7. Innovation and the Future for the Int'l Tax and TP - Rob & Dan Presentation

THE POWER
OF BEING
UNDERSTOOD
AUDIT | TAX | CONSULTING

INNOVATION AND THE FUTURE FOR INTERNATIONAL
TAX AND TRANSFER PRICING
Rob Mander (RSM International) – Author
Dan Schwartz (RSM Romania) – Presenter
International Tax and Transfer Pricing in a BEPS Context
Hilton Hotel, Bucharest, Romania
May 11 th , 2018

Preliminary question: What do you think about AI safety issues?
Lawyer: AI misbehaving? Sue AI!
Nazi: Is AI of higher race? Then it's safe.
Commie: Is AI exploiting or being exploited? Unsafe in any case.
Socialist: Tax the AI to the grave! Will be safe there.
Catholic: If AI believes in God, it's safe.
Feminist: AI is a product of men's chauvinist gender-phobic racism! Can't be safe!
LBGT activist: Safe... depends, what orientation does AI have?
Australian – AI, that can’t be any more dangerous than the other animals we have here!
Juncker: AI will pay dearly if it attempts to humanxit.
Eurocrat: We've created 3,284 directives to define what AI is. Next 5,324 directives will define what safe means.
Einstein: You cannot be more artificially intelligent than naturally stupid.

Introduction
New Business
Opportunities
Changes in Systems &
Technology
The New International Tax
Environment
Topics for
Discussion:
Artificial Intelligence and robotics
Blockchain
Tax Authorities - plans for this future
The impact on transfer pricing
What should your business be doing?

Artificial Intelligence and Robotics
Artificial Intelligence
The theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech
recognition, decision-making, and translation between languages.
Robotics
A machine that can perform a complicated series of tasks automatically.
Real time – post
transaction audits
Complexity of
legislation –
Management of data
System based
analysis –
traditional
methodologies
Business and
Individual
Taxpayers – Tax
Authorities
Data security –
Accessibility

Artificial Intelligence and Robotics – the AI Journey
Task Level Opportunities Threats and Challenges
Enhancement of basic tasks
Data validation and efficiency e.g.
VAT and payroll - time and cost
benefits
Security and risk management -
data integrity, reliability and safety
Supporting business decisions Freeing up management teams -
more time on their value-added
consulting roles
New behaviours and protocols
required to manage and share
information
Tax forecasts
TP analysis, including risk
reviews
Adaptive learning
Greater reliability and
systemisation
Real time interaction with Tax
Authorities - disputes and delays
Smart contracts - reduce delays
and systemise reporting process
Disruption to existing systems -
substantial investment
More information - does not
necessarily lead to better results
Effective implementation and
management

Blockchain
To start with a definition:
A shared and distributed network (“shared ledger” or Distributed Ledger Technology (“DLT”)) that facilitates the
recording of transactions and the tracking of assets in a business network.
Key Features:
No requirement for
intermediaries
All users share the
same ledger
Transactions
cannot be
altered
Contains
“blocks” that can
only be updated
by authorised
users
Security via the
peer to peer
network

Application of Blockchain - VAT
Smart sales contract - The contract and payment
terms are fixed at the outset and a transaction record
is established
Potential to simplify data storage, and accelerate the
exchange and verification of information
Automatic payment of VAT (including on cross border
transactions)
Simultaneous generation of VAT reports and required
filings
Fraud and error minimisation
Real-time audit

What are Tax Authorities doing?
Australia
China
Estonia
Finland
India
Online lodgement has been available for many years, and is, in some cases
required - not yet blockchain enabled.
Identity proof, authentication and fraud prevention – Blockchain
Central bank issue its own cryptocurrency - Blockchain
Lodgement of tax returns on line using a form of blockchain technology called KSI
(Keyless Signature Infrastructure). Allows for online lodgement, changes to details
and payments and receipts to be made
Blockchain system that allows employees to record and get paid for overtime (not
yet linked to the Tax Authority, but could be in future)
Plans to introduce blockchain for land registry transactions
Rwanda
Real time submission of business transactions, although not yet using blockchain
United Kingdom
Moving towards online lodgement, HMRC is not proposing blockchain and instead
will remain with its own records.

Tax Authorities and Taxpayers – Next Steps
Co-ordinated approach
Link to accounting systems
Transaction focus first – VAT,
property, payroll
B2B and B2 Govt

Impact on Transfer Pricing – OECD Guidelines 2017
The arm’s length method is the preferred TP benchmarking principle
Review of contract and actions -
current
What are the contract terms?
Do the terms differ from the
actual conduct of the parties?
Evaluation of Risk - current
What are the economically
significant risks and how have they
been assumed?
Which party has control over the
risks and does that party have the
financial capacity to absorb the
risk?
Blockchain - Future
There is certainty regarding the
contract terms and the transaction
records
A real-time contract review
(including risk analysis and
benchmarking) by the Tax
Authorities
In what circumstances should
the transaction be ignored?
Is the risk assumption consistent
with the contract and/or is a
reallocation of risk required
A simpler and more accurate
contract and risk analysis than
currently applies for APA’s
Completion of Master and Local
Files and CBCR
Post transaction (and generally)
post year-end review
Blockchain analysis could
supersede CBCR by requiring
lodgement of or access to
blockchain records

Impact on Transfer Pricing – OECD Guidelines 2017
Intangibles
Key Aspects - DEMPE Functional Analysis Blockchain - Future
Development
Enhancement
Maintenance
Identify the intangibles (including their
ownership) and their significant economic
risks
Review the process for growth in the
intangible assets
What are the relevant contractual terms
(and legal ownership) for the use of the
intangibles
There is certainty regarding the ownership
of the IP
Enhancements will be reflected via timings
of blocks
The maintenance (e.g. licence renewals
and contract updates) will be a step in the
chain
Protection
Exploitation
Is there consistency between actual
conduct and contractual use of the
intangibles
What are the relevant contractual terms
(and legal ownership) for the use of the
intangibles
Each user’s IP record is unique
Both creator and user have accepted the
same T&C’s

Impact on Transfer Pricing – OECD Guidelines 2017
What should your business be doing?
Potential uses of Al and blockchain
Management of Intellectual Property Rights (“IPR”)
Maintain copyright registers;
Establish and document licensing polices;
IPR protection for creators;
Documents rights of users and T&C’s for IPR;
Provides benchmark reference point for Tax Authorities
Smart (self-executing) contracts e.g. payroll functions
Automatic payment of salary based on time inputs;
Simultaneous tax and social security payments;
Real time reporting to Tax Authorities, employee and employer;
Compliance with employment contracts and updates
Supply chain management e.g. Maersk shipping, Korean
Customs Service
Location and source history of goods;
Link to purchase, sale, warranty and insurance contracts;
Contract T&C’s, including price, discount and returns;
Provides Customs and VAT information in real time

Action Steps
Identify what are the tax reporting changes that are taking place in Romania and in other countries of interest and those of
your main trading partners
Identify the key business assets and risks for your organisation
How will management of these assets and risk be impacted by technology?
Establish an internal working group within your organisation to assess where specific advantage may be obtained from
blockchain or other AI
VAT reporting; Logistics and customs duty compliance and planning; Management of the payroll function
Regular Board reporting of key risks and benefits

Innovation and the future for international tax and transfer pricing
Q&A

THANK YOU!