Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

The Platform’s TP toolkit

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:

  • TP documentation
  • 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.

http://www.ey.com/Publication/vwLUAssets/OECD_UN_IMF_and_World_Bank_issue_toolkit_for_addressing_difficulties_in_accessing_comparable_data_for_transfer_pricing_analysis/$FILE/2017G_04037-171Gbl_OECD%20UN%20IMF%20and%20World%20Bank%20issue%20toolkit%20for%20difficulties%20in%20accessing%20comparable%20data%20for%20TP%20analysis.pdf

http://www.oecd.org/tax/toolkit-on-comparability-and-mineral-pricing.pdf

UN: TP Manual for Developing Countries

The UN has published the second edition (First edition in 2013) of a transfer pricing manual for developing countries.

The world has changed considerably since 2013, notably affected by BEPS and the OECD’s  actions, including collaborating with developing countries.  However, the UN notes developing countries may not have the sophistication as other developed countries, and this manual provides valuable insight into the trends in this area.

The transfer pricing practices of Mexico, China and Brazil are also summarized in this edition.

The TP Manual is a “must read” for international tax practitioners to fully understand today’s complex dynamics that do not lead to global consistency or simplification.

http://mnetax.com/wp-content/uploads/2017/04/UN-2017-Manual-TP.pdf

 

US int’l developments: CbC exchange

EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.

US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.

Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security.  With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security.  However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data?  This should be a forethought, rather than an afterthought, to the process.

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_17_March_2017/$FILE/2017G_01247-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20March%202017.pdf

BEPS update: transparency

The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.

Summary:

OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.

Belgium: New innovation deduction covering patent and other IP rights.

EU: Proposal for hybrid mismatch rules with non-EU countries

Norway: Adoption and regulations for CbC reporting

UK: Interest limitation rules, among other provisions

US: CbC Form 8975 released

From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.  

(CbCR).http://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_19_December_2016/$FILE/2016G_04446-161Gbl_The%20Latest%20on%20BEPS%20-%2019%20December%202016.pdf

Luxembourg: CbC reporting

The draft country-by-country (CbC) law has been forwarded to Parliament, in alignment with the EU Directive for 2016 tax year reporting.

A surrogate parent entity should file a CbC report with the Luxembourg tax authorities in one of the following cases:

  • The ultimate parent entity (UPE) is not obliged to file a CbC report in its country of residence,
  • The UPE is obliged to submit a CbC report, but there is no automatic exchange of CbC reports between Luxembourg and the country of residence of the UPE or
  • The UPE is obliged to submit a CbC report,and there is automatic exchange of CbC reports, but due to systematic failure, no effective exchange of information takes place.

As the terminology includes “obliged” vs. voluntary filings in some countries, the filing entity and disclosure rules should be reviewed.  Additionally, there are significant penalties for late/non-filing.

 

The EY Global Tax Alert, linked for reference, provides additional details.

http://www.ey.com/Publication/vwLUAssets/Luxembourg_introduces_draft_law_on_country-by-country_reporting/$FILE/2016G_02418-161Gbl_TP_Luxembourg%20introduces%20draft%20law%20on%20country-by-country%20reporting.pdf

OECD’s Multilateral Instrument: TEI comments

Tax Executives Institute, Inc. (TEI) has recently submitted comments in response to OECD’s public discussion draft on Action 15 re: technical issues for the upcoming Multilateral Instrument.

A link to TEI’s excellent comments are provided for reference:

http://www.tei.org/Documents/TEI-Comments-BEPS-Action-15-Tax-Treaty-Related-Measures-June-29-2016.pdf

Highlights:

  • Mandatory binding arbitration was not included, thus the increase in MAP cases seem inevitable.
  • A “baseball” type of arbitration is recommended.
  • All MAP cases should be eligible for arbitration.
  • All signatories should adopt the Action 14 minimum standard.
  • Countries should have the ability to choose what treaty-related BEPS measures it will adopt.
  • Countries should have the ability to choose what treaty partners and relevant tax treaties would apply for various BEPS provisions.
  • The modified provisions are only effective upon official ratification.
  • A new peer process should be adopted for treaty interpretation.

The multilateral instrument is key to the consistent application of BEPS Actions, and the well-written TEI comments are highly recommended for all interested parties.

BEPS update

EY’s Global Tax Alert provides recent developments for BEPS by Australia, Austria, Belgium, EU, Germany, Iceland, India, Niger, and Romania.

http://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_6_June_2016/$FILE/2016G_01449-161Gbl_The%20Latest%20on%20BEPS%20-%206%20June%202016.pdf

Highlights:

  • Australia: Local File is OECD +, going beyond OECD’s recommendations, including transactional detail.  This development is proving that global consistency is a rapidly fading ideal, as countries legislate what they think benefits them the most.  Unfortunately, this adds to the cost, time and complexity of preparing global reports.
  • Austria: Transfer pricing documentation draft regulations follows the OECD.
  • Economic and Financial Affairs Council of the European Union (ECOFIN): EU Member States Finance Ministers, envision adopting the Anti-Tax Avoidance Directive on 17 June 2016, subject to amendments.  Legal agreement was also reached on adoption of the Directive on the exchange of non-public country-by-country tax information.  Conclusions were also adopted on the European Commission communication on an external tax strategy and tax treaty abuse measures.
  • Germany: Transfer pricing technical draft introducing transfer pricing documentation standards as recommended by the OECD.  Master File and Local File documentation requirements introduced.
  • India: A 6% Equalization Levy (EL) to apply on gross payments for certain digital services received by a nonresident.
  • Niger: Thin capitalisation rules introduced.
  • Romania: To become a BEPS Associate and participate in the OECD’s framework.

As the above developments note, BEPS guidelines and intent remains very strong in the global community, with many changes already made and many more to come.

 

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