OECD unveils plan for cross-border tax reporting

Cross-border portfolio investments are greater than $35 trillion globally, but the intended tax benefits are so difficult to claim that they often do not reach their intended targets. In response, the Organisation for Economic Cooperation and Development (OECD) has developed and approved a standardized system of relief meant to streamline processes, reduce costs and assure investors their rights, while also improving tax compliance.

The electronic system allows tax authorities to exchange information and financial institutions to report information to tax authorities. The new “Treaty Relief and Compliance Enhancement” system is based on eXtensible Markup Language (XML) technology. The United States and Canada are among the 34 countries in North and South America, Europe, Asia, Australia and New Zealand that participate in the OECD.

The135-page “Trace Implementation Package” adopted on January 23, 2013 by the OECD committee that developed it would allow authorized intermediaries to claim exemptions or reduced rates of withholding taxes on a pooled basis on behalf of their portfolio investor customers.  The package contains a complete set of tools and documents for intermediaries to begin using the system, although OECD acknowledges there are still some technology issues to resolve and, in some cases, participating countries may need to change certain domestic laws to enable intermediaries to participate. Learn more about this system at the OECD website and read the article “OECD Offers Plan for Cross-Border Investment Tax Woes” at Compliance Week online

UK Supreme Court Blocks Tax Advisers' Legal Privilege

In the recent court case of Prudential plc v Special Commissioner of Income Tax, the United Kingdom’s Supreme Court decided that legal professional privilege (LPP) should not be extended to clients of non-legally qualified tax advisers, but that the matter should be looked at by Parliament.

LPP is a common law right that has developed over the past 400 years. In other cases, the English legal system requires full disclosure from a party of all the documents which they have which are relevant to the matters at issue, but the privilege is designed to ensure that any person can feel confident in seeking advice about their legal rights and obligations, and be reassured that any information they provide cannot be passed to a third party without their express consent.

LPP currently only applies to clients of lawyers, and also extends to any tax advice they provide – despite the fact that the majority of tax advice is now provided by chartered accountants. Confidential tax advice passing between the latter and their clients will now still have to be disclosed as part of any litigation. Extending the privilege, the Supreme Court held, would cause uncertainty over its scope and inconsistency in its application. That would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty.

Read more about this court judgment in the article “UK Supreme Court Blocks Tax Advisers' Legal Privilege” by Jason Gorringe in Global Tax News online (London, January 2013). Tax-News.com is a daily worldwide tax news service with a 45,000 story archive that can be searched for free!

Best Practice Resources for Tax Practitioners in Canada

All tax engagements involve some common elements. However, the time and expertise required may vary significantly for each engagement. More than 50% of insurance claims against Chartered Accountants are tax-related but the majority can be avoided with an effective tax risk management strategy.

The newly revised second edition of the CICA Tax Practice Manual contains 22 comprehensive chapters. It provides information on the important risks associated with tax practice, recommendations and best practices to minimize those risks, as well as useful tools and practice aids to accomplish risk minimization that will assist in improving productivity.

In the electronic version of the Manual, the practice aids are listed at the end of each chapter. Word files, PDF files and links are now included on a CD which accompanies the print version of the Manual. The URLs are included on both the CD and in the electronic versions for quick access to source documents.

Doing the Right Thing…When Tax Ethics Get Murky

An AICPA Insights article called “Doing the Right Thing…When Tax Ethics Get Murky” was recently posted by Edward S. Karl, CPA, Vice President of Taxation, American Institute of Certified Public Accountants (AICPA). The article states that he often gets phone calls from members who are troubled by a professional ethics issue. “Ed, I have a conflict with a client; I don’t trust him.” Or, “I just engaged with a new client and I suspect the old accountant of doing something wrong; should I turn her in?” The scenarios change but in the end, they always ask: “What should I do?” He always says: “I can’t tell you what to do!” It comes down to a matter of ethics. How do you tell someone how to behave?

According to the article, Mr. Karl states that: “Over the years, while teaching classes on subjects like the AICPA’s enforceable tax ethics, the Statements on Standards for Tax Services, or the Internal Revenue Services’ Circular 230, I often ask the participants to define ethics.  “Guided by a code of conduct,”  “acting with integrity,” “having a moral code,” “moral principles that govern a person’s behavior,” or “living your life with high values” are examples of what I’ve heard.” The definition that resonates best is “doing the right thing.”

He goes on to say: “that’s why I tell people I can’t tell them what to do; within the framework of the actual ethical guidance, “doing the right thing” for me may not be the right thing for someone else. Now, I don’t leave people hanging; I give them information about the rules, for example, the SSTSs and the Code of Conduct, ask them questions, suggest various alternatives, and try to help them formulate an answer that makes sense for them. It’s still not easy. What do you do when the ethical rules say one thing but your conscience says another?”