Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

US int’l update

Monumental progress was recently made, in the form of 4 treaty protocols being approved; Luxembourg, Switzerland, Japan and Spain.  This will hopefully start a natural progression towards prompt treaty approvals/ratifications.

Additional Section 965, transition tax, FAQ’s were issued.  As you may recall, there was an infamous FAQ issued 13 April, 2018, whereby all overpayments from 2017 were deemed to be credited in their entirety to the 8 years, if elected, of transition tax liability. This important issue is still being contested, and am hopeful that HR 2985 calling for its proper reversal (i.e. IRS was wrong) will attract additional cosponsors and be an integral component of a tax technical corrections package that will be passed this year.

The 2019 United Nations (UN) tax treaty negotiation manual, attached for reference, was updated to reflect changes in the 2017 UN Model Treaty to include changes that resulted from the OECD’s base erosion and profit-shifting project.

Transfer pricing: IRS officials noted that completing the advance pricing and mutual agreement program’s (APMA’s) functional cost diagnostic model (FCDM) is a detailed process and taxpayers may want to submit the model form only in complex cases.

EY’s Global Tax Alert contains additional details, provided as reference.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_19_July_2019/$FILE/2019G_003420-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2019%20July%202019.pdf

https://www.un.org/esa/ffd/wp-content/uploads/2019/06/manual-bilateral-tax-treaties-update-2019.pdf

BEPS update-MLI’s, UN, ATAF…

EY’s Global Tax Alert highlights the recent BEPS developments, including the country-specific Multilateral Instruments (MLIs) with varying changes to its covered treaties and other treaty provisions.

It is noteworthy, at these MLIs approach legislation targets, that it is no longer intuitive as to how a country’s treaty provisions interact with other treaty partners, apart from general guiding principles that will vary as to the relevant details therein.

UN developments; In June 2019, the Report on the Eighteenth Session of the Committee of Experts on International Cooperation in Tax Matters (Committee), which was held by the United Nations (UN) on 23-26 April 2019 in New York, was released. The report describes a number of substantive issues related to tax cooperation in tax matters that were discussed during the session. Among others, the session addressed: (i) the next update of the UN Model Double Taxation Convention between developed and developing countries; (ii) the update of the UN Transfer Pricing (TP) Manual; (iii) dispute avoidance and resolution; and (iv) tax consequences of the digitalized economy.

African Tax Administration Forum (ATAF): In June 2019, the African Tax Administration Forum (ATAF) issued a paper on “The Place Of Africa In The Shift Towards Global Tax Governance: Can the taxation of the digitalised economy be an opportunity for more inclusiveness?” (the paper). The paper provides an overview of the current international tax governance landscape and inroads towards inclusiveness.

Country updates: Austria, Russia, Bulgaria, Canada, Finland, Guernsey, India, Ireland, Netherlands, Switzerland, Israel, China, Italy, Myanmar, New Zealand, Panama, Slovak Republic, Spain, Sweden, and Zimbabwe.

https://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_28_June_2019/$FILE/2019G_003051-19Gbl_The%20Latest%20on%20BEPS%20-%2028%20June%202019.pdf

OECD TP Guidelines

This 2017 edition of the OECD Transfer Pricing Guidelines incorporates the substantial revisions made in 2016 to reflect the clarifications and revisions agreed in the 2015 BEPS Reports on Actions 8-10 Aligning Transfer pricing Outcomes with Value Creation and on Action 13 Transfer Pricing Documentation and Country-by-Country Reporting. It also includes the revised guidance on safe harbours approved in 2013 which recognises that properly designed safe harbours can help to relieve some compliance burdens and provide taxpayers with greater certainty.

A link to the Guidelines is attached for reference.

http://www.oecd.org/tax/transfer-pricing/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm

UN: TP developments

The UN Transfer Pricing Subcommittee has provided a work designed to move forward its guidance in updating the UN Practical Manual on Transfer Pricing for Developing Countries.  The paper provides three attachments addressing:

  • Financial Transactions, a new chapter
  • Profit Splits, revised text
  • Establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits, revised text

All three attachments are significant and timely issues, noting the EU and other countries similar emphasis on these topics.

The paper is a valuable read in understanding UN’s direction on the above issues, and is included as a referenced link.

https://www.un.org/esa/ffd/wp-content/uploads/2019/04/18STM_CRP1_Update-UN-Practical-Manual-on-Transfer-Pricing.pdf

OECD: Financial instruments draft

Under the mandate of the Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”), Working Party No. 6 (“WP6”) has produced a non-consensus discussion draft on financial transactions.

Comments are due by September 7, 2018.  The treasury function, guarantees, intra-group loans, cash pooling transactions and captive insurance are the broad agendas discussed.

The guidance is not intended to prevent countries from implementing approaches to address capital structure and interest deductibility under domestic legislation, nor does it seek to mandate accurate delineation under Chapter I as the only approach for determining whether purported debt should be respected as debt.

As this guidance is critical for establishing if an instrument is true debt, as well as transfer pricing implications for financial relationships, this discussion draft is critical to review and provide relevant comments.

The OECD’s discussion draft is referenced herein for review.

 

http://www.oecd.org/tax/transfer-pricing/BEPS-actions-8-10-transfer-pricing-financial-transactions-discussion-draft-2018.pdf

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

 

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