HOMOSAPIEN

Deloitte Tax Challenge 2023

December 2023
 Agenda
A. Theory
A.1. BEPS I & BEPS II
A.2. Transfer Pricing provision relevancy
A.3. BEFS II simplification
A.4. Multilateralism on sovereign rights

B. Case Study
B.1. Arm’s length compensation
B.2. PE risk
B.3. Attribution of profi
B.4. Tax and non-tax consequences
A1
BEPS 1.0 BEPS 2.0

physical presence in a country MNCs pay a fair share of tax where

requirement they have a significant economic
Appearance => problem arising: digital firms shift presence (Global Minimum Tax of
profits to low-tax jurisdictions 15%)

involving over 140 countries and

by a small group of G20 and OECD
Inclusiveness countries
jurisdictions => Opposition from low-
tax -rate & developing countries

15 separate actions => require significant effort to localize

Complexity inconsistencies and loopholes and implement effectively
A2. Transfer Pricing provision would remain relevant post
BEPS 2.0 implementation, with 3 reasons:

1. ALP remains the foundation

Transfer pricing policies and documentation will still need to
demonstrate arm's length pricing based on the OECD Transfer
Pricing Guidelines.

2. Pillar II - Minimum Global Tax impact

Pillar II cannot replace existing Transfer pricing rules, which will still
be necessary to determine the allocation of profits amongst
jurisdictions, even if they are subject to a minimum tax rate.

3. Pillar I - Profit Reallocation consideration

Pillar I indicates new profit allocation rules for certain MNEs.
--> Transfer pricing will still play a role in determining the amount of
profit attributable to each jurisdiction under these rules.
 A3. The Balance
Approach of Vietnam
While simplification could enhance
understanding and compliance, it's essential to
balance simplicity with effectiveness.

DOMESTIC LEGISLATION 2 KEY PROVISIONS

As an Inclusive Framework (IF)
member, Vietnam has just passed its
domestic legislation to introduce
Income Inclusion Rule (IIR) and
Qualified Domestic Minimum Top-up
Tax (QDMTT), which broadly align with
the Global Anti-Base Erosion (GloBE)
Model Rules of the OECD.
Large multinational enterprises (MNEs) are required to
pay a minimum 15% level of corporation tax on profit in
each jurisdiction in which they operate.
In-scope enterprises include constituent entities that are
members of an MNE Group which has annual
consolidated revenues of at least EUR 750 million in at
least two of the four preceding fiscal years. If the
jurisdictional Effective Tax Rate (ETR) is below the 15%
minimum rate, a top-up tax will be imposed in Vietnam.
 Concerns about sovereign rights of
taxing when adopting multilateralism

STANDARDIZATION INFORMATION SHARING DISPUTE RESOLUTION

Limit a country's ability to tailor its Concerns about privacy and
tax policies to its specific sovereignty have been raised Llimiting a country's autonomy in
economic or social needs. deciding its tax policy enforcement
 GLOBAL CHALLENGES REQUIRE
COOPERATION

Some argue that certain global challenges, such as tax avoidance

by multinational corporations, can only be effectively addressed
through international cooperation.

Team NATIONAL IMPLEMENTATION

Multilateral agreements are usually frameworks that
opinion set out broad principles and guidelines. It is up to each
participating country to implement these principles
into their domestic laws

CONSENT AND VOLUNTARINESS

Participation in multilateral agreements is typically voluntary.
Countries enter into these agreements willingly and have the
ability to opt in or out based on their national interests
B1.
L Co should be compensated the
processing fees by F Co as L Co does all
the manufacturing and logistics process.
 F Co is not conceded as PE

RISKS 1 L CO is taxed CIT of 100%

taxable income to country B
 Safeguards

EXPANDING THE SCOPE OF LIMITING THE PE EXEMPT INTRODUCING

DEPENDENT AGENT RULES ACTIVITIES ANTIFRAGMENTATION RULES
 L Co is not conceded as PE

RISKS 2 L CO is violated Vietnam rule about PE

and Vietnam tax policies
 Safeguards

LIMIT L CO ACTIVITIES REGULATE ON L CO POLICY COMPLIANCE

BUSINESS FORM
 B3. Attribution of profit
Compensating L Co at arm's length for its
specific activities may not be sufficient
to avoid profit attribution to F Co's PE in
Country B.

VALUE CHAIN ANALYSIS FUNCTIONAL ANALYSIS

Based on OECD Transfer Pricing
Guidelines, determining arm's length
prices includes analyzing the entire
value chain. If L Co contributes
significantly to the value creation of the
F Co group, additional profits should be
attributed to L Co.
If L Co performs key functions or
assumes significant risks, Country B
might argue that F Co's PE should be
attributed a higher share of the profits,
even if L Co is compensated at arm's
length for its specific activities.
 DTA: Tax in B < Tax in A from revenue in B
=> The higher tax rate in A is, the higher tax in B is

F Co will have to pay tax from revenue outside of

country B.
B4: Tax
=> However, it can decrease the amount of tax by the
Consequences cost of marketing, sales, R&D, technology in country A,
better if country A has tax incentives for R&D and
technology, or tax incentives for the industry of F Co
 REPUTATION
Company F Co may lose reputation in the eyes of customers
since it can be labelled “tax avoiding”.

REGULATORY COMPLIANCE

Non-tax Company F Co may be subject to additional regulatory

compliance requirements in Country A, beyond tax-related

Consequences obligations. This could include compliance with local business

regulations, labor laws, environmental standards, and other
non-tax regulatory frameworks.
Thank you!
Homosapien Team