The complex and fast-changing taxation environment for multinationals is creating uncertainty for CFOs and Finance Managers, as new legal and regulatory shifts present increasing levels of ambiguity. Lorena Sosa Carrillo, Partner at Grant Thornton and speaker at The Tax Summit, reveals the challenges ahead for commercial practitioners in the era of Advances Pricing Agreements (APAs), transfer pricing and increased risk governance.
A seasoned corporate tax professional with over 13 years’ experience with global firms in both Australia and Latin America, Lorena has been instrumental to Grant Thornton International with the coordination of the Transfer Pricing practice, globally.
Lorena is currently a Partner heading up the Sydney and Brisbane transfer pricing practices for Grant Thornton, advising clients on transfer pricing issues and international tax planning. She has extensive experience planning transfer pricing and tax optimisation strategies for corporates in the technology, retail and e-commerce sectors, particularly in scenarios where corporates are looking to expand into overseas markets in the US, China, Europe and the Asia-Pacific regions.
Her session at The Tax Summit, APAs - Practical Management in Cross-Border Transactions, outlined her experiences managing these complexities in practice, through Transfer Pricing governance and the introduction of PCGs (practice compliance guidance), and contrasting this with the option of entering into an APA in the current environment as a measure to ensure certainty.
Setting the context for APAs
According to Lorena, an increasing number of taxpayers that have been applying for APAs have found that the process is taking longer. Despite new guidance being available on the way the ATO is managing this process, many taxpayers still feel like unsure that the APA process is right for them.
“There are also lots of changes happening, including a shift from the importance and relevance of unilateral APA’s into a more bilateral APA process,” Lorena explains. “So there seems to be a lot of confusion and a lot of questions around this APA process, especially as to when you would apply for an APA, versus when would you use the new governance guidance that is out there.”
Added to this complexity is the volume of new guidance around these issues, with the ATO recently releasing a lot of PCG’s across the board. Lorena explains these look at transactions and the size of the company, and that adds an even greater level of complexity.
“In addition to that, we have the reportable tax position schedules, which are larger companies, but also overlay and overlap with the PCG’s,” she adds.
To tackle these challenges, Lorena stresses taxpayers need to take heed to these processes:
- A process for this compliance, particularly for smaller companies, which perhaps don't have that many resources. They need to be able to distinguish which one is the risk management tool that they should be using.
- Then there is the APA process, it can then become a longer process, very costly, and require a lot of resources - not only in terms of costs, but also people and executives that need to be involved in those negotiations.
“So when you do apply for an APA, you need to be prepared to navigate the complexity, absorb the cost, and have some of your really key operations people involved in these negotiations,” she adds. “An APA is not for everyone, and the intention of the session is to be able to guide practitioners and taxpayers around when to use the governance available, or use the APA process which is more involved and more expensive.”
Digital economy and disruption
The digital economy has not only disrupted taxation, but the entire world. According to Lorena, these changes mean the taxation systems in Australia, and globally are not prepared for the rapid change.
“There is a lot of confusion globally regarding the BEPS initiative to protect against base erosion,” Lorena says. “Every country has a view of course. Some countries want tax consumption, while other countries that have the means or the development of IP, want tax IP development. Therefore because they have a different tax base, they can’t get to an agreement. The issue with that, apart from confusion, is that when governments can’t agree with each other they tend to issue unilateral measures.”
Multinationals and double taxation
As we enter an increasingly globalised commercial landscape, more and more practitioners need to deal with double taxation situations, Lorena says.
“When a government is taxing a particular transaction, and another government taxes the same transaction, there is a big risk when it comes to managing unilateral measures, especially considering the burden that it brings to the table,” Lorena explains. “Recently, we saw Google finally coming to an agreement with the ATO, but there’s still a long way to go to reach clarity and simplicity.”
In order to deliver the best advice to clients, Lorena suggests practitioners stay informed as to which unilateral measure each country is releasing, how to navigate them, and how to best plan to deal with these unilateral measures.
“Finally we need to find a way to help our governments update the treaties and rely more on bilateral or multilateral APA’s to be able to get that tax relief for taxpayers, because it’s obviously becoming very expensive,” Lorena adds. “In some instances, the operations of the company are becoming very disrupted because of tax.
"I don’t think the purpose of tax is to disrupt the economy or the operations of a company," she says.
“It's a consequence of being successful economically, but I find it very interesting that a lot of companies have had to restructure their operations due to tax measures of the tax authorities. Having a framework to understand how to navigate this world of protective base erosion is what we now need to deal with.”
The Tax Summit: where the best practitioners across the country come together
What Lorena found valuable about The Tax Summit was that it was a forum where the best practitioners across the country came together, with a lot of questions to discuss and debate.
“The Tax Summit was the perfect forum for us to be able to clarify all those complexities across the entire tax landscape and enjoy better and more up-to-date information. It allowed us to enrich our knowledge and understand what the new changes are from the best practitioners, which further empowers us to tackle these complexities in the year ahead.”
Lorena also highlights than when you are in a larger firm, you tend to specialise in a particular area, and therefore don’t get that much exposure to the other areas or other industries.
“Being able to attend The Tax Summit gave those teams the opportunity to look at other industries or other types of transactions and issues that they are not involved in, and look at the challenges ahead with a fresh perspective,” Lorena concludes.