

What makes this Report newsworthy is not the content but rather the author. We are familiar in politics with the “pot calling the kettle black,” since, after all, finger-pointing and blame-shifting is pretty much what Congress does. However, since the primary party to blame for the tax code being “remarkably outdated” is Congress itself, Congress has, in effect, decided to point a finger at itself: This is the pot calling the pot black. Now that is news, indeed.

The funny thing is that the Report is absolutely dead-on accurate in its criticisms of the Code—so much so that it gives the reader a small hope that some of the changes might actually be enacted. Experience shows that when members of Congress are bickering and blaming each other, very little gets done. However, when Congress decides to look in a mirror and blame itself—well, almost anything seems possible.

Although the Report is concerned primarily with “small business” issues, the recommendations (if adopted) would benefit all tax-paying businesses, by simplifying the law and eliminating burdensome recordkeeping. Best of all, the Report might actually initiate a movement in Congress to consider the extraordinary burdens it places on U.S. taxpayers as part of the “voluntary” U.S. income tax system. In short, the Report is a surprisingly candid document that should be read by taxpayers of all sizes and stripes.