Tax Analysts' Worldwide Tax Daily quoted Elan P. Keller regarding the move towards automatic information exchange and its implications for taxpayers and practitioners. For the complete article, please visit Worldwide Tax Daily's website (subscription required).
Excerpt taken from the article "OECD Says Luxembourg and Cyprus Fail to Meet Tax Information Exchange Standard" by Stephanie Soong Johnston for Worldwide Tax Daily.
Elan Keller of Caplin & Drysdale said the forum's work on information exchange will greatly influence taxpayer behavior because it allows authorities to communicate more easily and to obtain taxpayer information more quickly. Businesses will have to react accordingly, he said.
"They're going to need to document their business purpose and the economic substance of a transaction, not just to satisfy the U.S. tax authorities but to satisfy other jurisdictions' taxing authorities," he said. "That's a big shift in mentality of U.S. multinationals."
Sophisticated multinational corporations are already adapting to the shift toward automatic exchange of information, but other taxpayers should be taking a harder look at their tax risk management structures and creating processes to avoid transactions that lack an economic substance or a business purpose, Keller said. For example, companies can sensitize their staffs and stakeholders to the risks and document the substance or purpose of transactions, he said. "Providing evidence of business purpose and economic substance is the best way to combat an attack from any revenue authority," he added.
Tax practitioners in the United States will benefit from collaborating with foreign practitioners to expand the scope of their tax advice to clients, Keller said. "Clients don't want just provincial advice on how this is going to affect the U.S. They want their U.S. tax practitioners to be sensitive to how their transactions will be viewed in other jurisdictions," he explained. "It would be wise for U.S. tax practitioners to be building those connections and relationships."
It's crucial for taxpayers to consider the outcomes of the Global Forum's meeting while planning their tax affairs, Keller added. "The barriers of obtaining information are crumbling down," he said. "The trend is that jurisdictions want to work closely with each other and find it in their best interests to be transparent, and that's something that taxpayers should be paying attention to."