CMS Bureau Francis Lefebvre: Lawyers without borders - Xavier Daluzeau
As international regulations tighten around corporate tax law, Xavier Daluzeau, partner at CMS Bureau Francis Lefebvre, member of CMS and a specialist in international taxation, offers his expert guidance for multinational enterprises.
In a climate in which multinational enterprises and national governments are constantly trying to outsmart each other on tax law, international law firm CMS is the bridge between the opposing sides. Xavier Daluzeau, a partner since 2012 at CMS Bureau Francis Lefebvre in Paris, is a specialist in international taxation, with expert knowledge in transfer pricing, acquisitions and reorganisations. His clients are multinational enterprises, working towards effective tax structures while navigating strict and increasingly changing regulations - so he has followed developments closely during the current Organisation for Economic Co-operation and Development (OECD) project on base erosion and profit shifting (BEPS) and transfer pricing.
Daluzeau has spent his entire career with CMS Bureau Francis Lefebvre. He discovered an interest in transfer pricing and BEPS during his first years with the firm, working at the company's Berlin office in the late 1990s. Now he's part of a 50-strong team of transfer pricing experts at CMS, backed up by hundreds of specialist tax lawyers.
The early days to now
He describes corporate tax law during those early days in Berlin as "an issue for specialists, working alone in their offices in a discreet way, not making too much noise or publicity about what they were doing". International taxation was in its infancy, with the first guidelines on transfer pricing published by the OECD in 1995. It's a different story these days.
The field has been pushed into the public eye by the OECD's BEPS project along with several high-profile cases, such as the European Commission ruling in August this year that Apple's favourable tax arrangement in Ireland constituted illegal state aid, earning the corporation a €13-billion tax penalty. In 2015, Starbucks was similarly slammed for its advance pricing agreement in the Netherlands. International corporate tax law now makes national headlines and the public has begun to take an interest - a state of affairs that is partly responsible for the BEPS project.
Major countries involved with the OECD are reporting increased public deficit and, with it, a need to increase their tax revenue. Pressure from activists and political leaders - framed as a fairness issue in which OECD countries are on the back foot - can create a reputational risk for companies even though their tax structures are compliant with regulations. The digital economy raises its own questions, with online businesses often based in a different country to the one in which they generate most of their revenue. The BEPS project contains 15 actions, four of which cover transfer pricing, in an attempt to keep tax revenue within the major OECD nations. Pascal Saint-Amans, director of the Center for Tax Policy and Administration at the OECD, has said the major focus of the OECD is on avoiding "the divorce between the location of profits and value creation".
CMS is unruffled and ready to move with the times. "In my view, it's quite a normal, sensible approach for citizens to try to understand what groups do from a tax standpoint," says Daluzeau. "It has had a quite clear impact on our practices. First, we need to be aware that what we do can become public; second, we need to be able to explain it clearly, not too technically; and third, we need to be able to explain why what we do is not contrary to the public interest."
No border issues
With a global network spanning 60 offices in 35 countries, CMS is able to work smoothly across international borders as well as within local tax laws. "I think we have a local and international reach," says Daluzeau. "A result of our local implantation is that we have very good relationships with the local authorities; for example, in France we participated a lot in various discussions and drafts from the OECD on the BEPS project, and, also at EU level, we have our Belgian colleagues who are involved in EU issues in Brussels."
While CMS works towards greater transparency, its clients are dealing with increasingly restrictive regulations as well as a fast-changing international tax environment. The interaction of complex local and international laws means that tax adjustments and investigations are on the rise; multinationals are hard pressed to navigate these tricky waters while maintaining robust, effective tax structures. Each company requires a tailored solution and strategic planning to stay on top of multiple sets of regulations while maximising profitability.
"I think MNEs really need to find an answer that is specific to their own situation, and this is what we do for our clients," says Daluzeau. "The environment is still volatile, so we keep our clients informed on not only the new rules but also the expected rules. We view their situation and their projects on a case-by-case basis, so that it does not lead them to run risks from a tax standpoint - and also so that new structures or projects will be in line with what we anticipate."
At your service
As well as an intimate knowledge of BEPS, CMS provides a full range of transfer pricing services - including high-level intervention in the event of a dispute with tax authorities - with the addition of an in-house economics team. "We are one of the rare law firms among our competitors with an internal economics team," says Daluzeau. "We can assist our clients with benchmarking studies and we can also conduct evaluation work - for example, on intellectual property rights - when they need to transfer shares or assets."
With a new year at hand - traditionally a time for bills to arrive and announcements to be made - the firm is gearing up for a wave of fresh directives and developments. "The directives that are anticipated at the EU level will be important for corporations, to implement certain conclusions of the BEPS project and also the Common Consolidated Corporate Tax Base (CCCTB). The latter of these new rules may come into effect in 2021 and may have a significant impact," says Daluzeau.
A proposal for a relaunched CCCTB was presented by European Commission commissioner Pierre Moscovici in October, which would create a single set of rules to calculate taxable profits for all EU nations. MEPs welcomed the proposal, saying it would simplify operations for multinationals and encourage cross-border trading. However, the project remains controversial: it has been overhauled three times in the past 15 years. Moscovici said public opinion had been a factor in this year's attempt. "The successive scandals - Luxleaks, Panama papers, Bahamas leaks - proved the extent to which this rethink was necessary," he told the European Parliament.
Time for implementation
The final package of the BEPS project was presented at the G20 meeting in Lima in October 2015. G20 leaders endorsed the package, opening the way for the monitored implementation phase to begin. While some measures will be immediately applicable, such as new guidance on transfer pricing, others will need changes in domestic laws or bilateral tax treaties. This October, the OECD published a discussion document regarding Action 2 of the project, which addresses hybrid mismatches, and, in June, Singapore became the newest nation to join the inclusive framework for BEPS implementation.
Guidance for country by country (CbC) reporting was released by the OECD in February 2015. Although it had mentioned that all MNEs should be expected to file a CbC report, the OECD suggested an exemption for MNEs of which the annual consolidated revenues in the past year were less than €750 million - which effectively exempted 85-90% of them. While some breathed a sigh of relief, Daluzeau and his colleagues highlighted confidentiality concerns. "Practitioners and MNEs have expressed strong concerns about potential misuse or publicity of CbC reports... It is stressed that member states must not propose adjustments based on an income allocation formula on the grounds of information contained in the CbC report," they said in a CMS release.
As well as further BEPS developments, the firm is looking to the future as an increasing number of nations get on board with not only the digital economy but also digital tax services. "I think that the evolution will be towards more digital interactions with our clients," says Daluzeau. "We will look at how we can take advantage of digitalisation to improve our internal functioning and our service to our clients - for BEPS, in terms of pricing issues, but more generally how our firm can adapt to the changing environment." Whatever happens, Daluzeau is confident that CMS has the experience to handle it.