The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.
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.
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.
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:
- 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.
EY’s Global Tax Alert provides recent developments for BEPS by Australia, Austria, Belgium, EU, Germany, Iceland, India, Niger, and Romania.
- 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.
The drive for additional transparency, among efforts by countries to implement anti-avoidance rules that trump tax treaties, continues with the latest round of BEPS updates, as EY’s Global Tax Alert provides added insight:
- Australian Tax Office (ATO) release of 4 tax alerts for issues of concern, a Diverted Profits Tax (DPT) is to be implemented, hybrid mismatch arrangements will be addressed in legislation, and the effective date for the new/revised OECD’s arms-length principle standards will move forward to 1 July, 2016.
- Ecuador: the most recently version, as of 1/1 of a taxpayer’s year, of the OECD’s Guidelines will be used as transfer pricing reference absent domestic rules.
- Hungary: A “modified nexus” IP approach will come into force.
- Netherlands: The innovation box rules will be amended to comply with OECD’s Action 5 guidelines.
- New Zealand: Domestic anti-avoidance rules will trump double treaty arrangements.
- Taiwan: CFC rules will be promulgated.
- Turkey: An “electronic place of business” draft legislation would empower taxation.
- Ukraine: A working group is forming anti-BEPS measures for consideration.
- US: Treasury is trying to extricate itself from its 1-year lag in obligatory country-by-country (CbC) reporting, although global acceptance is not expected.
The impact of BEPS is still accelerating, although the efforts by countries to avoid treaty provisions will provoke additional disputes and double taxation. Accordingly, the veil of anti-BEPS legislative efforts overshadows mutual transparency and collecting a fair share of tax while avoiding double taxation. Thus, all multinationals should be extra vigilant in the new era of international tax for additional documentation and support for significant transactions with low-tax countries.