Tax Executives Institute, Inc. (TEI) recently published comments re: OECD BEPS Action 10, addressing Low Value-Adding Intra-Group Services, and Action 14 re: Dispute Resolution Mechanisms. The comments elicit practical considerations, including worldwide consistency, in their well written and reasoned responses. Although many individuals/organizations have provided comments, TEI’s submissions merit required reading and thoughtful consideration. Links to TEI’s comments are included for reference:
Key comments re: Action 10, Low Value-Adding Services
- Non-global implementation will diminish the intended value of this initiative.
- A “rebuttable presumption” should replace the “benefits test” for low value -added services.
- Exclusion of corporate senior management’s services is complex; it may be easier to include such services.
- A mark-up % of 0-5% should replace 2-5% for flexibility and reflecting cost contribution arrangements.
- Any percentage within the safe harbour range should be allowable.
- Guidance should be issued re: coordination of Action 10 and Action 13 re: transfer pricing documentation.
- Reference to the OECD’s previous work on safe harbours has been omitted, for no stated reason.
- The safe harbour should be available if the taxpayer’s method is different in another jurisdiction (i.e. APA’s, non-OECD alignment).
Key comments re: Action 14, Dispute Resolution Mechanisms
- Published MAP guidelines and procedures are welcome, although redacted settlements would also reveal legal basis for outcomes, and may be used as precedent for taxpayers.
- KPI’s should be established.
- Monitoring the MAP process is an excellent proposal suggested in the report.
- A global dispute resolution mechanism and mandatory binding arbitration should be developed, with arbitration available as a pre-MAP appeal avenue.
- Deadlines for Competent Authority (CA) requests should be in place, along with penalties for CA if they do not respond timely.
- Maintaining confidentiality is critical and should be a primary focus, especially for countries initially adopting this process.
- Transparency of independency for Competent Authorities would improve confidence in the process.
- Taxpayers should participate in face-to-face meetings to facilitate the process, and a simplified process should initiate MAP assistance.
- Precluding taxpayers from using MAP, directly or indirectly giving up their rights, is not acceptable.
- Binding arbitration provisions and/or use of a domestic or treaty-based anti-abuse rule should not preclude MAP.
- Tax, interest and penalties should be suspended during the MAP process.
The comments on Action 14 are especially critical, as dispute resolution will be a critical factor in ensuring that the BEPS guidelines legislated into law will have consistent, fair and transparent processes to resolve disputes timely and effectively.