Strategizing Multinational Tax Risks

TEI submitted comments on the Modified Nexus Approach for IP (BEPS Action 5) and International VAT/GST Guidelines.  Links to the submissions are provided for reference:

Click to access TEI%20Comments%20-%20BEPS%20Action%205%20Harmful%20Tax%20Practices%20-%20FINAL%20to%20OECD%2019%20February%202015.pdf

Click to access OECD%20VAT%20Guidelines%20-%20B2C%20Practical%20Application%20-%20TEI%20Comments%20-%20FINAL.pdf

Summary: IP, BEPS Action 5:

• Accelerated  comment process will likely lead to suboptimal results.
• The singular entity approach to benefit from the IP regime is problematic from a potential restructuring necessity and poses deviations from the arm’s length principle.
• R&D and patents have been expressly stated as benefitting from the IP regime, whereas other activities are not yet mentioned.
• Limiting the preferential regime to strictly patents, vs. innovative software, etc., represents a myopic approach.
• The 2021 expiration date for existing regimes seems too short-sighted for patents that may last 20 years.

Summary: International VAT/GST Guidelines

• Unilateral implementation of such guidelines erodes the neutrality principle, leading to double taxation or double non-taxation.
• Recommendations should align with the OECD discussions for a reverse charge mechanism in B2B scenarios.
• Supplier based documentation requirements should be practical and simple.
• The statement that a VAT/GST registration does not create PE should be moved from a footnote to the body of the document for clarity.
• The lack of consistency in application of transfer pricing adjustments for VAT/GST will provide increased risk of double taxation.
• Final rules that are clear and uniformly interpreted should be implemented via simple, consistent, flexible and proportional guidelines.

TEI’s comments for these two critical topics convey practical and thoughtful considerations for change prior to final implementation.  They should thereby be reviewed to better understand the global context and potential consequences for these actions.