Substance 2.0

Aligning international tax planning with today's business realities

Is your tax strategy solid enough to withstand today's scrutiny?

Since the first edition of our book appeared in 2009, its subject —economic substance within the context of international tax planning— has only grown in importance. Indeed, across countries and within multinational bodies such as the EU and the OECD, authorities have launched numerous new initiatives focused on so-called “aggressive tax planning”, and tax challenges are on the rise.

There are several drivers behind this trend of sharply increased scrutiny.

  • In a challenging economic climate, company shareholders are focused on the top line, and cost containment, including the tax line, is on the radar. However, it is also crystal clear that one should at the same time mitigate the risk of tax adjustments, or worse being negatively exposed for tax planning in the (social) media.
  • Governments, too, are strapped for cash, and are increasingly turning their attention to “soft targets” such as corporate tax revenues.
  • Consumers, the press, and the broader public, empowered by social media, are scrutinising the corporate citizenship, governance and practices —including tax practices— of the companies they buy from.

International tax planning has become more complex than ever

To mitigate potential adverse consequences, tax policies should be coherent, consistent, reasonable and economically credible. But what does that really mean in a global environment, where tax professionals must consider a range of sometimes conflicting principles of economic substance —not to mention differing regulations and expectations on the part of tax authorities — both at home and where they operate internationally?

This is why we have written this completely updated new edition of our book.

As in the previous edition, we focus on why and how to monitor your economic substance in the context of corporate structures (tax residency, permanent establishment and beneficial ownership) and in the context of operating models (transfer pricing of goods, services and intangibles among entities marked by some form of economic solidarity), but the permanent establishment dimension has been developed more prominently.

We also bring you up to date on the latest domestic tax regulations in 48 countries around the globe, and discuss how they interact with the most recent OECD rules (double tax treaties and transfer pricing guidelines) and EU law.

Wherever you are domiciled, and wherever you do business, we hope that this publication will be an asset to your business —and that it will help support and guide you in your international tax planning. We would be happy to assist you in this journey.

About the authors: Axel Smits

Axel Smits is a Brussels-based international tax partner with PwC Belgium. He heads up the PwC international tax network in Europe, the Middle East, India and Africa.

Axel is a frequent speaker on international tax planning at conferences both in Belgium and abroad. He also oversees PwC's international tax training programmes within Europe, the Middle East, India and Africa. He holds a law degree as well as additional qualifications in taxation, accountancy and finance. He is a chartered tax consultant under Belgian law (member of IAB/IEC) and a member of the International Fiscal Association (IFA).

Axel has developed significant expertise in testing companies' substance readiness and helping develop and implement a robust approach towards challenges by tax authorities in this field. He is recognised as an expert on the topic and was one of the lead authors on the previous version of this publication. Together with his team of international tax experts, he assists his clients on a global basis in developing substance-based tax strategies, which need to be ever-more aligned with the company's business reality in order to avoid being perceived as artificial. His team is well trained in understanding and applying a wide range of tax systems (including others than their own), and making these interact with double taxation treaties, EU rules and case law and the like, in order to achieve an overall beneficial effective tax rate.

Axel is also co-author of Mastering the Intellectual Property Life Cycle — A global perspective on the tax-efficient management of IP rights (www.pwc.com/iplifecycle).

About the authors: Isabel Verlinden

Isabel Verlinden is a Brussels-based international tax partner, who heads up the PwC Transfer Pricing practice in Europe, the Middle East, India and Africa.

She has first-hand knowledge of the transfer pricing challenges faced by companies operating across the globe, derived from over 20 years of experience working both in Brussels and in Washington DC for PwC (and its legacy firms). She spends the bulk of her time helping multinational groups on a global or regional basis to navigate through the increasing complexities of monitoring and managing the tax charge when unwinding and re-assembling value chains, combined with a focus on the necessary substance. She is recognised as an expert on the topic and was one of the lead authors on the previous version of this publication.

She is a Business Member of the European Commission's Joint EU Transfer Pricing Forum and is regularly involved in initiatives by policy makers (for example as an invitee to Specialist Business Expert Group Meetings at the OECD). She is a chartered tax consultant under Belgian law (member of IAB/IEC) and a member of the International Fiscal Association (IFA). She was the 2007 Belgian reporter for the topic on intangibles at the Kyoto IFA Congress and will be chairing the 2013 IFA seminar on profit methods and the arm's length principle in Copenhagen.

She is listed in the 'Best of the Best' Expert Guide containing the world's most nominated experts in their area of competence by in-house counsels and peers. She also co-authored Mastering the Intellectual Property Life Cycle — A global perspective on the tax-efficient management of IP rights (www.pwc.com/iplifecycle).