Eversheds Sutherland Strengthens International Tax Practice

Eversheds Sutherland is pleased to announce that Jonathan A. Sambur has joined the Tax Practice Group as a partner, expanding the firm’s tax practice with a focus on advising global financial institutions. Prior to joining Eversheds Sutherland, Mr. Sambur served as a partner in Mayer Brown’s tax transaction practice.

Based in the firm’s Washington DC office, Mr. Sambur helps financial institutions, investment funds and multinational companies achieve success in their cross-border activities by providing comprehensive United States tax and regulatory advice. He regularly counsels clients with respect to United States information reporting and withholding tax obligations, United States federal tax issues affecting foreign businesses and individuals operating in the United States, as well as, United States federal tax issues affecting United States businesses operating outside the United States.

“I am excited to welcome Jon to Eversheds Sutherland’s Tax Practice Group,” said Mark D. Wasserman, Co-CEO of Eversheds Sutherland. “Jon has exceptional experience practicing international and federal tax law. His arrival will provide our clients with expanded service offerings, deepen our ability to support global financial services companies on international tax matters, and continue the expansion of our tier-one tax practice.”

Exceeding 150 tax practitioners in more than 20 countries, the firm’s international tax team is devoted to the increasingly complicated field of international tax. Mr. Sambur’s arrival to the United States-based team signals another step in the firm’s efforts to provide clients with the most comprehensive international tax guidance on a global scale.

“Jon is a perfect fit with Eversheds Sutherland and our global client base,” said Jeffrey A. Friedman, Partner and Head of Eversheds Sutherland’s Tax Practice Group. “With his focus on multinational financial service clients, Jon’s addition to the firm will help strengthen our tax practice and service offerings to global banks, insurance companies and corporations working through complex multi-jurisdictional tax transactions, audits and controversy.”

Prior to joining private practice, Mr. Sambur began his career serving as an attorney at the IRS Office of Associate Chief Counsel (International). During his time with the IRS, Mr. Sambur was the principal author of several Treasury regulations and other international tax guidance, and managed a diverse caseload involving international, corporate and partnership tax issues.

Mr. Sambur is the third lateral partner added to Eversheds Sutherland’s Tax Practice Group in the last six months, following the recent additions of SALT-focused Partners Breen Schiller and Nikki Dobay. This continued growth underscores the firm’s goal to provide clients with the most skilled and talented practitioners across the tax field.

Brazil – Cost Sharing with Company Domiciled Abroad

1. Characterisation of shared services as reimbursement

The payment of costs and expenses shared between companies of the same economic group, with headquarters in different countries, may be treated as a mere reimbursement without the incidence of a high tax burden on payment or receipt. However, in order for such costs and expenses to be characterised in Brazil as a reimbursement, certain requirements must be complied with.

First of all, to be treated as a reimbursement the costs and expenses must relate to supporting activities rather than core activities of the service provider. Thus, services that are included in the corporate purpose of the service provider may not be shared, and consequently the costs and expenses thereof cannot be treated as a reimbursement.

For this reason, it is only possible to recognise as a reimbursement of shared costs and expenses those actually incurred by the service provider. It is therefore not permitted to add any amount or profit margin to the costs or expenses shared and reimbursed.

Moreover, in order for the costs and expenses to be recognised as a reimbursement, it must be shown unequivocally that the services shared are of mutual benefit to the companies that participate in the agreement. Accordingly, all the companies must benefit from the services shared, including those performing the services.

With a view to proving compliance with the minimum conditions required, it is necessary to have, apart from other documents, a formal contract between the companies of the group, showing the total costs of each service incurred and shared, and also the reasonable and objective criteria used for the division.

The minimum requirements of the said contract were set out in Cosit Answer to Consultation no. 8/12 of which, in spite of its technicality, it is worth citing the following:

  • a) the division of the costs and risks inherent to the development, production or obtaining of goods, services or rights must be detailed;
  • b) the contribution of each company must be consistent with the individual benefits expected or actually received;
  • c) the identification of the specific benefit to each company of the group must be clear;
  • d) there must be an agreement for reimbursement, meaning the refund of costs relating to the effort or sacrifice incurred in the carrying out of an activity, without any additional profit;
  • e) the collective nature of the advantage offered to all the companies of the group must be express;
  • f) there must be a provision for remuneration of the activities, irrespective of their actual use, it being sufficient to “put the activities at the disposal” of the other companies of the group;
  • g) the conditions must be such that any company, in the same circumstances, would be interested in contracting.

In short, the contract must state the total cost or expense that benefits the signatory companies; the criteria for its division, each company necessarily defraying only the benefits actually expected or gained, with the possibility of their identification; and further it must state the manner in which reimbursement of the cost or expense will be made, with the supposition that it will be attractive even for independent companies.

Although the amounts classified as reimbursement of costs and expenses do not reflect any financial gain, which is sufficient to justify the non-incidence of taxation, the Brazilian Federal Revenue has still not adopted a firm position to this effect.

2.1. Payments abroad

Generally speaking, payments, credits or remittances abroad relating to the provision of services are subject to Withholding Income Tax (IRRF) of 15%, the Contribution on Economic Activities (CIDE) of 10%, the Contribution for the Financing of Social Security payable by the Importer of Foreign Goods or Services from Abroad (COFINS-Importation) of 7.6% and the Contribution for the Social Integration Programme and Civil Servants’ Investment Programme due on the Importation of Foreign Products or Services (PIS/PASEP-Importation) of 1.65%. The Tax on Financial Operations (IOF) of 0.38% is due in any case. The Tax on Services (ISS), with the maximum rate of 5%, may also be demanded by the municipality.

The IRRF paid in Brazil may be taken as a credit abroad if there exists a double taxation convention with the country in question, or, at least, reciprocity of treatment.

It is worth mentioning that, in the event of a remittance of funds abroad in payment of services, the financial institutions involved are also responsible for the operation, for which reason they tend to confirm the need to pay the taxes due on the operation in order to avoid any risks.

2.2. Cash receipts from abroad

Payments received by the Brazilian company for services shared may be regarded as corresponding to services exported. In this case, the funds received from companies abroad, in the form of foreign currency, would not be subject to PIS and COFINS on the amount invoiced. In any case, if they are recognised as remuneration for services rendered, they would be subject to IRPJ and CSLL. The ISS on the services may also be demanded by the municipality in question.

3. Possible risks and means for their reduction/elimination

As already stated, the Brazilian Federal Revenue has not confirmed its attitude regarding the non-taxation of payments relating to costs and expenses shared and reimbursed. As a result, in operations involving remittances abroad, the financial institutions normally require to see proof of payment of taxes.

If it is intended to avoid paying tax, and with a view to reducing, and even eliminating, possible risks, it is important that the operations be properly formalised. It must be possible to show, by producing solid evidence, that the funds received from, or paid to, the related party refer to the recovery of expenses incurred for the benefit of another, so as not to generate income/earnings for the recipient.

The contracts signed must contain details sufficient to prove compliance with the requirements necessary for characterisation of the reimbursement, with the resulting non-taxation, and all the supporting documentation must be retained.

An alternative, in order to guarantee the position of the Brazilian Federal Revenue, in principle and preferably in favour of the non-incidence of tax, is the submission of a formal consultation with a view to confirming the interpretation applicable to the case.

Specifically for operations involving remittances abroad of sums relating to the costs and expenses shared, it is possible that, even on production of the contract signed between the companies of the group, together with all supporting documentation, and further even presenting the formal consultation to the public authorities, the financial institution may not agree to make the remittance without payment of the tax.

In this event, a declaration may also be produced to the financial institution, in which the company making the remittance assumes the obligation to inform the institution immediately of the result of the formal consultation, as soon as a reply is received from the Federal Revenue, and also to comply with the result thereof, if necessary, with payment of tax on the operation.

We consider that, provided the above requirements are met, the risks may be reduced or even eliminated.

We are available to assist persons interested in any issues involving this matter.

Patrícia Giacomin Pádua
Partner in the Tax Area – São Paulo
[email protected]

Dentons sets another legal precedent in Czech tax litigation

Dentons secured a victory for Veolia Energie ČR before the Czech Supreme Administrative Court, in a litigation regarding interest from illegal gift tax in energy context. The case concerned a gift tax imposed on all emission allowances allocated to power plants in breach of the EU law. After the ECJ declared this tax illegal in the Skoda Energo case, the Czech tax authorities correctly reduced the tax but refused to pay the interest accrued as a result of the illegally imposed tax.

In its decision, the Supreme Administrative Court confirmed that the tax authorities have to pay interest from the date when the tax payer paid the illegal tax under the original decision of the tax authority imposing the tax (in Czech: platební výměr) and not only from the later decision on the change of the tax (in Czech: dodatečný platební výměr). This refined the previous landmark decision of the same court from 2017 (see 5 As 27/2017 – 45), and confirmed Dentons’ position that the tax authorities need to pay the interest accrued from the illegally imposed tax with respect to the entire period.

Commenting on the case, Petr Zákoucký, Head of Dentons’ Energy and M&A practices in the Czech Republic, said: “This follow-up decision of the Supreme Administrative Court should make the Czech tax authorities think twice when interpreting the Czech tax legislation, in a way which potentially conflicts with EU law. This landmark decision gives Czech tax payers recourse against the tax authority with regard to this illegally imposed tax.”

“Dentons keeps delivering great results even in these novel cases. Their Energy team stands out on the Prague market, we are grateful for our collaboration,” said Ondřej Hořín, the Head of Legal of Veolia Energie ČR.

PUGNATORIUS Ltd. expresses concerns regarding TIWB

Thailand’s recent participation in the “Tax Inspectors Without Borders” assistance program endangers not so much legally but factually the long-term cherished cross-border tax structures among the land of smiles. It demands sooner or later increased requirements for local tax advice and international tax planning.

TIWB allows the OECD, which is behind this raid against international tax competition, to familiarise the Thai tax authorities with OECD tax policy and viewpoints by sending their expert auditors to a tax-legally underdeveloped country, as Thailand is considered not entirely unjustified.

In the past, Thailand has been deliberately reluctant to interpret and reclassify cross-border transactions and to reinterpret double taxation agreements and tax information exchange agreements. This was done with good reason, only ostensibly inefficient, and Thailand participated in this tax-friendly treatment in several ways and at several levels.

The formal reason for Thailand’s Revenue Department to sign up for the training course for a world of “taxation without borders” is the desire to tax cross-border e-commerce and streaming services. However, this is not a limitation but only a starting point for the new right way of taxation with the friendly and targeted support by the OECD.

To address the tax challenges of the digital economy is just the first step on the 15-points-action BEPS list of the OECD. The base erosion and profit shifting initiative is e.g. also directed towards the topics of CFC controlled foreign companies, transfer pricing, abuse of tax treaties, and aggressive tax planning arrangements.

The tax counsellor PUGNATORIUS Ltd. analyses and monitors further developments and will provide practicable solutions for the more stringent requirements of future Thai tax planning. The announcements of the Thai Revenue Department are from June 2020. The Bangkok law firm sees a pressing need for action in this area for a variety of Thai tax issues.