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In recent months, a virus COVID-19 has broken out in many countries on the globe, which caused huge losses to countries and enterprises. As many firms declared difficulties in their cash flows, some upcoming tax burdens also become an issue in need of a provisional solution allowing firms to survive this unprecedented period. The OECD has quickly published a set of guidance to tax authorities last month to help with establishing provisional measures countering negative impacts brought by the COVID-19. This guidance is meant to assist countries dealing with this sudden outbreak, providing supports to the public, increasing liquidity of firms and thus maintaining productivity of each economy as much as possible.

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The guidance can be summarised into the following key recommendations:

1.  Authorities should provide temporary relief or subsidies to individuals and labourers domestically, including groups which are not eligible to receive such benefits in normal conditions due to the special circumstance of COVID-19.
2.  Provide exemptions or deferrals of taxation on social securities and income tax on enterprises and sole proprietorships.
3. Provide tax benefits to medical personnel and staff working closely with virus preventions, for instance, exempting partial income tax and social security contributions.
4.  Apply deferral schedules on levying import VAT, customs duty, consumption tax and the like while safeguarding and enhancing the management of such schedules to avoid any abuse.
5.  Expedite tax returns on VAT, target on prevention of tax fraud, and simplify procedures on application for VAT exemptions on bad debt.
6.  Adjust expected tax estimates on taxpayers to reflect taxpayer obligations more accurately and adjust the prepayment of such taxes accordingly.
7.  Grant deferrals or exemptions to taxes of which the tax bases are not changing according to economic cycles.
8. Enact generous rules on carry-over losses.
9. Allow employers to pay workers with partial employment subsidies or other substitutive incomes to ease the pressure of staff trimming.
10. Countries should stay prepared for post-pandemic economic recovery, in particular maintaining a balance between fiscal incentives and stabilizing measures.

OECD further pointed out that the focus of taxation management policy has shifted to implementing more traditional tax incentives, the purpose is to restore market faith and encourage economic activities. The current economic hibernation could effectually help everyone and every country to survive such a down-turn caused by the outbreak of COVID-19. Recovery in economy can be expected but it could take some time. In post-pandemic recovery, a balance between incentives and stability is actively sought with discretion in each country. If you would like to know more about OECD obligations on enterprises or wish to see some relief benefits on your company, talk to us!

Global Connect Admin B.V. | Xuan Hao

On 11^th February, OECD has published a new guidance on transferring pricing, the Transfer Pricing Guidance on Financial Transactions, which was a new development under the BEPS Action Plans, specifically under Actions 4 and 8-10. It signifies the first attempt to update the existing OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations for further specification of transfer pricing in financial transactions to improving efficiency and consistency of applying transfer pricing principles and preventing both disputes and double taxation.

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Transfer Pricing refers to the behaviours typically found in intra-group trade within multinational enterprises (MNEs) to allocate costs and profits to more favourable tax jurisdictions for tax avoidance purposes. Transfer Pricing Principle is better known by the term arm’s length principle, which refers to a rule that the price of the goods or services traded within one MNE between different entities located in different tax jurisdictions should be determined as if they are independently functioning companies in the market. If prices can be freely decided between group subsidiaries or affiliated companies, market distortion or monopoly can be easily achieved by MNEs or such groups holding dominant market shares by means of profit shifting and tax evasion.

Here is a simplified overview of new contents in this new guidance. Actions 4 and 8-10 of BEPS Action Plans talk about interest deduction limitations, intangibles, risks & capital, and high-risk transaction respectively. Transfer Pricing Guidance on Financial Transactions being part of the Inclusive Framework on BEPS regarding these Actions has provided for more clarity in section B on the application of the accurate delineation analysis to capital structure of an MNE within an MNE group. Meanwhile it is also made clear that this section does not prevent countries from implementing domestic measures to address capital structure and interest deductibility. Other clarifications include outlining economically relevant characteristics for analysing terms and conditions of financial transactions, such as contractual clauses, functionality analysis, characteristics of financial instrument, economic environment and operational strategies. Sections C-E has addressed specific issues in relation to the pricing of financial transactions, include but not limited to treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance, which are highly elaborative on both the accurate delineation and the pricing of the controlled financial transactions. Section F, as the last part of the main body, provides for determinations of a risk-free rate of return and a risk-adjusted rate of return. This guidance is annexed into the OECD Transfer Pricing Guidelines as Chapter X in entirety with adjusted numbering.

For many, OECD rules and BEPS updates are of high relevance due to boosting trade between MNE groups and affiliated companies. Stay on top of news and seek professional assistance are always helpful to avoid the avoidable and keep your business as stable as possible. We are always here to hear your needs.

Global Connect Admin B.V. | Xuan Hao

In mid-February, GCA joined a cultural intelligence workshop event organized by DUJAT for Dutch- and Japanese-oriented organizations and international expats. It was a great pleasure to be part of the speakers’ team facilitating the whole session altogether. While many participants considered the workshop to be very helpful and practical in different ways, there are some take-aways that the majority agreed on.

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Cultural intelligence is an ability that would enable one to understand the other in a cultural context foreign to the former. It consists of motivation, knowledge and actions. To improve this ability, an organization should bring this topic across; a team should come up with practical action plans to encourage communication and inclusiveness among local and foreign members; each individual should remain curious and respectful to unknown behaviours and try informal contacts or activities to understand the other side better. To be more specific, some tangible plans discussed during the workshop were thought to be helpful by many. We would like to share with you some take-aways in relation to the three key aspects of cultural intelligence: motivation, knowledge and actions.

1. Compose brochures containing cultural intelligence knowledge and information about both cultures to invite interests and curiosity, which can build up motivation and knowledge in learning about the other culture.
2. Initiate prior communication on what and how to proceed before real interactions take place between two cultures, which helps with both knowledge and actions.
3. Improve process management regarding behaviours, communication channels, decision-making procedures, information disclosure, and feedback control, which also helps with knowledge and actions.
4. Select a cultural ombudsman who has understandings of both cultures and behaviours to interpret messages and contexts to one another, which could help with both motivation and knowledge, or sometimes actions.
5. Field trip and visits to each other in person and on site, which gives people, especially the management, a real sense of the other culture and behaviours attached to it. This action could increase the motivation to understand and the knowledge to make better decisions.
6. Participate in trainings and workshops, which could offer a good opportunity to involve as many as possible at once. This action helps people seriously and openly discuss things confuse or bother them and generate a better understanding, which helps with knowledge and actions, or possibly motivations if someone is new to cultural differences.

Cultural intelligence is very intangible, but to make it more tangible so that plans are implemented through actions to take real effects, professional trainings are very useful to learn more or to improve more. GCA is constantly learning, improving, and sharing, despite of our experiences in dealing with cultural differences from many clients. If you are an international business, we are here to understand you and bring your business further by providing reliable financial services with an inclusive and respectful attitude.

Global Connect Admin B.V. | Xuan Hao

Cultural Intelligence, or Cultural Quotient (CQ) is an ability of an outsider to interpret another culture, another behaviour, another rationality and irrationality. We would like to bring this topic to you because crossing border has certainly become a routine in most businesses and sectors, also because this soft factor is not easy to grasp at once but is playing an important role in becoming a successful business.

This concept was initially developed by Professor Christopher Earley and Soon Ang in their book Cultural Intelligence in 2003. It was defined as the ability to adapt to new cultural settings. It is the ability to understand unfamiliar or ambiguous behaviours and recognize shared influences but yet not to make assumptions or generalizations based on any single aspect. Because people coming from the same country or the same cultural group could behave differently due to their positions in a business, their situations, their age or gender, their education and backgrounds, and sometimes their personalities.

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How tell if an employee has CQ or how to develop CQ when lacking? It is essential to look at the three components of CQ first. The Harvard Business Review identified Head – cognitive, Body – behavioural, and Heart – motivational as the key components of CQ. In simple terms, a person should understand a foreign culture, adapt the right physical behaviours, and take actions accordingly for a success in result.

Take an example of the Dutch and the German. If one would run a quick comparison on the Hofstede Insights on these two countries on the six cultural dimensions, in which Germany is considered more masculine and the Netherlands more feminine. This suggests that the German prioritize career development and high achievements over private life, and the Dutch in the contrary. However, this is only a generalized conclusion. Approach to a cultural group individually, it is also not surprising to see not everyone from that culture follows the same mindset and behaviours. This could vary between subgroups or communities, sometimes in corporations or families. Making appropriate research and observation or gathering the right information and knowledge is usually the first step. Because general ideas do not help as much as expected on an individual basis. Upon necessary knowledge, thinking towards understanding is the next step. From understanding to strategies and then to actions are the last two steps to complete the CQ management.

On 12^th February, we will be speaking more about this topic in Amsterdam with three other speakers under the organization of the Dutch Japanese Trade Federation. Please join us for more discussions in the event or stay tuned for our next article summarizing the discussion and findings in that event.

Global Connect Admin B.V. | Xuan Hao

According to recent information from Reuters, the EU has agreed to remove UAE, Switzerland and the Marshall Islands from the tax haven blacklist in October 2019, which signified another step forward on the journey to global transparency on assets. In the following month, Hong Kong has taken actions and has shut down a large number of offshore accounts. Large-scale tax avoidance has becoming more and more restricted and riskier as the Common Reporting Standards (CRS) are being widely implemented and the trend on global information transparency is growing.

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The EU tax haven list can be viewed in two lines, the blacklist and the grey list. The blacklist was initiated in 2017 and 25 countries has been removed from that list so far. The grey list consists of another 34 countries or regions. They are on grey list because they have agreed at the end of 2019 to commit to improve tax compliance in upcoming years. If their commitments are fulfilled soon, they will be removed from the grey list; Otherwise they will be replaced into the blacklist.

The EU issues these two lists based on three main criteria:

1. Transparency
2. Fair Tax Competition
3. BEPS Implementation

The remaining tax havens which have not committed to improving tax compliance or information exchange mechanism are American Samoa, Guam, Fiji, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu and Oman.

Global assets transparency is a result of automatic exchange of financial information based on CSR, which might bring more tax burdens or even fines, if failure to report timely, onto taxpayers possessing various assets in different countries or regions. Passive non-financial companies (aka shell companies) established in favourable tax jurisdictions for assets management or tax avoidance could face more information disclosure to the authorities, which lead to an inhibiting effect on tax avoidance behaviours. Family trusts, large insurances, trade businesses and so forth are all belonging to the information that are being made transparent to many authorities. Tax authorities certainly pay more attention to capital flows and acquisition. Capitals from unknown sources or irregular cash flows are also being exposed, especially regarding those capital activities in relation to tax avoidance.

If you have questions on assets management or cross-border tax issues, please feel free to contact us, we are your GCA team who is always willing to help on your business journey.

Global Connect Admin B.V. | Xuan Hao