Advocaten / Avocats / Lawyers

Friday, 04 June 2021

International Tax update: Tiberghien World Tour PART I - AMERICAS

Last week, on 27 May 2021, we organized the first of four free interactive web events of our Tiberghien World Tour 2021. In these events, local experts of our WTS Global network give first-hand insights in the latest tax developments that are relevant for Belgium-based companies that are active or consider starting up activities in the jurisdiction(s) involved. Tiberghien moderates the discussions and workshops to ensure all questions of participants get answered. The first event covered the Americas and our WTS network firms of the US (GTM and Valentiam) and Latin America (LATAXNET) presented the latest developments and were available for one-to-one meetings to address specific questions.

Many Belgium-based companies participated and highly appreciated the approach taken for this event. By organizing multiple workshops simultaneously, participants could select the ones they were most interested in. Recordings of all technical presentations are however available for participants or any interested party, so they can be (re)viewed at a later moment. Recordings are available at the following link: https://tiberghien.com/en/worldtour2021/rewatch-the-sessions  

For those that may have missed the first event, we have listed below our key takeaways.

We hope to welcome you at one of the remaining three events, Middle East & Africa (10 June 2021), Asia-Pacific (17 June 2021) or Europe (September 2021). For more details and registration, please visit https://tiberghien.com/en/worldtour2021.

Key takeaways PART I - AMERICAS:

  • In many jurisdictions, it is expected that the Covid-19 pandemic will be funded for a major part through (additional) taxation. In Latin America, significant differences could be observed with respect to measures that were implemented in various countries, also resulting in different (financial) outcomes. The political climate will of course have an impact on how additional taxes may be implemented. Furthermore, no significant stimulus packages are expected. It is likely that private companies will carry the biggest burden of the financial effects resulting from the pandemic through taxation. On the other hand, for example in Brazil, Covid-19 has revived the debate on tax reforms. Another specific case is Colombia, where protests have resulted in a downward adjustment by the government of its initial proposed tax bill to recover the Covid-19 budgetary impacts. In the US, Covid-19 has led to additional competition between states as many states’ budgets were impacted by the pandemic (see also further). Businesses were not as negatively impacted as initially anticipated, also because of tax reliefs that were granted.

  • The political landscape in Latin America is crucial in view of developments in taxation. In 2021, elections will be held in 9 countries. There is some concern about the potential impact of the outcome of these elections. A main concern for foreign companies that are active in Latin America in this respect is asset protection. This will be closely monitored by our partners. Belgium and Luxemburg have concluded some bilateral investment treaties and Double Tax Treaties with certain Latin American countries, which are also crucial in view of asset protection. Local tax reforms impact Belgian and Luxembourg entities having a PE abroad, for example in Argentina where a recent draft bill proposes to replace the 25% fixed tax rate with a progressive tax scale from 25% to 35% (for income higher than EUR 500.000), or having subsidiaries or activities in those countries. Local tax reforms may also impact Belgian and Luxembourg entities when it relates to withholding tax aspects, especially in cases where there is no Double Tax Treaty (such as with Colombia and Peru). It is important for Belgian taxpayers to anticipate these aspects when starting to deal with Latin American entities, and to always carefully draft the agreements, especially those related to technical or know-how services. An example is Colombia, which levies a WHT of 20% on technical assistance services payments, for which many European residents are experiencing administrative and tax difficulties in their state of residence when claiming a foreign tax credit.

  • In the US, after 100 days of the Biden administration, the direction of the expected tax reform is becoming clearer. The goal is to increase tax revenues and to make sure that wealthy corporations pay their (fair) share of tax, amongst others to finance large infrastructure investments (these investments were already planned prior to Covid-19). Furthermore, BEAT (the US base erosion rules) did not yet deliver significant additional tax revenues and hence it is expected that audits on this topic will increase. Also, the IRS will be strengthened. In practice, it can also be observed that individual States are becoming more aggressive during tax audits, resulting in a certain paradox for the US. Whereas the US, under the lead of president Biden, is boosting the international debate to have less tax competition between jurisdictions, internally it is facing tax competition between states. In practice, a certain shift in the nexus-approach can be observed, moving from physical presence to a more economic nexus. It is expected that the Biden administration will enhance certain reforms made by the Trump administration. The possibility that enhancements will pass in Congress is rather high considering the current composition of the House and Senate. How such amendments will be introduced (with immediate or retroactive effect) is not yet known. At the end of last week, the Biden Administration published the “US Tax Reform 2.0” proposal. Although this was not yet available at last week’s event, our partners remain on top of these evolutions.

  • In view of evolutions in the US, it has become even more important to prepare transfer pricing documentation to apply for penalty protection. Penalties, applied in cases where transfer pricing is found to be non-compliant and penalty protection documentation was not prepared, are generally between 20% and 40%. Such transfer pricing documentation has to comply with specific requirements. Recently, there has been a focus on US inbound distributors with low profitability that did not apply for the penalty protection regime, as they were considered to be easy targets. Having sound transfer pricing documentation will put the IRS on the defensive instead of having them imposing their own views.

  • In Latin America, tax audits have recently become more aggressive and auditors are generally taking stronger stances. Audits are becoming more complex due to increasing regulation, resulting from political events. On the other hand, many countries are converging more and more to OECD/BEPS standards. In certain jurisdictions, tax auditors are receiving increased training on these matters. This has also resulted in augmented challenges on transfer pricing. In Argentina specifically, a significant increase in the amount of transfer pricing audits was observed. Another remarkable observation is that in certain jurisdictions, because of this recent trend, a generational gap between inspectors can be observed. Furthermore, digitalization is expected to increase tax scrutiny, also in Latin America. And Covid-19 has increased the pace of digitalization in Latin America as in many other countries around the world.

By: Tiberghien & Tiberghien economics

Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of:

In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board.

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