Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

UN Tax developments

The UN Committee of Experts on International Cooperation in Tax Matters concluded their October meeting with several important milestones discussed.  A summary of the meeting is provided, and a reference to the Handbook on Selected Issues in Protecting the Tax Base of Developing Countries are provided for reference:

http://www.un.org/esa/ffd/special/11ictm-key-outcomes.html

Click to access handbook-tb.pdf

Key points:

  • A new Article was adopted re: fees for technical services that will become a part of the new UN Model Double Tax Convention (DTC).
  • A new practical Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries was adopted.
  • Subcommittee on Exchange of Information presented a draft “Code of Conduct” that will be updated in the October 2016 session.
  • The Committee also welcomed the work of UN DESA’s Financing for Development Office in the area of capacity-building, including the production of a “Handbook on Selected Issues in Protecting the Tax Base of Developing Countries.”
  • Two new subcommittees were formed:
    • Royalties re: updated Article 12 UN Model and commentary
    • Mutual Agreement Procedure (MAP) to review and propose updates to UN Model

On the heels of the OECD BEPS Guidelines, the UN developments will pave the way for many developing countries that lack the time and/or resources for implementation.  Accordingly, additional withholding taxes for services and withholding sources will be revealed to extract monies at source.  As a result, the UN initiatives are paramount to monitor and review accordingly.

These initiatives will also provide greater capacity for global disparity, with the BEPS Guidelines and UN changes in periods of transition re: domestic legislative actions around the world.

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OECD / UN

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S. Africa tax initiatives: BEPS

The revenue authorities from South Africa, Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zambia shared their thoughts and insights at a Best Practice tax meeting in Pretoria, South Africa on 16 July, 2015.

The Joint Statement of the Commissioners is attached for reference:

Click to access Joint%20statement%20of%20the%20Comissioners%20General%20and%20heads%20of%20delegation%20-%20%20Illicit%20Financial%20Flows%20meeting%20-%2016%20July%202015.pdf

Key considerations:

  • Closer cooperation is needed re: illicit financial flows for tax and customs purposes.
  • The country-by-country (CbC) reporting threshold set by the OECD may need to be less for the African sub-region.
  • Information re: aggressive tax and duty schemes will be shared with existing treaty provisions.
  • Collaborative efforts will ensure to counter direct and indirect tax fraud.
  • Measures should be adopted to mitigate negative effects of profit shifting.
  • Legal frameworks and collaboration efforts will improve.
  • A regional database is to be established to support a risk-based approach.
  • Treaty networking will be emphasized, including the African Tax Administration Forum (ATAF) Agreement on Mutual Assistance in Tax Matters (AMATM).
  • South Africa will host a technical transfer pricing meeting, as well as convene the next meeting by October 2015.

Regional tax authorities in the African region, and others around the world, are working closer together to formulate Best Practices and join efforts to mitigate base erosion and profit shifting activities.

This collaboration also provides multinational organizations an opportunity to review their proactive efforts with tax authorities around the world to form trusting relationships and win-win opportunities to achieve mutual benefits.

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OECD / UN

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BEPS Early Adopters: Australia-Anti hybrids

The Australian government has released Terms of Reference in preparation for anti-hybrid legislation, expected to be announced 12 May, 2016 in the federal budget.  Effective dates may be set as of 1 July, 2016 or 1 January, 2017 for calendar year taxpayers.

Specific rules are under consideration, including:

  • Objectives for eliminating double non-taxation
  • Economic costs for Australia
  • Taxpayer compliance costs
  • Interactions of domestic legislation, tax treaties and new anti-hybrid rules, expected to be announced by the OECD in October 2015.

A PwC Tax Insight summary is included for reference:

Click to access pwc-australia-announces-plans-beps-anti-hybrid-legislation.pdf

Australia, recently following the lead of the UK for diverted profits tax initiatives, has shown its proactive stance for adoption of the new OECD guidelines.

It is important to note that Australia will wait for the final OECD guidelines to pass matching legislation.  This legislative trend, and steps to initiate BEPS proposals quickly, will be a trend to watch for the rest of world countries.  

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OECD / UN

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OECD Tax Inspectors Without Borders (TIWB): Now a reality

The OECD’s long-awaited Tax Inspectors Without Borders (TIWB) initiative (posts of 9 June 9, 2013 & 30 January, 2015) has now become a reality.  The program is a collaboration of the OECD with the United Nations (UN) Development Programme.

A framework of international tax experts will augment local tax authorities on current audits, providing advice on transfer pricing and cross-border information exchange that will result in significantly increased tax revenue collection by developing countries.

http://www.oecd.org/tax/launch-of-tax-inspectors-without-borders.htm

Ways of Working / Transparency observations:

  • Will the list of countries’ receiving support be transparent?
  • How will issue consistency be assured for similar issues of different taxpayers across that jurisdiction: will the “experts” also be developing this process?
  • Will the “experts” be assisting in addressing/developing audit queries, issue determination, appeals and/or Competent Authority proceedings?
  • Will the “experts” be available to discuss issues directly with the taxpayer, if they have assisted with determination of such potential issue?
  • Is there a common “Memorandum of Understanding” that is shared with the taxpayer upon commencement of an audit, outlining the relevant processes that will be performed in collaboration by the relevant tax authority?

Answers to these questions, among others, will be helpful in providing additional context and understanding between taxpayers and tax authorities for this important initiative.

The metrics for monitoring such progress should include not only the amount of additional revenues assessed/collected, but should be inclusive of Best Practice methodologies and consistent methods of transfer pricing risk determination aligned with established laws in such jurisdiction.  

It is hopeful the UN and OECD will endeavor to provide additional mutuality and transparency for this initiative that will further enhance win-win opportunities.

 

 

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OECD / UN

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IMF, World Bank: Support for developing countries

The World Bank and the IMF have released a new initiative to support tax systems in developing countries; a link to the press release is provided for reference.

http://www.imf.org/external/np/sec/pr/2015/pr15330.htm

Key observations:

  • World Bank Group President Jim Yong Kim’s statement: “If everyone pays their fair share – developing countries can close their financing gaps and promote inclusive growth.”
  • The IMF and World Bank will continue to collaborate with the OECD and other development partners in expanding tax assistance and expertise.
  • Two pillars of development:
    • International tax dialogue to increase their collective voice
    • Developing diagnostic tools to evaluate and strengthen tax policies

These developments will be a key metric to monitor, in view of the increased complexity and documentation demands in a post-BEPS era.

Multinationals may also view these developments as added impetus to be more proactive in engaging with tax authorities in developing countries to better understand their business, as well as provide expertise in the complex transfer pricing arena.

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OECD / UN

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EU Tax Transparency Package-update/delay

EY’s Global Tax Alert highlights recent developments re: the previously announced Tax Transparency Package initiatives of the EU.  Key observations, and a copy of the Alert, are provided for reference:

Key Observations:

  • Definition of “tax rulings” is too broad for effective implementation by the Member States
  • The 10-year time period for rulings seems excessive and burdensome
  • 1/1/2016 implementation deadline to be extended to 12 months from entry into force of the amending Directive
  • OECD Action items should be considered for relevant integration / coordination
  • European Commission would also receive a copy of the rulings, with a central directory to be developed

EU Council Presidency issues report detailing open questions on proposal for automatic exchange of advance cross-border tax rulings and Advance Pricing Arrangements
Executive summary
On 8 June 2015, the Presidency of the EU Council (Latvia) sent a report (The Report) to the Permanent Representatives Committee and the European Council. The Report sets out the current state, as well as a number of open issues and questions, in regard to the 18 March 2015 proposal for a Council Directive amending Directive 2011/16/EU regarding the mandatory automatic exchange of tax information.

That proposal, focusing on the exchange of advance cross-border tax rulings (ATRs) and Advance Pricing Arrangements (APAs), constitutes a key element of the Tax Transparency Package1 issued on the same date. The Tax Transparency Package further contained a proposal to repeal the Savings Directive as well as a Commission communication outlining a number of other initiatives to advance tax transparency.

Detailed discussion
Under the Tax Transparency Package proposal, Member States will be required to automatically exchange information on their ATRs and APAs, with the Commission proposing a strict timeline whereby every three months all Member States would be obliged to report to all other Member States and the Commission on the rulings they have issued during that period.

This report, sent via a secure email system, would contain a pre-defined, standard set of information. The recipient Member States would also have the right to request more detailed information on any of the documented rulings, where the information is relevant to the administration of the tax laws of the Member State. Each year, Member States would have to provide statistics to the Commission on the volume of information exchange on tax rulings.

In addition to this quarterly exchange of information, the proposal also refers to a retroactive application of ten years, whereby the above obligation is extended to rulings issued during the ten years prior to the date on which the proposed Directive takes effect, where such rulings are still valid on the date of entry into force of the Directive.

The instrument under which all such exchange would occur is Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation (DAC).

Open questions and issues detailed in the Report
The Report details that four meetings of the Working Party on Tax Questions have taken place (31 March, 30 April, 21 May and 9 June 2015) since the Tax Transparency Package was published, with the proposals being discussed in detail at each meeting. The Report further sets out a number of open issues and questions raised at those meetings. In the Report, the Presidency asks the Council to discuss these questions, in order to move the proposals forward, and to help the incoming Presidency to draft a compromise text for the DAC that could eventually be tabled for the political agreement of the Council in the autumn of 2015.

Scope and timing of exchange of information
In regard to the scope of definitions of ATRs and APAs, the Report noted that the definitions proposed by the Commission are too broad for a number of Member States. While the objective of the Tax Transparency Package is to cover as wide a scope of ATRs and APAs as possible, some Member States raised concerns that too much room for interpretation (by introducing a distinction between binding and non-binding rulings, for example) would create uncertainty. The Presidency therefore deemed it appropriate, to narrow the scope to ATRs and APAs which are issued to specific taxpayers or groups of taxpayers, with the effect of exempting from automatic exchange the commentaries of tax laws of a general nature.

In terms of the proposal to require the exchange of ten years of ATRs and APAs, the report notes that many Member States believe that this requirement goes beyond what is reasonably required for reasonable tax transparency purposes, as well as creating an overly voluminous administrative burden. The report makes no reference to what time period may be more acceptable to those Member States.

On the starting date of the exchange of new rulings, many Member States argue that at least 12 months would be required to transpose any new rules into national legislation. Therefore, the Presidency deemed it appropriate to bind the starting date of mandatory exchange of information (which was originally set to be 1 January 2016) with the transposition deadline, which would be 12 months from entry into force of the new amending Directive.

Taking OECD work into account

The Report states that a number of Member States have expressed that further work on a Presidency compromise should take into account work conducted at the Organisation for Economic Co-operation and Development (OECD) level, specifically within Action 5 of the Base Erosion and Profit Shifting (BEPS) project and at the Forum on Harmful Tax Practices (FHTP). Action 5 of the BEPS Action Plan calls for a framework for compulsory spontaneous information exchange on rulings to member and associate countries’ preferential regimes, with a view to starting to apply the framework following the FHTP’s Autumn 2015 meeting. The Report further notes that the OECD work currently seems to cover a narrower scope of ATRs and APAs than proposed by the Commission’s proposals. This, in turn, leads the Presidency to aim at an agreement within the EU of a higher standard, in order not to undermine the objectives of the Commission proposal. In that regard, the Report notes that the standard form developed by the FHTP for rulings exchanged could also potentially be used for the automatic exchange of information within the EU, as well as providing inspiration around the potential ”retroactivity” date used.

Exemption of bilateral and multilateral APAs with third countries
The Report notes that while all Member States support that APAs should fall under the scope of mandatory automatic exchange of information, a number of delegations believe it is important in certain cases to exclude from the proposed Directive the information exchanged with third countries, where such an APA was agreed to before the entry into force of the revised DAC.

Specifically, the Report notes that:

However, a number of delegations believe it is important, for reasons of legal certainty and under a set of very strict conditions, to exclude from the proposed Directive the information exchanged with third countries when agreeing to bilateral or multilateral APAs with third countries, which have been agreed to before the entry into force of this Directive, under existing international treaties, where those treaties foresee stricter confidentiality standards than would be provided for in Directive 2011/16/EC, once this legislative proposal on automatic exchange of ATRs and APAs has been adopted.

Role of the Commission in the new mechanism
The Report closes with a series of main features with regard to the Commission’s central role in the new rulings exchange mechanism. These include:

The initial information on the ATRs and APAs being communicated not only to other Member States, but also to the Commission
That the Commission would have to develop a central directory, where the information exchanged would be stored and the Commission would have access to all data
That the Commission would, by way of the “comitology”2 procedure, develop a standard form and all other measures and practical arrangements that are required for the first stage of the automatic exchange of information.
Implications
The series of open issues and questions raised at the four successive meetings of the European Commission’s Working Party on Tax Questions reflects the sensitive nature of the issue of tax rulings in Europe. With much debate and discussion due in the coming months in advance of a compromise text for the DAC, the business community should make all efforts to closely monitor developments.

Endnotes
1. See EY Global Tax Alert, European Commission presents a package of tax transparency measures, dated 19 March 2015.

2. Comitology is the process by which EU law is modified or adjusted and takes place within Comitology Committees chaired by the European Commission.

EYG no. CM5538

This is an important development, as the European Commissions’s aggressive timetable and efforts to tackle tax abuse are ameliorated by practical and relevant concerns of practicality and usefulness.  

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OECD / UN

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European Commission’s new Action Plan

My prior post of 30 May 2015 revealed that the European Commission would be developing a new Action Plan, the contents of which are hereby revealed.

The objectives of the new Action Plan are:

  1. Re-establish the link between taxation and where economic activity takes place
  2. Ensuring that Member States can correctly value corporate activity in their jurisdiction
  3. Creating a competitive and growth-friendly EU tax environment
  4. Protecting the Single Market and securing a strong EU approach to external corporate tax issues, including BEPS measures, to deal with non-cooperative tax jurisdictions and to increase tax transparency

The new Action Plan is provided for reference:

Click to access com_2015_302_en.pdf

5 Key Action Areas:

  1. Mandatory Common Consolidated Corporate Tax Base (CCCTB), with the consolidation component included as a second step.
  2. Taxation of profits where they are generated (“However, it is clear that the current transfer pricing system no longer works effectively in the modern economy.”)
  3. Enhance the EU’s tax environment via cross-border loss offset and improving double taxation dispute resolution mechanisms.
  4. Increased tax transparency via an EU-wide list of third country non-cooperative tax jurisdictions and assessing whether additional disclosure obligations of certain tax information should be introduced.
  5. Providing EU Coordination Tools to improve Member States’ tax audit coordination and reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance.

The European Commission’s Action Plan clearly reveals a large step away from the traditional arm’s-length transfer pricing principle and toward an economic activity based source of taxation.  This clear divergence, with the OECD and established legislation in most countries, sets the stage for a new evolution in transfer pricing and a hybrid of different approaches by various jurisdictions in the next several years.

Accordingly, the Action Plan is required reading to appreciate short and long-term objectives of the European Commission to unify the Member States.

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OECD / UN

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NID: Italy’s perspective

Italy’s new guidelines deny benefits of the Notional Interest Deduction (NID) to “tainted contributions” to avoid the granting of dual benefits by respective entities.  There is a tracing mechanism that can be confirmed in a ruling process to rebut the dual benefit presumption.

PwC’s publication provides a succinct summary of this latest development.

Click to access pwc-guidelines-notional-interest-deduction-anti-avoidance-rules.pdf

The NID arrangement may represent an opportunity to achieve a local tax benefit as OECD’s BEPS Action Item and unilateral legislation enacted by various countries restrict interest expense deductions premised on the basis of a base erosion / profit shifting technique, although not suggesting an interest income offset that would ameliorate double taxation for a multinational organization.  

However, the proposed US Model Income Tax Convention (refer to 23 May 2015 post) includes the denial of treaty benefits for Special Tax Regimes, which is inclusive of a NID arrangement.  The arrangement that Italy is providing may not receive treaty benefits with the US if this proposal is included in the final legislation, thereby providing evidence of unilateral actions that produce non-intuitive and disjunctive results.  This lack of coordination will increase with future unilateral actions by countries that mitigate the OECD’s brave intentions to achieve global consistency and uniform guidelines.

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OECD / UN

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US & BEPS conformity: (Un)certainty

The attached letter from the Congressional tax-writing Committees to US Treasury sets the stage for future US BEPS conformity and policy approach.  This letter is especially revealing after the US has declined an invitation to be a member of the ad-hoc group for creating a BEPS Multilateral Instrument, of which over 80 countries have signaled their positive intent.

The letter also questions the positive verbal nods from the US that it has relevant legislative authority to collect the Country-by-Country report, and disseminate it, in accordance with OECD’s intent.

Additionally, the letter confirms that the US strongly adheres to the arm’s length transfer pricing principle, which was in clear evidence during the BEPS proceedings.

Only time will reveal the final answers, however the inward US focus is clearly evident as has been the case for other countries that have already adopted BEPS incentivized legislation that may not conform with OECD’s final guidelines.
The letter is attached for reference, with my highlights for emphasis.

Hatch, Ryan Call on Treasury to Engage Congress on OECD International Tax Project
Lawmakers Push to Ensure Global Tax Law Recommendations Benefit U.S. Interests
June 9, 2015 – PRESS RELEASE
Ryan: BRENDAN BUCK (202) 226-4774
Hatch: JULIA LAWLESS (202) 224-4515

WASHINGTON — In advance of the 2015 Organisation for Economic Cooperation and Development (OECD) conference on Base Erosion and Profit Shifting (BEPS) taking place this week in the nation’s capital, Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways & Means Committee Chairman Paul Ryan (R-WI) called on Treasury Secretary Jack Lew to work with Congress to ensure the international tax proposals being considered under the BEPS project are beneficial to American workers and job creators.
“As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees,” wrote Hatch and Ryan in a letter today. “We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.”

The text of the letter is a below and a signed copy can be found here.

—

June 9, 2015

The Honorable Jacob Lew

Secretary of the Treasury

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Dear Secretary Lew:

As the leaders of the Congressional tax-writing committees, we are writing to you about the need for the Treasury Department to remain engaged with Congress as you and your colleagues negotiate and develop proposals with member countries of the Organisation for Economic Co-operation and Development (OECD) and others on fundamental changes in international tax rules under the OECD’s Base Erosion and Profit Shifting (BEPS) project.

Congress is tasked with writing the tax laws of the United States, including those associated with cross-border activities of U.S. companies. Regardless of what the Treasury Department agrees to as part of the BEPS project, Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy. Close consultation between Congress and the Treasury Department should inform the BEPS discussions. We expect that as we move forward on U.S. tax reform, U.S. tax policy will not be constrained by any concessions to other nations in the BEPS project to which Congress has not agreed.

As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees. We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.

We appreciate some of the work that your team has done as part of the OECDs BEPS project, especially efforts to defend and advocate certain long-standing tax principles, such as the arms-length transfer-pricing standard. However, we are troubled by some positions the Treasury Department appears to be agreeing to as part of this project. For example, we are concerned about the country-by-country (CbC) reporting standards that will contain sensitive information related to a U.S. multinational’s group operations. We are also concerned that Treasury has appeared to agree that foreign governments will be able to collect the so-called “master file” information directly from U.S. multinationals without any assurances of confidentiality or that the information collection is needed. The master file contains information well beyond what could be obtained in public filings and that is even more sensitive for privately-held multinational companies. We are also concerned about interest-deductibility limitation proposals on the basis of questionable empirics and metrics.

Some recent press reports have indicated that the Treasury Department believes it currently has the authority under the Internal Revenue Code to require CbC reporting by certain U.S. companies and that Internal Revenue Service (IRS) guidance on this reporting will be released later this year. We believe the authority to request, collect, and share this information with foreign governments is questionable. In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws. Therefore, we request that, before finalizing any decisions, the Treasury Department and IRS provide the tax-writing committees with a legal memorandum detailing its authority for requesting and collecting this CbC information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals. We also request that you provide a document: (i) identifying how the CbC reporting and other transfer pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be utilized, and; (ii) providing the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments. In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information.

We also have significant concerns about many of the provisions included in several other proposals of the BEPS project, including, among others, modifying the permanent establishment (PE) rules, using subjective general anti-abuse rules (GAAR) in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting. These are but a few of the areas where we recommend that we work together to find consensus and identify a path forward for consideration as part of the BEPS negotiations and, if necessary, Congressional actions.

In the coming months, we look forward to working with you with respect to the BEPS project. In the interim, we want to remind the Treasury Department that it has the ability to refrain from signing on to the BEPS final reports, and we expect you to do just that if doing so protects the interests of the United States and of U.S. persons. Many of the OECD’s BEPS project objectives are sound, and international cooperation – as well as competition – in tax policies is desirable. We trust that you agree, however, that precipitous decisions to impose constraints on U.S. tax policy and added burdens on U.S. companies, especially on the basis of weak empirics and metrics, are not desirable.

Thank you for your attention to these important matters.

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OECD / UN

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European Parliament 24-0 vote for public disclosure: CbC & Beneficial Ownership

The European Parliament recently voted unanimously for public disclosure rules to fight tax evasion, tax avoidance and establishing fair, well-balanced, efficient and transparent tax systems.  A copy of the press release is provided for reference:

http://www.europarl.europa.eu/news/en/news-room/content/20150601IPR61336/html/Development-MEPs-call-for-action-to-target-tax-evasion-in-developing-countries

Summary:

  • All countries to adopt country-by-country (CbC) reporting, with all information available to the public
  • Beneficial ownership information to be made publicly available
  • Call for coordination to combat tax evasion and avoidance by the European Investment Bank, European Bank for Reconstruction and Development and EU financial institutions.
  • Request to the Commission for an ambitious action plan, without delay

The outcry for public reporting, currently underway by the OECD, European Parliament and European Commission is increasing exponentially within Europe.  Other countries will obviously follow the EU approach, with perceptions of complicated international tax rules increasing disparity between application of the transfer pricing arm’s length principle.

The CbC reporting, and beneficial ownership detail, should be expected to be in the public domain if this trend continues.  Currently, it is a sign of an incoming tsunami that cannot be completely avoided.

 

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OECD / UN, Transfer Pricing

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TEI’s comments: BEPS Action 8, CCA’s

The referenced TEI comments provide an excellent understanding into the challenges and complexity of Cost Contribution Arrangements (CCAs). http://tei.org/Documents/TEI%20Comments%20BEPS%20Action%208%20-%20CCAs%20-%20FINAL%20to%20OECD%2028%20May%202015.pdf\ Key observations:

  • The Discussion Draft comments deviate from the current accepted methodology of sharing costs (apart from contributions of pre-existing intangibles at fair value) into an assessment of value in order to be consistent with the arm’s length principle.
  • A CCAs risk arrangement is much different than other contractual arrangements, for which comparability  is illusory.
  • The Draft provides that low value-added series should be valued at cost for practical reasons, whereas BEPS Action 10 prescribes an election to value such services at a markup of 2-5%.  These approaches should be aligned.
  • If contributions are measured at value vs. cost, clarity of withholding tax application would be welcome.
  • The condition of required balancing payments should be removed as it is not a feature of arm’s-length adjustments.
  • Qualifications for a CSA participant should be clarified, as the Draft precludes a participant unless it has “the capability to make decisions to take on the risk-bearing opportunity, to make decisions on how to respond the the risks, and to assess, monitor, and direct any outsourced measures affecting risk outcomes under the CCA.”
  • Funding the research and development in a CCA should receive increased emphasis.
  • Complex and extreme examples should be accompanied by practical and easy examples to implement CCAs.

TEI’s comments introduce well written rationales for suggested changes to the Draft, resulting in a win-win opportunity for taxpayers and tax authorities. CCAs seem to be difficult to comprehend in various tax jurisdictions, thus the practicality to be introduced would significantly reduce misconceptions / assumptions for the use, and benefits, of a CCA.

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OECD / UN

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European Commission: New Action Plan

The European Commission, in its meeting on 27 May 2015, determined that a new Action Plan is needed to address tax abuse and ensure sustainable fisc growth by the Member States.  This follows its proposals on the Tax Transparency Package, including automatic exchange of tax rulings, possible public tax disclosure, and a review of the Code of Conduct.

The new Action Plan will look at integrating BEPS actions within the EU, review the digitalized economy, relaunching the Common Consolidated Corporate Tax Base (CCCTB) initiative and further rules for increased transparency.

The KPMG Euro Tax Flash provides a summary of the new proposals.

Click to access etf-249.pdf

It is noteworthy that the EU is proceeding on designed actions in anticipation of, and subsequent to, BEPS actions for the EU Member States.  These actions may form a new set of rules similar to, as well as disparate from, the new OECD Guidelines and the rest of the world.  Other countries will be following these initiatives for similar adoption at a unilateral level, thereby providing a complex multi-layering of anti-abuse rules, transparency initiatives, and tax bases.

The answers to the struggle for fostering a better business environment in the EU market may be much different from an EU and rest of world perspective.

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OECD / UN

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BEPS Action 6 (Treaty Abuse), as revised

OECD’s latest draft on Action 6 of the BEPS Action Plan (Prevent Treaty Abuse) addresses previous questions raised and comments received, in addition to some new proposals.  Part I of the draft presents the alternative “Simplified” Limitation on Benefits (LOB) Rule, while Part II outlines the previous 20 questions for follow-up work, including changes to domestic law made after the conclusion of a treaty.

Succinct comments are to be submitted by 17 June 2015.  A link to the draft is provided:

Click to access revised-discussion-draft-beps-action-6-prevent-treaty-abuse.pdf

The discussion draft is very comprehensive and principle based, including additional examples from its previous draft.

However, it is worth noting that the OECD would not require an approval process for application of the subjective principal purposes test (PPT) (i.e. the state may “wish” to apply such process) and that the PPT would be included in the arbitration mechanism of paragraph 5 of Article 25, although this issue should also be discussed as part of the work on Action 14 (Make dispute resolution mechanisms more effective).  This latter point would seem to be area for additional confirmation in providing comments to avoid double taxation on issues that are inherently subjective.

The draft will provide important precedent in obtaining treaty relief in a post-BEPS era, thus the proposals should be reviewed in detail, with consideration to provide succinct comments.

 

 

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OECD / UN

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Australia’s Budget: BEPS acceleration

Australia’s Budget reveals its intent on becoming a leader in tax transparency and implementation of tools to address anti-avoidance initiatives.  The provisions cite OECD BEPS initiatives, while deciding to act unilaterally on draft guidelines and introducing new transparency standards within its various proposals.

This Budget may set the stage for others to follow similar trends and timelines; accordingly such actions should be monitored in Australia as well as the rest of the world.  The Public Tax Transparency Code is another signal that reporting of economic and tax activity will be used as a public measure to assess reasonableness for determining payment of a “fair share of tax.”

MNE’s have now fully realized the impending complexity, documentation demands and transparency standards that it will be judged by.  Internal education, communication and alignment are now vital in establishing a MNE’s global tax risk framework.  

A link to the Budget actions is provided for reference:

http://www.budget.gov.au/2015-16/content/glossy/tax/html/tax-05.htm

Key Corporate Tax provisions:

  • Multinational Anti-Avoidance Law
    • Economic Australian activities = Australian taxation income
    • Penalties up to 100%, plus interest
  • Country-by-Country (CbC) reporting effective as of 1/1/2016, consistent with OECD Guidelines
  • OECD recommendations re: treaty abuse / non-taxation to be incorporated into tax treaties
  • Draft OECD anti-hybrid rules to be implemented
  • Public Tax Transparency Code to supplement CbC reporting
  • Serious Financial Crime Taskforce to target serious financial crimes and tax evasion
  • Common Reporting Standard to be adopted from 1/1/2017
  • GST Compliance programme extended 3 years

Category:

OECD / UN, Transfer Pricing

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Australia, UK DPT: Advancing beyond BEPS

The recent Guardian article highlights the danger that the UK Diverted Profits Tax (DPT) has incited.  Countries are acting unilaterally and/or in working groups (including the EU) to accomplish their fiscal objectives behind a thin veil of BEPS intentions.  Most importantly, such actions may never be unraveled after the final OECD BEPS Guidelines are published.

Accordingly, we will have overlapping  domestic and treaty provisions (including the arguable non-treaty DPT) for anti-avoidance rules, CFC rules, capturing low-taxed income from other jurisdictions in novel ways, non arms-length approaches, formulary calculations of the “right tax” and significant complexity for all.  To the extent public disclosure of tax related data becomes a reality by the OECD or EU, many questions will arise on a very complex topic for which most people will not comprehend.

It is hopeful that countries put a full stop on BEPS activities until the Guidelines are finalized, after which such Guidelines can be adopted in their final form for overall consistency.  Statements similar to the herein should be tempered by patience and a goal for global consistency.  Thus, working group meetings that are scheduled prior to that time will only exacerbate the tsunami of international tax guidance and documentation that will take place.

A link to the article is attached for reference:

http://www.theguardian.com/australia-news/2015/apr/19/australia-working-with-uk-on-tackling-corporate-tax-says-joe-hockey

Joe Hockey, treasurer, provided the following statement:

Hockey said that the joint working group would enable Australia to go “further and faster” than the framework for change offered through multilateral groups like the OECD and G20.

Category:

OECD / UN

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