OECD has just published their Discussion Draft on Transfer Pricing Documentation and Country-by-Country reporting, with comments due by 23 February. A reference to the Draft is hereby provided:
The Discussion Draft raises many questions and scenarios open to comment, with a very limited time frame in which to remit such comments. All multinationals and interested parties should prioritize a review of this document and consider submitting comments, as it will be a cornerstone for additional reporting and documentation in the near future.
The UN Committee of Experts on International Cooperation in Tax Matters published the UN Practical Manual on Transfer Pricing for Developing Countries in 2012. A new Subcommittee was formed on Article 9, Associated Enterprises, which will draft additional chapters on intra-group services, management fees and intangibles. The letter for assistance is referenced herein:
The Subcommittee invites input into the Manual for this drafting exercise, and aims to consider such comments in the update of the Manual. Input from developing countries in particular is requested, and non-governmental organizations and academics in the policy and administration of transfer pricing, to provide clear and workable guidance.
The letter reiterates the operation of Article 9 of the UN Model Convention and the arms-length principle embodied therein.
As stated at the conclusion of the letter, “As agreed during the 2013 Annual Session of the UN Committee, wide input is sought into the next update of the Manual to ensure its effectiveness for developing countries seeking to address transfer pricing issues in accordance with Article 9.”
Written input is requested no later than 28 February 2014, with any questions addressed to Michael Lennard, Secretary of the UN Tax Committee.
This request aids transparency, and comprehensive understanding, into the evolving issues of intra-group services, management fees and intangibles.
All multinationals should consider this important request, and follow developments of the UN Committee as it receives comments and drafts additional guidance. It is noted that the letter sought to emphasize the arms-length principle of transfer pricing.
OECD has published the “only” response received for its work on BEPS Action 7 (Artificial Avoidance of PE Status) from a Chartered Accountant in India, outlining strategies that may result in the artificial avoidance of PE status re: base erosion and profit shifting. The comment discusses a few measures generally adopted by multinationals to avoid PE in the source jurisdiction. The link is provided herein for reference:
The Tax Executives Institute (TEI) has submitted comments in response to Canada’s treaty shopping proposals. TEI’s comments are referenced herein:
Canada proposes that if all of the following circumstances exist, it would be justified in denying treaty benefits due to the lack of economic substance, and a bona fide purpose, and the ultimate beneficiaries are third-country residents not entitled to direct benefits from the treaty. Such circumstances include all of the following:
A tax treaty resident uses the tax treaty to obtain a reduction of Canadian tax otherwise payable on Canadian source income,
The intermediary entity is owned or controlled mainly by residents of another country which are not entitled to at least the same treaty benefits,
The intermediary entity pays no or low taxes in its country on the item of income earned in Canada, and
The intermediary entity does not carry on real and substantial business activities, other than managing investment income) in its country.
TEI also provides general comments stating the following concepts:
Treaty Limitation on Benefit (LOB) Provisions should be the favored approach rather than domestic legislation
Unilateral Approach should be eschewed in favor of a multilateral approach
Evidence of the scope and degree of treaty abuse in Canada is inconclusive
TEI’s comments also addressed the specific questions raised in the consultation paper of 14 August, 2013:
Advantages and disadvantages of a domestic law approach, a treaty based approach, or a combination of both
Merits of OECD approaches to treaty shopping, and other possible approaches re: treaty shopping
Preference for a general, versus a specific and objective approach; achieving balance between effectiveness, certainty, simplicity, and administration
Views on a domestic law general purpose test and its effectiveness in preventing treaty shopping and achieving taxpayer certainty
Details for preference of a specific approach
Comments addressing applicability of a domestic anti-treaty shopping rule in addition to a comprehensive anti-treaty shopping rule
TEI’s comments are well written, posing arguments for all multinationals to consider for Canada, and in the broader context of domestic general anti-avoidance rules (GAAR), vs. treaty based benefits, and the impetus behind countries to adopt unilateral domestic rules prior to dates in the OECD BEPS Action Plan for issues that should be internationally consistent. For reference, prior posts have addressed GAAR provisions advocated by several countries that can be accessed for future insight.
Limitation for related party interest, if lender is not equal to a minimum of 25% of corporate income tax under French law
Requirement to provide “analytical accounts” to the French tax authorities during a tax audit if certain thresholds are exceeded
Requirement to provide “consolidated accounts” to the French tax authorities during a tax audit
Repeal of a provision staying tax collection when a French taxpayer files a MAP case
Note the above provisions are in addition to a new employer tax of a 50 per cent levy on the portion of wages above 1 million euros in 2013 and 2014. Including social contributions, the rate will effectively remain about 75 per cent, though the tax will be capped at 5 per cent of a company’s turnover.
These significant provisions should be reviewed and monitored closely by MNEs with French operations, or contemplating entering the French market. Future tax measures should also be expected in France in an effort to improve their GDP and economic growth.