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Dealing with uncertainty

Our aim is to take sustainable tax positions in support of our business investments, which may be of a long-term nature. When we apply tax legislation, we do so with the reasonable expectation that our interpretation will be upheld in court. Sometimes, the law or how to apply it is unclear to taxpayers.

The countries in which we operate have differing degrees of political, legal and fiscal stability. This exposes us to a wide range of political developments that could result in changes to contractual terms, laws and regulations.

We continually monitor geopolitical developments and societal issues relevant to our interests. In situations where the tax law and how to apply it are unclear, we will first seek to find clarity by talking to the tax authority and sharing our understanding of the application of the law.

There are a number of ways in which a lack of clarity can be resolved. One such solution is a co-operative compliance arrangement, where businesses and tax authorities proactively discuss how to resolve uncertainty before the tax filing occurs. Read more in our Co-operative compliance programmes in-focus section.

Tax authorities in different countries can hold conflicting views about how the taxation of multinational enterprises should be interpreted or applied. When this lack of clarity occurs within a tax treaty or agreement between countries, we may use a mutual agreement procedure where the authorities aim to resolve the issue between themselves.

In the case of transfer pricing, where there is uncertainty about the appropriate price for a particular intra-group transaction, we may apply for an advance pricing agreement (APA). Under an APA, the taxpayer and tax authority agree the transfer price that will apply before a tax return is submitted.

If we are still unable to reach an agreement with an authority on any matter of tax, we may have to test the legal principle of the tax law concerned through the judicial system. However, we take this approach only when other options have not provided a resolution.

Tax liabilities are recognised when it is likely that there will be a future payment to a taxing authority. In such cases, provision is made for the amount that is expected to be paid. These provisions are measured at the most likely amount or the expected value, whichever method is more appropriate.

Generally, uncertain tax treatments are assessed on an individual basis unless they are expected to be settled collectively. Provisions for taxes on uncertain income can be examined by tax authorities. A change in an estimate would be recognised in the income for the period in which the change occurs.

Co-operative compliance
This can vary between countries but at its essence means that taxpayers and tax authorities have open and proactive discussions on matters that may impact a taxpayer’s tax return and seek to resolve any areas of interpretation.
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Multinational enterprise or corporation
A multinational enterprise (MNE) or multinational corporation is a company or group of companies with business establishments in two or more countries.
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Tax authority
Also known as a revenue agency. This is the body responsible for administering the tax laws of a particular country or regional or local authority.
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Transfer pricing
This refers to the setting of the price for goods and services sold between related entities within a group. Transfer pricing should be based on the arm’s length principle. This means that profits are allocated to the countries where the relevant economic activity takes place and cannot be artificially taken somewhere else.
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