Who’s Who Legal brings together Anders Oreby Hansen of Bech-Bruun, Devon Bodoh of KPMG and Shane Hogan of Matheson to discuss recent trends in the marketplace, including enforcement and the impact of globalisation.
Anders Oreby Hansen: We have certainly seen an increase in Danish national tax legislation aimed at limiting tax avoidance and tax planning. The amendments in Danish tax laws over the past approximately 10 years have had a significant impact on our tax practice. Ten years ago, Denmark was an attractive holding jurisdiction and used as such for classic stepping-stone tax planning. Due to the changes in tax legislation, Denmark is today in most cases irrelevant as a stepping-stone jurisdiction, which, of course, means that the part of our business related to such advice no longer exists. However, this is nothing new as this trend started seven or eight years ago. Today, the stepping-stone advice has been replaced by advice related to litigation and tax dispute handling. Furthermore, we still provide a fair amount of advice in relation to the investments of foreign enterprises into Denmark and most of our cross-border work is related to such investments.
Devon Bodoh: It is critical to be up to date on all modifications made to treaties, tax codes and regulations in the jurisdictions where our clients reside. When a change occurs, be it substantive or related to compliance requirements, one must be ready to advise on how the change affects their current corporate structure, and whether there are alternatives that would enhance the tax efficiency of their operations under the new laws.
Shane Hogan: As a firm focused on international clients, most of the transactions we advise on tend to be cross-border in nature. In recent times, there has undoubtedly been an increase in inter-state activity among authorities. Some of our existing treaties have been amended to include enhanced exchange of information provisions and some of the inter-state activity certainly reflects the increasing emphasis internationally on seeking transparency in tax matters. These changes have resulted in increased levels of litigation and tax controversy work and we have formed dedicated groups to meet this client need.
Anders Oreby Hansen: Our experience is that clients’ appetite for creative tax structures has decreased over the past approximately two years. Today, emphasis is on predictability rather than creativity.
Devon Bodoh: A creative approach to structuring corporate organisations in order to ensure a tax efficient result for business operations has always been a part of transactional planning. In that regard, our work has not changed. The business demands of any transaction drive how transactions are structured, always ensuring we are minimising our client’s exposure to risk.
Shane Hogan: While companies have an increased focus on, and are very conscious of, managing reputational risk and public perception, large and complex transactions continue to require innovative and novel solutions to ensure both the transaction itself and the post-transaction integration can be effected in a tax-efficient manner. As such, while our clients continue to seek tax effective implementation of their commercial transactions, and while these will often require innovative thinking, the desire for “exotic” tax structuring is tempered by international developments.
Anders Oreby Hansen: The Danish legal market is dominated by four relatively large, national players. The international presence in Denmark is limited due to the size of the economy. As a consequence, all leading Danish law firms, including our own, are very focused on maintaining a broad international network and all firms are working under a “best friends” or similar approach. Exclusivity is simply not an option for any of the leading law firms in Denmark.
However, in order to meet the demands of both Danish multinationals and foreign multinationals, networks are important and most have a more or less structured approach in this respect.
Devon Bodoh: Transactions will often have multi-jurisdictional components, so it is very important for firms to have an international network in order to remain competitive. In our case, it is a tangible advantage to be able to access the expertise and resources of all KPMG International offices to ensure we meet our clients’ expectations and objectives.
Shane Hogan: Having representative offices in our key client jurisdictions has proved invaluable both for our clients and for our international connections. For example, we are the only Irish law firm with tax expertise on both the east and west coasts of the US. Maintaining connections with, and servicing the needs of international firms, is an important aspect of our business. These offices enable us to stay close to our international connections.
Anders Oreby Hansen: The most important development comes from the EU, in the form of the order which will limit the possibilities of the audit firms to provide tax advice to certain major clients. It is a general expectation in Denmark that when the order comes into force in June 2016 it will have an impact on the business model of both legal firms and audit firms in this jurisdiction.
If you look at the question of the appetite for Danish tax authorities in relation to disputes, a clear tendency is that there has been a significant increase in the dispute level. Representatives of the Danish tax authorities have stated that they are satisfied if they ultimately win 50 per cent of the cases they initiate. As a consequence, the Danish tax authorities can now be described as rather aggressive in their approach towards both enterprises and tax authorities in other jurisdictions in relation to litigation matters, opening dispute files and MAP-proceedings.
Devon Bodoh: Certainly. The Treasury and the IRS have recently put out regulatory Notices that address transactions in the area of inversions. Notice 2014-52, in particular, stands out, as does Notice 2014-32. The Notices attempt to limit inversion activity. As to an uptick in enforcement, reduced funding for the IRS means it has fewer resources to expend in carrying out its various functions. Perhaps this explains why the Notices are so focused on particular transactions, rather than providing comprehensive guidance for taxpayers to structure their business ventures.
Shane Hogan: The OECD BEPS project and the anticipated implementation of country-by-country reporting are key developments that impact the overall environment within which our clients operate. We have noticed an increasing propensity of foreign tax authorities to raise adjustments or seek information exchanges and the Irish Revenue Commissioners are expanding and strengthening their Competent Authority resources. We are certainly seeing an uptick in controversy work and we expect this trend to continue.