OECD has published, pursuant to OECD BEPS Action 2, its framework entitled “Neutralising the Effects of Branch Mismatch Arrangements.” A link to the report is provided for reference.
The report includes five types of branch mismatch arrangements:
Disregarded branch structures where the branch is not a Permanent Establishment (PE)
Diverted branch payments
Deemed branch/notional payments
Branch payments leading to a double deduction (DD)
Imported branch mismatches
Recommendations to domestic law are included to prevent perceived abuses for the five types of mismatch arrangements. Numerous examples are also provided in the document to illustrate the branch arrangements and recommendations thereto.
This document is required reading for all international tax practitioners, as tax administrations will be seriously considering the recommendations and may decide to try to enforce such rules prior to official legislative actions.
With the introduction of BEPS Action Items, recently followed by the subjective assent procedures of the Multilateral Instrument, it seems that the aggressiveness of tax administrations to apply current tax laws, and BEPS Actions yet to be enacted, is on the increase. One result of such actions is the continuation, in certain jurisdictions, of tax raids which are unannounced, intense and producing immediate distrust between the parties.
For tax administrations, the question is “Does the necessity of such raids still exist?” and if so, they should be delegated to those that are egregious and potentially criminal in nature after the refusal of the taxpayer to legally comply with prior requests and inquiries.
For MNE’s, a tax raid causes immediate panic at the Business Unit, thus at least one legal or tax contact regionally and globally should be available at any time to address a phone call on necessary action steps that day and going forward. This communication protocol should be common knowledge throughout the global organization to ensure alignment and appropriate steps are immediately taken if a tax raid were to occur.
It is hopeful these circumstances will become less frequent around the world, although learnings can be taken from past experiences to form Best Practices for the future.
The UK EU exit bill has been introduced in Parliament, paving the way for suggested interpretations of:
Existing EU law
Loss of EU Directives
New customs regime
Transitional EU VAT case law
Social security contributions/benefits
Corporation tax impact of UK vs. EU law/Directives
This document portrays a glimpse into the thoughts behind the complex and myriad evolutions that will take place with the Brexit negotiations. Tax, supply chains, individual changes, VAT, etc. and related unknown implications are still to be discovered; the EY Global Tax Alert provides a primer into the brave new world of a country exiting the EU. Note, this is also a valuable reference for other countries considering this option.
On 22 June 2017, the “Platform for Collaboration on Tax” (the Platform) – a joint effort of the Organisation for Economic Co-operation and Development (OECD), United Nations (UN), International Monetary Fund (IMF) and World Bank Group (WBG) – released a toolkit (the Toolkit) designed to help developing countries address the lack of “comparables” for transfer pricing analyses and better understand mineral product pricing practices.
This Toolkit should also be reviewed by multinationals (MNEs) in developing countries to address the potential lack of comparables to better understand how the tax authorities will approach a transfer pricing audit. The mining supplement is required reading for those working in that industry.
Additional toolkits will be forthcoming:
Indirect transfer of assets
Base eroding payments
Tax treaty negotiation capacity
Supply chain management
BEPS risk assessment
As the first edition of the Toolkit has now been published, it will be interesting to watch developing countries apply the tools prescribed, providing a baseline going forward. All international tax practitioners should be familiar with this latest joint endeavor, as it is an indication of the shared resource approach that is now our future.
EY’s Global Tax Alert provides additional details, and the OECD Toolkit are referenced for review.
EY’s Global Tax Alert provides a succinct summary of the latest OECD and BEPS developments, including:
G20 and exchange of information upon request standard
Multilateral instrument, 68 countries moving forward
Peer reviews on BEPS 4 minimum standards:
Action 5, harmful tax practices
Action 6, treaty abuse
Action 13, country-by-country reporting (CbCR)
Action 14, dispute resolution
Action 5 peer reviews of preferential tax regimes
Action 13, CbCR exchange relationships; important for US MNE’s and similar jurisdictions without obligatory 2016 reporting
MAP peer reviews
Discussion drafts on profit splits and attribution of profits re: PE’s; comment period to Sept. 15, 2017
Branch mismatch forthcoming revisions
Common reporting standard
OECD is still very busy, with a plethora of BEPS follow-up and other activities, although there seems to be continuing flexibility to gain collaboration that will also lead to added complexity and disputes.