New tax transparency rules will have an impact on the auto industry
INSIGHT ARTICLE |
The Organisation for Economic Co-operation and Development has made efforts in the past to combat tax avoidance and evasion practices by individuals and corporate entities. These efforts include the development of new rules to increase tax transparency of multinationals when reporting to tax authorities. Notably, the new rules will affect car manufacturers in particular, as they represent the industry with the largest volume of intercompany transactions.
The work of the OECD regarding tax transparency has been substantial, and includes detailed transfer-pricing documentation requirements, such as country-by-country reporting, and other measures such as automatic exchange of rulings, ultimate beneficial owner register disclosure obligations, Foreign Account Tax Compliance Act requirements and new-anti money laundering rules.
Developing a tax transparency framework
The OECD is recommending the development of a framework for the mandatory disclosure of tax arrangements. The European Union has already moved forward with this initiative, also known as DAC6. The new legislation will be effective as of July 1, 2020. Taxpayers and their service providers, however, have been required to monitor cross-border arrangements since 2018. Noncompliance with the new rules could trigger substantial penalties of up to 5 million euros.
The content of the tax transparency measures is relevant for multinationals in the automotive sector, not only because tax transparency measures are applicable to internationally active companies. These multinationals are constantly growing and expanding their global presence and entering into more complex cross-border arrangements, including increasing the volume of intercompany transactions. So it should not be surprising that automotive multinationals have the attention of tax authorities in the EU, the region that has implemented the most comprehensive set of tax transparency measures in the world to date.
Time to assess the impact
Considering the extensive amount of tax information to report to tax authorities pursuant to the proposed DAC6 framework, automotive multinationals should begin an impact assessment, followed by the development of an implementation plan to ensure efficient and effective compliance. Failing to comply in a timely manner may result in reputational consequences as well as monetary costs.
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