TAX POLICY HILL SMITH CORPORATE MANAGEMENT B.V.

 

1.  Introduction

 

1.1  In general
Hill Smith Corporate Management B.V.’s tax policy is specified in this document. The board of Hill Smith Corporate Management B.V. (hereafter: “HSCM”) is responsible for adopting the policy and for ensuring that the policy is being respected. This policy will be periodically reviewed. The latest review was completed in March 2020.

1.2  Range
The tax policy relates to all types of tax and tax procedures which are relevant to HSCM’s internal organisation as well as to target companies and client relations to whom it provides services.  

 

1.3  Contents
This policy elaborates on:
•  Risk Appetite, tax principles and objectives;
•  HSCM’s tax policy in relation to aggressive tax planning.

2.  Risk Appetite, principles of taxation and tax objectives

 

2.1  Risk Appetite
HSCM’s vision and mission statement is documented in its Manual of Procedures (MOP; “Procedurehandboek”). This statement is also presented on HSCM’s website. HSCM’s vision is to be an example for the Dutch trust sector by being fully transparent in its actions and continually compliant with national and international requirements while executing its gatekeeper’s role for the Dutch financial system. HSCM aims to achieve this by having and providing insight in its decision forming processes, in collaboration with its compliance officer and by permanently monitoring the financial transactions and the persons associated with its client companies. HSCM’s vision and mission statement contributes in maintaining a solid financial system and creates awareness of the constantly changing social and regulatory standards. In that respect, tax risks are continually managed and HSCM keeps sight of that each client relation contributes its fair share on taxes.

HSCM has a social function by performing the task of gatekeeper of the Dutch financial system. As part of the financial system, upholding a good reputation is of the utmost importance. It is therefore important to monitor the continually changing social views on the tax system. Consequently, a restricted risk appetite in relation to tax strategy as part of HSCM’s acceptance policy is appropriate. Society, regulators and executive institutions such as the Tax Authority are increasingly demanding ”good corporate citizenship” in the current business environment. Concepts such as ‘transparency’, ‘integrity’, ‘social decency’ and ‘trust’ play a crucial role in this. HSCM endorses these concepts and applies them wherever possible while taking into account the interests of various stakeholders including its clients, shareholders, employees, the Tax Authority, regulators and society in general.

2.2  Tax objectives
HSCM has formulated its tax objectives based on its risk appetite, as described in its Manual of Procedures and Systematic Integrity Risk Analysis, and general principles of taxation such as fair share. These tax objectives include the following:

1. Identifying, managing and avoiding tax risks in a structured, effective and efficient manner, such as threats to reputation with regard to or caused by taxation;
2. Obtaining a trustworthy tax position in HSCM’s consolidated financial statement, its client companies including subsidiaries, shareholders and ultimate beneficial owners of client companies;
3. To comply demonstrably with tax law and regulations including the submission of correct tax returns and the avoidance of additional taxation and fines;
4. Managing the financial risks adequately in tax planning and or tax evasion;
5. Maintaining an open and transparent relationship with the Tax Authority and other stakeholders.

On the basis of the above, HSCM has formulated the following policy, which is also supported by its employees and client companies.

3.  Tax policy

 

3.1  General premises
HSCM is aware of its position and (social) function in society. This also applies to its attitude towards taxation. Therefore, HSCM applies a number of taxation principles indicating in what way a responsible taxpayer should behave. In doing so HSCM takes into account the interests of various stakeholders, including in particular its client relations and client companies), shareholders, employees, the tax authorities, regulators as well as society in general.

HSCM will always act in accordance with tax law and regulations. In addition, HSCM follows international standards as its guidelines and keeps to the letter and spirit of those laws and standards. Tax law and regulations will be adhered within our business operations in a transparent and efficient way. HSCM will never participate in tax evasion.

HSCM accepts and acknowledges the duties and responsibilities of the Dutch and international (tax) authorities and HSCM will fully cooperate by helping to execute these duties in the best possible way if requested by communicating on the basis of transparency, understanding and trust.

HSCM does not carry out any tax work nor gives tax advice itself, and its policy is aimed at obtaining certainty in relation to all kinds of tax matters at an early stage. This may be in the form of obtaining rulings and whenever possible by submitting tax queries with the Tax Authority and/or tax advisors involved after which these consultations will be recorded accordingly. If a settlement agreement or a ruling is agreed upon by the Tax Authority, HSCM will periodically review these results internally on the basis of, among others, recent jurisprudence, assessing deadlines and options for extension.

HSCM continually informs and questions the tax advisors involved with our client relation at an early stage in a way that all kinds of tax matters with regard to that particular client is fiscally checked at the appropriate level and at the right time. Any tax document (decisions, tax assessments, tax returns, etcetera) and tax correspondence is assessed, reviewed and filed. HSCM’s policy towards the Tax Authority applies equally to foreign tax authorities - in the spirit of negotiated agreements and/or rulings with the Dutch Tax Authority - and where necessary on a reciprocal basis.

3.2  Tax planning
Tax planning may be defined as systematically analysing different tax options aimed at minimizing or reducing the (total) tax burden now and in the future. In this context, an example of tax planning is the timing of selling an asset, when a liability item must be realised or a fiscal unity should have been formed. Another example of tax planning is when tax structures are implemented to reduce the (total) tax burden. When assessing the fiscal advantages of these tax structures and other tax structured activities, HSCM’s takes into consideration its social position and good reputation as well as the solid financial system in general.

Tax planning starts with outlining the taxpayer’s tax position. Next is determining the taxpayer’s purpose to structure the tax position in a specific way, after which measures will be taken to reach the desired situation.
The foregoing renders three separate elements. First, the undertaking should take into account other material non-tax factors such as strategic decisions and/or financial needs of the business. Second element is determining the current tax position and the desired structuring. The third and final element regards the consideration of its purpose to reduce the tax burden as well as maintaining a balance with other company objectives.

3.3   Aggressive tax planning
An undertaking that makes optimal use of fiscal legal possibilities is quickly labelled as an aggressive tax planner. In subject-related literature and policy documents there are frequent references to the notion of aggressive tax planning. Aggressive tax planning is however defined differently nor is it clear which measures should be taken to counteract aggressive tax planning.

In the context of aggressive tax planning two institutions stand out in particular: the Organisation for Economic Co-operation and development (OECD) and the European Commission.
The OECD is currently very active in promoting discussions on tax evasion. The OECD however does not have a clear definition of aggressive tax planning. On the other hand, it does have an approach on what type of aggressive tax planning should be tackled. In its report Base Erosion and Profit Shifting (hereafter BEPS) this type of tax planning is described as follows:

‘(…) governments lose substantial corporate tax revenue because of international tax planning that has the effect of artificially shifting profits to locations where they are subject to a more favourable tax regime.’

It follows from the above that ‘artificially’ shifting of profits is the criterion in determining whether tax planning is aggressive or not. It is, however, quite cumbersome to determine when shifting profits is artificial or when possibilities of aggressive tax planning are based on legislation and politically inspired tax policies.

In an earlier report by the OECD, ‘Co-Operative Compliance: a Framework’, it uses a different description of aggressive tax planning. This report refers to two areas of concern for tax authorities:

‘1) Planning involving a tax position that is tenable but has unintended and unexpected tax revenue consequences. 2) Taking a tax position that is favourable to the taxpayer without openly disclosing that there is uncertainty whether significant matters in the tax return accord with the law.’

It is interesting to realise that ‘unintended and unexpected tax revenue consequences’ is used as a criterion, which indicates that, in the OECD’s view, acting contrary to the spirit of the law is a pre-requisite to consider tax planning as being aggressive. In the light of the aforementioned, the OECD does not have a uniform definition for aggressive tax planning.

The definition of the European Commission on aggressive tax planning is much clearer. Before the OECD started the BEPS project, the European Commission made a recommendation in 2012 to EU member states to counteract aggressive tax planning.

The European Commission defines aggressive tax planning as the use of mismatches and technical aspects of tax systems in order to reduce the tax burden. Double deductions and double non-taxation usually go hand in hand with aggressive tax planning. It is worth noting that in its definition of aggressive tax planning neither the ‘legislator’s intention’ nor ‘the spirit of the law’ is explicitly mentioned. The European Commission does stress out that when reducing the tax burden against the spirit of the law, this is ‘a key characteristic’ of aggressive tax planning.

The European Commission calls upon the member states to assess at a national level whether the spirit or the letter of the law is violated. This is better known as fraus legis. Fraus legis is interpreted differently in EU countries. This causes different outcomes when fraus legis is used as an argument to counteract aggressive tax planning.

The Dutch Central Bank in its published guidance of Good Practice, Fiscal integrity risks of trust offices in 2019, defines tax evasion as illegal. It is the failure to declare assets through the use of concealing mechanisms. Tax avoidance is the evasion of taxes without breaching a statutory provision by, for example, shifting profits to countries where they are less taxed, which is legal in principle. However, although legal tax avoidance is socially less acceptable and if realized by means of complex structures even undesirable.

3.4  HSCM’s tax planning policy
HSCM only provides services to clients who uses tax planning, (such as reducing tax, within acceptable and legal boundaries, avoiding double taxation or possibilities of double deductions).. HSCM does not wish to provide services to client companies, directly or indirectly engaged in aggressive tax planning or socially improper conduct.
Tax planning must not be the purpose or goal. It is HSCM principles that sound business reasons or commercial considerations ought to be the basis for tax structures or activities based on tax structures and that all parties contribute on a fair share basis within the legal tax systems. In doing so, HSCM also takes into account that what is usual with regard to generally accepted standards in accordance with the prescribed law.
All forms of tax planning that apply to client companies are assessed and managed by the board. This assessment also relates to social decency. This includes the weighing of interests to be carried out by HSCM. As part of this, an assessment will be made of the tax merits of the entire company’s group structure. The client remains, however, responsible for its own tax position. During our KYC and acceptance procedure, HSCM also takes into account the client’s fiscal integrity. HSCM gives an opinion on the tax integrity of its client companies prior to accepting.
HSCM does not give tax advice to its clients other than advice that is part of and supportive of our services. HSCM does not operate as a tax consultant to its clients. In those cases where specific fiscal knowledge is needed, HSCM will always remind its client of its own responsibility to consult with its own tax advisor.

3.5  Contact with external tax advisers
The board is responsible for selecting and managing external advisers for the specific type of taxes. In principle contracts will entered into with external tax consultants by or in consultation with the board. External advisors will be involved in case of the following situations:
•  Expert knowledge is required;
•  Peer deliberations on specific matters must be conducted;
•  Providing an opinion or advice.
In general, external tax advice is documented. Copies of external advice are kept in the relevant files.

3.6   Consultation with the Tax Authority
Any consultation with the Tax Authority will be held with the board of HSCM. These consultations will be recorded and filed.

This policy was adopted by the board of Hill Smith Corporate Management BV on 1 May 2018