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Transcript: Permanent Establishment & Profit Attribution as Defined by BEPS

Transcript: Permanent Establishment & Profit Attribution as Defined by BEPS

Find here the full transcript for #TLTaxCon19's panel on Permanent Establishment & Profit Attribution as Defined by BEPS. Enjoy!

Our panellists were:

  • Dr. Peter A. Wilson, PB First Global Tax Advisors, UAE
  • Stella Raventós-Calvo, Partner, Dabury Abogados, Spain
  • Ronaldo Apelbaum, Tax Partner, APGI Advogados, Brazil
  • Cristina Villanova, Lawyer, Cases & Lacambra, Spain 
  • Todd Buell, Senior Correspondent, Law360 & MLex, Belgium

Introductory Remarks

Todd Buell, Senior Correspondent, Law360 & MLex, BelgiumTodd Buell: We have a great panel here to talk about permanent establishments and BEPS Action 7 and hopefully also to link a little bit to the discussion on the OECD and the unified approach that we had earlier today. Before, we do want of course to have a lot of audience participation as much as possible. So I think what I'd ask our panellists to do is to make a brief introductory statement, two or three minutes each, and then we'll get into some of the pre-prepared questions and then hopefully we'll have a good 20 minutes, maybe even a little longer, for the audience to ask some questions. I hope, speaking for myself and maybe some of the other panellists I hope people didn't drink too much wine or beer in the lunch so that you're fully awake and fully prepared to take part in what I'm sure will be a great discussion. So why don't we go in order this way and, Stella, if you don't mind, maybe you can lead off.

Dr. Peter A. Wilson, PB First Global Tax Advisors, UAEPeter Wilson: My interest in permanent establishments is that they always seem to not be there when you think they probably are there. And now the OECD is trying to make sure that they are there when they probably are not there.

 

Cristina Villanova, Lawyer, Cases & Lacambra, SpainCristina Villanova: My interest on permanent establishment basically is nowadays with the changing of technology and companies are all basically all around the world but they're nowhere, so permanent establishments right now is really challenging both for advisors and the OECD, so I think it's a really good moment to talk about this issue for us and for companies worldwide.

Ronaldo Apelbaum, Tax Partner, APGI Advogados, BrazilRonaldo Apelbaum: Yes, I have talked a lot in the morning. My name is Ronaldo Apelbaum and I'm a lawyer in Brazil. And my relationship with the permanent establishments, they come for a long time as I used to be head of tax in Latin America for IT companies. And the first question that we always make is: Is it a permanent establishment or not? So, I don't know. We never know. And then comes the challenge of knowing if you should tax services and profits in that jurisdiction or not.

Stella Raventós-Calvo, Partner, Dabury Abogados, SpainStella Raventós-Calvo: I've already spoken so much this morning.

Just focusing on permanent establishments, they have been one of my main points of interest along my career.

 

Todd Buell: Why don't we follow up, though, with that. Ronaldo you tell me how do you know it's a permanent establishment and you say sometimes you don't know. I understand that sometimes this definition is different depending on whether you're, to speak very broadly, in a developed or developing country. Could you maybe or anyone talk about some of the differences there?

Question: How do you know it's a permanent establishment, particularly in the developing world?

Ronaldo Apelbaum: Yeah, I think I can start with that. Of course, we have especially in Brazil, Argentina, Colombia and Mexico, we have legislation regarding PE characterization, but the concept that we have there is the classic concept of the OECD. So, if you can take decisions, if you are an agent, if you are a sales representative so you have a permanent establishment there in the country.

I think that the biggest problem that we have in this place is not exactly if you really have a PE established there or not. But again, and we come back to what we're talking in the morning, so what does this means at the end of the day? So, okay, I have a PE in Brazil. I'm rendering services in Brazil. It's characterized, so the state tax authority, the municipal tax authorities, the federal tax authorities, the labour tax authority, the whatever, they will ask you to have your tax ID and pay taxes there. So the challenge is: Which taxes? How much I'm going to pay? What is the base? So all the questions that we have been talking here all day long are the same issues and even with these BEPS and even with all these discussions we don't see a change on that. So we are several steps behind the discussions in countries that are part of OECD. So, this is the challenge, yes, it's not difficult to define if you are really resident in the country ABC or not, but then this brings a lot more questions and this is the challenge that we have nowadays in countries in Latin America.

Stella Raventós-Calvo: I think in the case of permanent establishments, we have two fundamental questions. The first is: What is a permanent establishment? Second, how to tax a permanent establishment? The "what" is simple because it's pivotal to the OECD model. It's the only way a bunch of rich countries, such as the OECD was in the 60s, it's the only way they allowed a company to be taxed in a country different than that of its residence. The principle of rich countries, a company, a business can only be taxed within this space except if it has an activity, if it carries on businesses in another country. Why? The reason, in the case of the permanent establishment issue is something that must be read very thoroughly. Also in history, because you can then appreciate, maybe it helps you define what a permanent establishment is. Why can a company be taxed in the other country only if it has a permanent establishment? Because in that case, it has a certain degree of incidence or impact in the economic life of that other country. And because of that impact the OECD model allows the tax administration of that country to tax the permanent establishment. And then, of course, we have what we have, the OECD list of Article 5, which of course has been transformed the last time through the BEPS exercise. But then, it's always difficult to know whether there is a real permanent establishment or not.

But then you have the second question: If you have it, how do you tax it? Because it might be, very well, that once you have a permanent establishment, the outcome is that you have nothing to tax. I guess that's not the way in South America.

Peter Wilson: Yeah, I'm a simple guy. And I like to think of the difference between the meaning of permanent establishment in the so-called developed world, and the meaning of the permanent establishment in the so-called in the developing world, really comes down to this concept of services in that the UN had been fighting for 10, 20, maybe 30 years to extend the definition of PE to include services, whilst the developed world had been fighting to exclude it. And I was extremely privileged to see that first hand when I sat in a meeting of the UN committee in Switzerland. I think in 2015, 2016, where the lady from India and the lady from China were thumping the table about the necessity to include services in the PE definition, and the chap representing the US and the chap representing the UK didn't want to have a part of this. And like everything else in this world, got shunted off to a subcommittee. But I think the upshot of it is that if you have a look in the most recent edition of the UN model double tax treaty, you will see that there is such a thing as a services PE.

Cristina Villanova: Yeah, just in line with what you're saying, I think, mainly developing countries, what they're looking for is to broaden the scope of the term permanent establishment exactly with services. Just because for their economy might be a great impact. And maybe an enterprise, which is industrialized and is just generating services in this developing country, would imply huge profits for them. But going again towards the said, probably it's true that we can find permanent establishments, which then may have zero profit in the country just because they're taxed by other ways, just like in case of distributors, for example. So that, joining it with developing countries, would be probably an administrative burden for them, which is mainly, I think, the big difference between developed and developing countries.

Todd Buell: I know that in the movement toward getting more taxation in the digital economy, that in the European proposal they wanted to have a digital permanent establishment and we've had now on October 9th this unified approach. Why don't we talk for just a little bit about that and how the digital economy plays into perhaps redefining or reshaping how permanent establishment is understood.

Question: How does the digital economy play into perhaps redefining or reshaping how permanent establishment is understood?

Peter Wilson: If I can just walk back, maybe a year or two or three, and look at the action reports in 2015 and see what came out of the action reports, specifically in relation to PE. The OECD hated the commissioner arrangements. They hated the desegregation value chains. They hated arrangements where contracts were wholly negotiated in one country, but signed somewhere else. They hated all those. And they said we're going to do something about that. And they set about so-called fixing them by probably spending half of all the pages in the multilateral instrument (MLI), trying to deal with all those. And even that doesn't seem to satisfy the OECD because, notwithstanding 30 or 40 pages on trying to counter all those… And I had a look last night, notwithstanding one of the developing countries having posted a reservation in the MLI notifications against those particular articles in the MLI, the OECD still doesn't think that it has done enough to counteract the PE, even though they believe the digital economy is not separate, it's part of the total economy. So the Secretariat has brought forward this proposed approach, which is going to be dead in the water, for sure. The international accountants won't like it because it's going to require the auditors to make sure that the financial statements are right. And we know the auditors in recent years in a large number of country companies haven't been able to get the financial statements right. The CFO is going to have to put more information in financial statements than what they really have access to under the current software. They're going to have to get information from some body on what's routine and what's not routine. They're going to have to deal with the pressure from India and China on the marketing intangibles, which is basically where the big push has come from and you can see that in the analyses of those countries, transfer pricing materials that were launched in an attachment to the earlier UN transfer pricing document. I just don't see how, notwithstanding the inclusive process, etc., etc., that they can really get closure on this by what they say is the end of 2020 to produce something that people are going to buy off on.

Todd Buell: Now, we this morning already had a whole session on the digital economy so we don't need to necessarily do that again, though I know that there is quite a number of overlaps. From the point of view of permanent establishments within the unified approach or within the digital economy, are there challenges that are maybe specific to certain jurisdictions that anyone else wants to address?

Question: From the point of view of permanent establishments within the unified approach or within the digital economy, are there challenges that are maybe specific to certain jurisdictions that anyone else wants to address?

Ronaldo Apelbaum: Yeah, I can talk a bit about that. And that's funny because, first I'll make a question for you all. Let's see if we're able to make a correct answer. Do you know how many taxes we have in Brazil? Can someone try? Almost, we have 90 different taxes in Brazil. So what's the issue that nobody's talking about and that's a huge concern that we have there. The consequences that we may have on this when we come to the states and municipalities tax authorities. So, if I start to have a lot of PE characterization in Brazil, depending on the state that happens, suddenly you can receive a tax assessment of hundreds and hundreds and hundreds of millions with the fines that I talked about in the morning, 150%, for instance.

So it's not just a matter of paying the right tax, paying the right income tax where that should be paid, it's not just a matter of knowing exactly when we see the financial statement, knowing the right profit for that part of the business in that country. It's much more than this. We have the same problem also in Argentina. In Argentina, we have the ingresos brutos that is a tax that is paid for municipalities 5%, and they keep fighting with each other to know where the tax should be paid. So, we need to be careful when we give power to the tax authorities of the countries in this kind of issue. Because, of course, when we are talking about Spain, when we are talking about USA, we are talking about UK, of course you know what's the consequence of having a PE characterized. When you come to countries like Brazil, you have no idea. I can go to my bosses in the developed countries and say, "Hey guy, if the tax authorities consider that I have an establishment here, I can have something around 40, 50, or even 60% of taxation on that revenue." So how to deal with that?

So when I read all the BEPS projects and when I read the second part that was released right now, I keep imagining that it's too much power. Of course, we cannot stay with the rules that we had before. It's not updated, but the way it's written, the way it's regulated there, it gives so much power for the guys that there are no responsibilities for the consequences of this kind of thing, so this really scares me. I don't know what to think about but every time that I read it and I read that in the plane. I have nothing to do in the plane so I read that twice in the plane. And this is something that really scares me because the consequences may be huge.

Todd Buell: Just to be clear here. So when you say it scares you, is it that the international rules as they are now give too much power to the local tax administrator in the jurisdiction that you're working at?

Ronaldo Apelbaum: Yes, because when we read the rule for PE that we had before, it was closed. It was something more defined, so you need to be an agent, you can close agreements and things like that. And now with BEPS what we have we have is the opposite. It's open with some exceptions. So this is the change and when we open that too much, of course, the world is not OECD.

Stella Raventós-Calvo: The more stakeholders that speak about an issue, the wider the issue becomes. At the beginning with the 1963 model, it was a more defined thing. Then came the authorized approach, which muddled things incredibly, because applying transfer pricing, which is something that to me as lawyer, really is strange. Applying transfer pricing issues to dealings between the permanent establishment and the rest of the company shocks me a bit. But then, the thing is that not all countries adopted the authorized approach. So, in some cases, for example in Spain, we have cases where the tax inspectors have applied the authorized approach without it being in the treaties signed by Spain, not one single treaty has been amended in that sense. So, we are now in the middle of nowhere.

Peter Wilson: I'm just going to be a little bit controversial here. I haven't thought about this a great deal. But this Secretariat unified approach, I don't think it's necessary at all because I think what they've already done already caters for it. And I looked last night at this and this whole thing is so-called digital economy or not, it's just desegregating the value chain between where the customers are and where the IT is. So, there's already a point about that in Article 5 for the existing double tax treaty. And when you look at the MLI, you can look at Article 13 of the MLI and Article 14 of the MLI. Article 13 talks about countering specific exempt activities and Article 14 talks about contract splitting. So I reiterate I'm a simple guy. I looked at what this problem is that the unified approach is supposed to counter and I say to myself, "Haven't they spent the last four years actually creating a system that is specifically designed to counter that; then before that system is allowed to get out of nappies and start running along the road to see whether it works, they say it's not going to work, we want something else." Are they conceding that what they created and spent all this money and aggravation, isn't going to work?

Cristina Villanova: Yeah, if you look at the MLI, in the end not even 50% of the countries have signed for the Article 5 of permanent establishment. So in the end we'll have less than 50% that incorporated or have selected Action 7. So, this means that if you need both countries to have selected Action 7 it would never have an impact. So, as you say, we've been doing so many changes and probably in real life is not going to be an impact. But it's true that companies are changing and nowadays with digital economy, and I understand that Brazil may be a really difficult country and it's obvious that having 90 taxes doesn't look really easy, but this is how businesses running right now. Business is changing so the rules on permanent establishment obviously are changing and we cannot look into physical presence but rather based on sales, which is where we're going. So if a company actually have biggest sales in Brazil, they will need to stick to the 90 taxes and, of course, it's going to be a big burden for companies.

Stella Raventós-Calvo: I beg to differ bit from you. It's true that they've wasted four years but I think the aim was different. The four past years the BEPS exercise was just trying to put a stop to businesses trying to avoid the existence of a permanent establishment. Now this proposal—which is still a proposal, don't forget it, which I agree it's dead on water—but the proposal, it's not just to cover BEPS areas in the permanent establishment issue. The proposal is an entire overhaul of the system, an entire change of the nexus for companies over a threshold. This is something that people probably are not realizing when reading, because, yeah, in principle, it applies to digital businesses but not just digital businesses, it says it could go wider. And then we are looking for a new nexus, regardless of the physical presence, regardless of the permanent establishment issue. And to tax all companies, all big multinationals, according to new rules that have to be defined because there's very little in it, just a political compromise. So, it's early days for us to say exactly what won't work, in my view, it won't work because there's nothing to it. Not yet.

Comment from Audience: It's more of a statement than a question but when you're talking about the PEs and how vague it becomes, it kind of reminds me of when you look at PEs in today's world it's pretty clearly defined in tax treaties, right? But once you start working with a country where there is no tax treaty, for example, then it's the Wild West and it seems like this is where we're going to, it seems like the tax treaties themselves are sort of becoming worthless because they don't define anything in terms of PEs, which is kind of the same thing as if you don't have the treaty at all. I mean that was one of the big advantages of the treaty is it clearly defined what a PE was so that you could structure your business accordingly.

Stella Raventós-Calvo: No offense meant, Ronaldo, but Brazil is one of those countries that, while adhering theoretically to a treaty, does not comply with its clauses or the interpretation given by the OECD. The services, for example, which all services under the normal OECD treaty, for example the one that exists with Spain is just a service, it's a business activity. In Brazil, all services fall under the category of royalties and therefore taxed at source at 25% gross on the gross.

Peter Wilson: It's kind of funny that what BEPS was about was saying, "Well, we're reinforcing the arm's length principle even though there was a push for a formulary approach." And now, on the so-called digital economy stuff, they've given up on transfer pricing it would seem and they said, "Well, we're going to adopt a formula," but to satisfy or pacify those who are traditional transfer pricing people, they say, "Well, we've got to determine what's a routine margin." We're completely moving away from the principle here.

Ronaldo Apelbaum: And just to make a comment, when Mateo was calling me to invite me to come here, I told him that I would be here because you need someone from the jungle. Is anyone coming from the jungle? No? So I will be there. For instance, we have a lot of double tax agreements in Brazil, but we are only able to use the Article 7 with a judicial protection. Yeah, so we need a judicial decision for each case in order to pay for services without taxation under Article 7. So, of course, I'm not here to tell you, "Hey guys, nothing of this is useful. Forget about this, we are going to have a movie from Walt Disney called BEPS, because this is something that only magic can dream." Of course I'm not here for that but I have to tell you that the experience and I have been practicing this for 25 years now in Latin America, it's too open. You cannot allow interpretation from tax authorities in these places. This is horrible to say; if you send this message to the tax authority in Brazil, they would like to kill me. But this is the truth; it's too open. When you say that a permanent establishments is a place, or you don't even need a place, if you are able to take a decision about some kind of agreement related to a Brazil customer, it's a permanent establishment. This is terrible. This is horrible because they are going to use that against multinational companies in Brazil. So this is the consequence. So, for instance, we don't have arm's length in our transfer pricing rules, they say that they don't need to have that. But, on the other hand, they're going to use this concept of BEPS to characterize permanent establishment. So how can we define the risk of business in countries like Brazil Peru, Argentina, Colombia, if they're going to use this against the companies? So this is the question that I'm bringing here. Don't forget, this is OECD. Brazil is not part of OECD, Argentina already thinks that they are part of OECD, but they are not and they should not be part of that. Other countries in Latin America except for Colombia, Chile, Mexico, they deserve the position in OECD.

But all the rest of the countries…Paraguay created transfer pricing rules last week, guys. Did you know that? Last week they put in the newspaper: Now we have transfer pricing rules! Do you really think that tax authorities for one country like Paraguay deserves to have an interpretation based on these documents? No, they don't. They can't. So this is the message. Of course, I'm not being pessimistic. I'm just showing you the danger of these kinds of interpretation. So I think that for developing countries like Brazil, Russia, China, India, we need a different approach, something more closed, something more specific.

Todd Buell: I just want to mention I liked the imagery of the Disneyland or something like that because I could imagine Tax Justice Network or some NGO trying to say that having companies pay their fair share shouldn't be a fairy tale, it should be real life.

Question from Audience: It's mind boggling to listen to Ronaldo in saying that there are 90 kind of taxes in Brazil, I thought in Canada we had too much taxes. But could you elaborate for the audiences, what constitutes 90 taxes in the state of São Paulo?

Question: Could you elaborate for the audience, what constitutes 90 taxes in the state of São Paulo?

Ronaldo Apelbaum: When I talk about 90 taxes, so everything that you pay for the government in Brazil, it's named a tax. But taxes on business like services industry, for instance, an IT company. An IT company pays one or two different income taxes, service tax that is for the municipality, state tax for the state, and we have five types of different VATs for the federal government. So at least, minimum, one company pays from 8 to 10 different taxes. And then if you are going to specific activities, then you pay these other taxes that I mentioned that comes to 90. But at least 10 different taxes.

What's the issue? If you are in São Paulo, you have to pay taxes for the federal government, the state and the municipality. If you change the municipality, then nothing that you paid in São Paulo is useful. You are going to have to pay that again. So if you are in a different state, so you have the state VAT that's around 20%, everything that you paid, you lose. And why you lose? Because if you paid an state VAT for example in Brazil, and you think that you paid for the wrong state and you need that money back, you need a judicial suit that's around 15 to 20 years. If you win the judicial suit, then you need another 5 or 6 years in order to be allowed to get the money back. And they are allowed to pay the money back for you in 10 years after the decision that they should pay that back. So, if you have taxes to receive in Brazil, of course in some situations you can offset them, but either state or municipal tax in Brazil you need around 30 to 35 years to receive that back. So this is the reason why I'm saying here because, of course, the federal government is more developed and they allow you to offset taxes that you pay wrongly because it's the same entity. But when you go down to the states and municipalities, where is the biggest part of the taxation, this does not exist. So if you paid for São Paulo and you should pay for Rio de Janeiro, they'll say, "My friend, this is your problem, go and try to get that back." So this is the reason we have this submundo, the underground, that we have on taxation there that brings these kinds of difficulties. And Brazil is always a curiosity, people love Brazil. Every time that I go and talk about taxes in Brazil, people will start to become crazy, I want to work there, I want to live there, that's not the case.

Question from Audience: I wonder if you agree or disagree with me that, because the permanent establishment allows using tax benefits when being set up in a different country, for example. When it gets to the tax benefits, the states or tax authorities try to do everything in order not to recognize that the permanent establishment is there in order to tax the controlling company. And when we get to the full tax rates, for example, no tax benefits, they do try to recognize that there is a permanent establishment there in order to tax the permanent establishment. Maybe it's more relevant to our world than the Western world, but does it make sense to you because the BEPS approach, the new approach to the permanent establishment is so wide, the concept of the permanent establishment has become so wide, that it allows the tax authorities to kind of judge either way. And it's more competition now between the states to get more money rather than between the taxpayers to get more tax benefits?

Question: When it comes to tax benefits, states try to do everything not to recognize that the PE is there to tax the controlling company, but when states can apply full tax rates, they try to recognize that there is a PE there to tax the permanent establishment. Does this system allow tax authorities to judge either way?

Peter Wilson: I'm not sure that I can answer the first part of your question, but I think I can answer the second part of your question and it's something called mandatory binding arbitration that you may or may not subscribe to that approach. But it is in the MLI and there are some countries that have reserved on it and some haven't. Not every country has its own procedure in place to allow you to get into the arbitration. But the mandatory binding arbitration is supposed to resolve the conflicts of double tax different interpretations that you're addressing.

Cristina Villanova: I'm not able to answer to your first question, mainly because it's probably happening more in developing countries or not so much in Western countries. With regards to the second, mandatory binding arbitration is an option but also hearing Ronaldo and other people talking about their countries, I think this option, in practice, it might not be so easy. When are two countries going to sign this mandatory binding arbitration and, if it's going to happen, how are we going to solve it? Countries are not even prepared for it, so probably if we find the country doing what you explain, it's going to be very difficult for the company, and I would even suggest establishing a company rather than declaring a permanent establishment, just trying to avoid these strategies from the tax authorities, but probably going to be very difficult.

Todd Buell: If not I'll ask some questions from up here. As Donald Trump would say, "Oh, well, I'm the moderator, I can do that." And this is the greatest panel there's ever been. More broadly, some of the comments up here, maybe I want to just get at kind of a more fundamental question. Is it the view of the panel that the OECD has too much power, too much influence? Is it that it's using its influence, perhaps, to improperly giving tax authorities too much discretion? Or are things more or less in balance? I'm not sure I've heard anyone say that, but I just want to give that as an option.

Question: Is it the view of the panel that the OECD has too much power and influence? Is it using its influence, perhaps, to improperly giving tax authorities too much discretion? Or are things more or less in balance?

Stella Raventós-Calvo: The OECD now has the mandate given by the G20.That's the alibi. So, in the past, it was what it was, but nowadays for BEPS, they were given this task of trying to avoid the erosion of tax bases. And they constantly, if you look at the papers, they never talked about the OECD but always the OECD under the mandate of the G20. The OECD is composed of tax officials in the case of the tax, the tax officials of the member states, not just member states. Now the inclusive framework, so they attribute themselves this role, I wouldn't say arbitrators. But in this case, as I said this morning, I'm pretty sure of that, they are under a lot of political pressure now to try and make happy the most vociferous countries such as the US. I think the US has influenced the OECD for a long time in the past years, but not just the OECD, India, and some other countries, and that's it I mean, there's nothing they can do. They have devoted endless hours and people to the task.

Peter Wilson: I'd like to take us all on a journey. And the journey starts many years ago. And the journey begins to move forward. When somebody says we've got a real problem here. All this mobile income is being shifted to bad places. We've got to do something about that and we've got to do something about that because it's depleting our tax revenue. We can't have that. We've got to stop this mobile income being shifted to places where there's no substance.

The next station on this journey is the governance organization saying, "Well, hang on a second, let's look at these places that this mobile income is being shifted to, to see whether they have substance in those jurisdictions because if they don't have substance there, it proves our hypothesis that the revenue and sales are being shifted to places where it shouldn't be shifted to." And they set out all these great definitions of what qualify as substance, acceptable and what isn't acceptable. So what happens? All the people who are supposed to be shifting this income to mobile places without substance suddenly cobble together substance in these jurisdictions. So they come along and they say, "You can't touch us, this income hasn't been shifted to a jurisdiction where there's no substance because we have substance." So, the governance organization says, "Hang on a second? We created a rod for our own back here. We're giving away tax in our own jurisdiction and we've actually told these people what they had to do to make it difficult for us to claw that tax back. So we're going to bring in another lot of rules," and the first lot of rules they want to bring in is this unified approach and they want to bring in the Pillar Two. And the Pillar Two says, "We're not going to give a deduction for the payment if it's going to a country that's got 5,000 people doing all the work in that country if it's not paying a minimum rate of tax." And you know where the journey is about to end and this was actually mentioned earlier on today, the developed countries who are so concerned about the reduction in their tax base and they're reducing the corporate rates of tax. The US has done it, UK is doing it, all these other countries are doing it. And why are they doing that? Because they recognize that all this stuff that they're set up to try and stop mobile income moving somewhere, that the mobile movers have managed to pull a curtain down to convince people it's not mobile, the developed countries suddenly realized that the only way we're going to get this income back is to reduce our corporate tax rates, and the tax pool is going to be no different much than what it was before this journey started.

Question from Audience: Having listened today closer to what has been said, I am thinking when I came here I thought the European Union is pressuring the OECD to enhance tax collection by having all these different taxes and tax regimes. Once I sat here through the day, I come to realization that the opposite may be the case, that America is pushing the OECD to increase taxes and this regime. Which one is true, the first is this case or the second case is the case? Is America pushing the rest of the world towards a more enhanced tax regime, or is it the European Union, especially France and Germany, who's doing the pushing?

Question: Is the EU pressuring the OECD to enhance tax collection or is it the US?

Stella Raventós-Calvo: What the European Union has done is adhere enthusiastically to BEPS. I mean, we are the best, we are the most compliant people, and we have the best systems, so we will be at the forefront of BEPS. And the European Union implemented BEPS with two directives: ATAD I and ATAD II. That said, within the OECD, all members of the European Union, almost all members are part of the OECD, are members of the OECD. Not the European Union as itself, the European Union as itself is not part of the OECD, although it joins the meetings. But there are other forces within the OECD, which are not European Union. We are just being naive, in my view, Europeans, because we shouldn't adhere to all this movement unless there's reciprocity from other sides of the world. Oh yeah, we'll be the best, the saintest people and the poorest people of the world.

Ronaldo Apelbaum: Of course, a positive comment. The way I see all this BEPS projects and things like that as some kind of educational issue. So, now, in the world we are facing a lot of new things. So, we need to respect everybody, we need freedom and we need to tax rightly what should be taxed. So, I think that this is good, this is positive when we think about, not the consequence, but the concept. Make senses, you should pay the taxes where it's deserved. Why a jurisdiction that does not allow you to use the Internet freely should receive the same parts of taxation in countries that consumers can use the Internet freely? For instance, if I take services from India, it makes sense to make payments for the services to India tax. The same thing for Brazil, the same thing for the US, so rich countries, poor countries. I think that the good idea for this is to create a standard, at least something that people should run after.

So I would say that Europe, in the way we see Europe in Latin America, of course, the countries in Europe shall be the first one to drop inside, you created this. So all these concepts were created by European countries. It's not American. The USA influences OECD, USA has a lot of influence in countries in Latin America, but all these ideas did not come from the United States, they came from Europe. So, European countries shall be the ones that will start and see the consequences of this. Maybe it's good, maybe it works, we never know. So, in my feeling, and I have been talking all the time here, no, just don't let this go, just don't let this happen, but the concept is good, the idea is good, seems to me that it's fair, so why not Europe that is the richest part of the world begin with that? So, let's begin. And then if it's a good thing, of course, there will be a lot of pressure to bring that for the countries still under development.

Cristina Villanova: But don't you think that if we begin with Europe only, what are we going to do with relations with other countries? I mean, for instance, what you said on the application of Article 7, which you need to go to court to be applicable, that makes no sense. I mean, we can be talking about OECD and we can be talking about new developments, etc., but in the end if it's not applicable in practice, if we can only move in Europe, it's going to be very difficult.

Ronaldo Apelbaum: We used to have a double tax treaty with Germany in Brazil and Germany cancelled that almost 15 years ago because we didn't respect. Three years ago, Finland decided to also cancel the tax agreement with Brazil because we do not respect Article 7. When it happened with Germany 15 years ago, what happened in the tax authorities? Nothing. They said, "Fuck Germany, it's not our problem, it's the German companies problem." This is what they told us. Two years ago when Finland decided the same thing, there was big pressure from taxpayers in Brazil on the Brazilian government and said, "Hey, look what you're doing, either you accept Article 7 exists or we start to have a problem." And now they are reacting in a different way. I told you that we are only able to send money abroad under Article 7 with a judicial suit, but for some countries like France, Sweden, Japan, they are already accepting that we don't need to tax them. So, there is a psychological issue in all this; in the moment that part of the countries start to adopt it, at the moment that we are able to come from Brazil to come here and talk and hear things, and tax authorities they are also participating in Congresses all around the world, things change. So, in some way, things change. But if nobody starts that it will never reach countries like Brazil. So, I know that this may be a lot of effort for European countries, but to be very honest, you are the example for us in Latin America. United States is not the example, China is not example, Russia is not an example, but things that come from developed countries in Europe, they are affecting us a bit more than used to happen 10, 15 years ago.

Peter Wilson: I just want to leave everybody with a simple thought. Facebook knows how many customers it has; they're all signed up. Facebook knows how many customers it has in each country because they sign up from each country. There's a simple mathematical formula. If Facebook has a million customers in Spain and it has 100 million customers worldwide, then why can't one 100th of Facebook's revenue be said to be the revenue attributable to Spain and whatever the costs of Facebook are in Spain running its business in Spain, they can be deducted from that? Why can't you just do a simple allocation like that? All these Internet companies, they know exactly how many customers they have, they know exactly where they sign up. And if their sign up methodology isn't competent, then it should be. When you open a bank account, the bank knows exactly what country you're in, it knows what tax residents you are. When you sign up with any one of these Internet companies, it's a simple calculation that Facebook can do in a nanosecond to work out the proportion of its gross revenue that's attributable to the customers that it has in each country.

Ronaldo Apelbaum: But maybe you should take in consideration: What kind of business you can do inside that country? So, of course, in Brazil, for instance, everybody has a Facebook account, we're talking about 200 millions of people, but they cannot sell a lot of things that they are able to sell in the US, for instance, because of local regulations. But all this comes back to the right that Brazil may have on the Facebook revenue.

Peter Wilson: So, the very valid point that you're making is applicable in both situations but the Secretariat's proposal is trying to create this donkey with a turkey's head and an elephant's tail and saying that this is how you work out the revenue that's attributable to each country. And we heard today that should it just be a proportion tax, 1% or 2% on gross? Countries are going to get upset about that. And if the whole OECD approach is trying to tax the revenue at the source of where the profit is generated, it's generated from the customers doing their transactions. Why just don't do it on a straight calculation basis? And then that gives you revenue and then it's up to the Facebook's of the world to control their costs.

Cristina Villanova: I think that wouldn't even look like revenue for a company because just like the case he exposed it doesn't even have to be its revenue for its user. And on the other hand, answering your question, I think that this is not happening because mainly companies are not interested in this, and the information is only in the hands of the companies, so it's going to be very difficult, I think in my opinion, that the new nexus rule is based on this.

Stella Raventós-Calvo: And the US will never accept that.

Comment from Audience: I think the OECD should be an example to no one. They are the most aggressive tax planners in the planet. You have an organization telling the rest of the world to pay tax when they themselves pay none and neither do their employees. Everybody should shun these fools.

Peter Wilson: I'll just make a quick response. The approach of the European Union is driven by their social agenda. They need money. They like many other countries were stripped of money in 2008 and they blame it on the bankers but they never took it really from the bankers. The bankers have never really paid the piper, but the European Union is pushing the cost of what happened in 2008 on to normal people. Tax is a welfare policy.

It's the European Union's approach to a single country. You know, the common corporate tax base, etc. They want it to be the same, it's the single market; they don't want any differentiation, any advantages that entice one company to be located in one part of the European Union rather than another part. And you know that's their policy, respect the policy or not respect it, that's what it is, but that doesn't mean to me it's right.

Very little tax paid by Uber in the UK, but they've got 40,000 guys driving or something or other, all earning some kind of a living, either a full or partial living. And they're paying tax, most of them are probably paying tax on what they get, they're definitely paying VAT on what they buy, but nobody ever seems to take that into the equation.

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