Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

Asia: BEPS Review

Loyens & Loeff have published a clear and concise summary of several OECD BEPS deliverables, as well as summarizing the potential impacts of BEPS for each of the following countries:

  • China (PRC)
  • Hong Kong
  • India
  • Indonesia
  • Japan
  • Korea
  • Malaysia
  • Philippines
  • Singapore
  • Taiwan
  • Thailand
  • Vietnam

A link to the publication is provided for reference:

Click to access AsiaNewsletter-BEPS.pdf

This publication provides a concise summary addressing the topics of Characterization and position re: BEPS, BEPS related measures and an Outlook summary for each country.  The recent December 2014 BEPS drafts are not covered in this publication.

Best Practice observations:

MNE’s should be gathering a master file of the BEPS Action Items and status of each Item for each country in which it operates, as the timing of legislation will be different, including countries that have already enacted several Action Items.  Based upon this schedule, a strategic review of items affecting the Company can be developed, reviewed and implemented efficiently.  This schedule will also be a valuable dynamic tool for presentation to internal stakeholders that addresses the impact of BEPS.

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Spain: New laws, including BEPS alignment

Spain has introduced new tax reforms that will be effective 1/1/2015.  A Deloitte International Tax Alert provides details of the new rules, with a link provided for reference:

Click to access dttl-tax-alert-spain-021214.pdf

Key Observations:

  • OECD BEPS incentivized anti-hybrid rule; Disallowed deductions where no income is generated (Deduction/No-Inclusion), income will not be subject to tax, or income will be subject to a nominal tax rate of less than 10%.
  • Impairment losses will be limited.
  • The 30% corporate income tax rate will be reduced to 28% for 2015, and 25% in subsequent years.
  • NOL’s will be available for indefinite carryover, although subject to taxable income limitations.
  • The Statute of Limitations to review NOL’s is extended from 4 to 10 years.
  • Participation exemption rules are revised, including a anti-hybrid measure to prevent a benefit where a dividend represents a deductible expense for the payer (in alignment with the EU Parent-Subsidiary Directive).
  • New consolidated tax regimes are included, including horizontal tax consolidation.
  • Goodwill and asset step-ups of a merger after 2014 will not be recognized for tax purposes.
  • CFC rules are modified.  Spanish taxable income will include a CFC’s income from a transfer of assets or rights, or service income of the CFC where there are no material and personnel resources at the level of the CFC.  Additionally, certain passive income will be subject to the CFC rules.

The EU Parent-Subsidiary Directive (EU PSD) rules were anticipated to be effective by the end of 2015, whereas the anti-hybrid rules represent a proactive legislative response to the OECD BEPS initiatives for which this rule may not match the final guidelines that the OECD will provide in 2015.

Accordingly, the OECD BEPS Guidelines should be closely followed, knowing that proposed guidelines and actions are being legislatively enacted in various countries that provide a complex puzzle of different actions for identical transactions.

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OECD BEPS recent releases

The OECD has, in the past week, published several consultation drafts, with relevant links provided for reference.

The documents include:

Action 8,9,10: Risk, recharacterization

Action 14: Dispute resolution

Action 4: Interest deductions

Action 10: Profit splits

Action 10: Transfer pricing aspects of cross-border commodity transactions

International VAT / GST Guidelines

Click to access discussion-draft-action-10-commodity-transactions.pdf

Click to access discussion-draft-action-10-profit-splits-global-value-chains.pdf

Click to access discussion-draft-action-4-interest-deductions.pdf

Click to access discussion-draft-action-14-make-dispute-resolution-mechanisms-more-effective.pdf

Click to access discussion-draft-actions-8-9-10-chapter-1-TP-Guidelines-risk-recharacterisation-special-measures.pdf

Click to access discussion-draft-oecd-international-vat-gst-guidelines.pdf

The discussion drafts have deadlines for comment in January or February 2015, and all interested parties should review the relevant drafts to submit comments accordingly.  Additionally, the documents should be reviewed by all international tax practitioners to understand the trend of these topics, thereby affecting how all countries may be affected, directly or indirectly, by these actions.

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EU Parent-Sub Directive: Anti-abuse proposal

A anti-abuse rule has been proposed by the EU Economic and Financial Affairs Council for inclusion in the EU Parent-Subsidiary Directive (PSD), following implementation of hybrid mismatch rules as summarized in my post of 24 June 2014.  The proposal would be required to legislated into law by 31 December 2015, in addition to the earlier hybrid loan rules.

A copy of the communique is attached for reference:

http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2016435%202014%20INIT

Key observations:
Annex I contains the following language (highlights added for emphasis) for the proposed anti-abuse rule:

Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. 3. For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. 4. This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.”

Annex II provides further reference stating that EU Member States  will endeavor to inform each other, and additionally that an anti-abuse provision will be considered in future work addressing the EU Interest and Royalties Directive 2003/49/EC.

This proposal should be closely followed, as it will directly affect transactions between EU Member States.  Additionally, this initiative will be followed by other countries in drafting domestic and/or treaty anti-abuse/anti-avoidance rules, possibly resulting in a multi-pronged approach of anti-avoidance / anti-abuse rules in Directives, treaties and domestic legislation.

The subjectivity of this rule will increase complexity, reduce clarity and certainty while being subject to further appeals contesting implementation and/or interpretation of the guidelines, including the “main purpose” test.

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OECD BEPS: EY update

EY’s recent tax alert highlights the recent developments and trends of the OECD BEPS initiatives:

OECD
The OECD has announced another in its series of webcasts providing updates on developments with respect to the BEPS project. The webcast is scheduled for 15 December 2014 and will feature senior members of the OECD secretariat.

Asia-Pacific region
On 24-27 November 2014, the creation of a new task force was announced at a meeting of the Study Group on Asian Tax Administration and Research (SGATAR) in Sydney. The task force is to be made up of SGATAR members and be designed to, among other things, enable the Asia-Pacific region to discuss and to keep abreast of international developments and issues including base erosion, profit shifting, and tax transparency. According to the announcement, there is already unprecedented and powerful global collaboration on these issues and the creation of the task force will give all SGATAR members a platform to play a role, including relaying their views to international forums. The task force also is intended to enable cooperation and support for the development of robust, cohesive tax systems in each jurisdiction. According to the announcement, SGATAR members will be able to use the task force to coordinate sharing of best practices and experience and to seek assistance on implementing initiatives such as exchange of information. Current SGATAR members include Australia, People’s Republic of China, Hong Kong SAR, Indonesia, Japan, Republic of Korea, Macao SAR, Malaysia, Mongolia, New Zealand, Papua New Guinea, The Philippines, Singapore, Chinese Taipei, Thailand and Vietnam.

See EY Global Tax Alert, Asia Pacific tax administrations create task force as next step in greater regional cooperation, dated 2 December 2014.

European Union
On 1 December 2014, according to several media outlets, the Finance Ministers of Germany, France and Italy sent a joint letter to Pierre Moscovici, European Union (EU) Commissioner for Economic and Financial Affairs, Taxation and Customs. According to the reports, the letter calls upon the EU to rapidly develop a new EU Directive on anti-base erosion and profit-shifting measures, which should be presented for consideration before the end of 2014, with a view to EU Member States adopting the measures therein by the end of 2015. According to the reports, the ministers noted that the G20 and the OECD are already one year through a two year long comprehensive BEPS initiative, but further noted that it is important that the EU should also adopt a common set of binding rules that go beyond greater transparency and company registries, to a “general principle of effective taxation” to compensate for the EU’s lack of “tax harmonization.” According to the letter, these rules should include mandatory and automatic exchange of information on cross-border tax rulings (including Advance Pricing Agreements in the field of transfer pricing), a register identifying beneficiaries of trusts, shell companies and other non-transparent entities, and measures against tax havens.

See EY Global Tax Alert, Finance Ministers of France, Germany and Italy ask European Commission to rapidly develop a new Directive addressing tax avoidance and tax evasion issues, dated 2 December 2014.

France
On 5 December 2014, during the debates on the Draft Amended Finance Bill for 2014, the French Assemblée Nationale incorporated a provision addressing inbound hybrid payments. The rule would deny the participation exemption on income from shares (i) if the income was tax deductible for the distributing entity (in implementation of the EU Parent-Subsidiary Directive as amended on 8 July 2014) or (ii) if such income was paid out of profits from a non-taxable activity. The rule would apply to fiscal years that begin on or after 1 January 2015. The Bill is still in draft form, and final enactment is expected by the end of December.

See EY Global Tax Alert, French Parliament to implement recent EU rule on hybrid mismatches, dated 8 December 2014.

Netherlands
On 1 December 2014, the Dutch State Secretary of Finance provided input on previously raised parliamentary questions regarding the future of the innovation box regime. Generally, the Dutch State Secretary supports the discussions around substance requirements, but also wants to safeguard the position of innovative small and medium sized entities. The Dutch State Secretary has stated that the Netherlands plans to continue to promote innovation through tax and other incentives and expressed the view that, in light of the strong substance requirements that are in place for the Dutch innovation box, the regime should not be vulnerable for abuse. Based on this, it is not expected that the Dutch government will propose major changes to the Dutch innovation regime at this time.

See EY Global Tax Alert, Dutch State Secretary of Finance provides input on innovation box regime, dated 5 December 2014.

New Zealand
On 27 November 2014, New Zealand’s Minister of Revenue released two officials’ reports regarding BEPS. They outline officials’ current views on the BEPS project and the timetable for action. They show strong support for the OECD’s approach to BEPS and commit to no unilateral measures in advance of final OECD recommendations, which should reduce risks of incoherence and double taxation. They also show that tax authorities are using BEPS concerns to justify certain measures with respect to foreign trusts, non-resident withholding taxes, and tax compliance for large corporations. The reports provide a detailed timetable, which should give business some measure of short-term certainty.

South Africa
On 19 November 2014, National Treasury and the South African Revenue Service (SARS) made presentations on transfer pricing during a meeting of Parliament’s Mineral Resources and Finance Committees. SARS informed the committees that specific legislation is being considered for transfer pricing documentation and for country-by-country reporting and that a legislative framework for Advance Pricing Agreements is also being considered. While tighter legislation may be needed, SARS recognizes the importance of a balanced approach in line with domestic and international law, which does not pose a deterrent to foreign direct investment. The date when such legislation will be drafted (or implemented) is unclear. SARS also informed Parliament of the results of transfer pricing audits performed over the last three years. The SARS Transfer Pricing Unit has audited more than 30 cases and made transfer pricing adjustments of over R 20billion (at a conservative estimate) with an income tax impact of R 5billion. A similar number of cases are currently in progress and other cases are in the process of risk assessment. This underscores the importance for South African taxpayers of making sure that their transfer pricing policies are compliant with the arm’s length principle and South African transfer pricing regulations.

See EY Global Tax Alert, South African authorities address transfer pricing and OECD’s BEPS Action Plan, dated 8 December 2014.

Spain
On 28 November 2014, Laws enacting a Spanish tax reform were published in the Spanish Official Gazette. Most rules will enter into force as of 1 January 2015 (subject to specific transition rules). Among many other measures, the new Laws address matters that are focus areas in the OECD BEPS project. Anti-hybrid arrangement rules are introduced under which: (i) expenses corresponding to related party transactions will no longer be tax deductible if, as a result of a different tax characterization, no income is generated or, if generated, the income is tax exempt or subject to a nominal tax rate lower than 10%; and (ii) the participation exemption will no longer apply to dividend or profits distributions that are derived from a tax deductible expense in the source country. Intra-group profit sharing loans, currently characterized as debt instruments for Spanish tax purposes, are treated as equity instruments. An additional limitation is introduced that caps deductible interest on loans financing the purchase of purchase of shares at 30% of the operating profit of the acquiring entity (including where the acquired and acquiring entities are merged or join the same tax unity), subject to an escape clause. The Spanish controlled foreign company (CFC) rules are strengthened, including additional substance requirements for the CFC in order to avoid imputation of foreign low-taxed income. Anti-abuse rules regarding EU dividend and royalty payments are amended.

See EY Global Tax Alert, Spain enacts tax reform, dated 5 December 2014.

United Kingdom
On 2 December 2014, the UK Government issued an update on likely changes required to the UK patent box following the work being done on preferential, intellectual-property (IP) tax regimes as part of the OECD BEPS project. The UK announcement indicates that the joint UK and German proposal on a new modified nexus approach was welcomed by both the G20 and the OECD Forum on Harmful Tax Practices as well as the EU’s Code of Conduct Group in recent meetings. The proposal will now form the basis of continuing work by the Forum on Harmful Tax Practices to determine how the approach will work in practice. As part of this work, the OECD will carry out an informal consultation with countries and other stakeholders. Under the proposal, countries with existing preferential IP regimes would be required to agree to close these to new IP by 30 June 2016 and to eliminate them by 30 June 2021, after which all countries would be required to operate only regimes that are compliant with the modified nexus approach. The UK has confirmed its commitment to retaining a patent box. It will consult on changes to the existing patent box once the Forum on Harmful Tax Practices has completed work on the detail of the new rules.

See EY Global Tax Alert, Update on UK Patent Box and other preferential IP regimes, dated 3 December 2014.

On 3 December 2014, the UK Chancellor of the Exchequer delivered his Autumn Statement. Key announcements from a BEPS perspective include the introduction of a “diverted profits tax” on profits earned as a result of substantial UK activity (e.g., sales) where those profits are considered to be diverted abroad. The tax charge will be 25% of the diverted profits and will come into effect from 1 April 2015. At present there is no further information on the rules but draft legislation and a technical note are expected to be available on 10 December. Also, a consultation document was released on the implementation of the OECD’s recommendations to prevent hybrid mismatches under BEPS Action 2. The new rules are proposed to apply to payments made after 1 January 2017. The rules proposed in the consultation document are directionally similar to the existing UK anti-arbitrage rules, but the motive test would be removed. This would mean that, from 2017, any structure involving hybrid mismatches would potentially be subject to higher UK taxation, regardless of whether the mismatch was for the purposes of avoiding UK tax. The consultation document largely mirrors the latest Action 2 report issued by the OECD in September.

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OECD: MAP update

The OECD has released new statistics for the Mutual Agreement Procedure (MAP) cases for 2013, including new cases and the inventory of cases by OECD countries and Partner Economies (Argentina, China, Latvia and South Africa).  A link to the MAP summary is included for reference:

http://www.oecd.org/ctp/dispute/map-statistics-2013.htm

The summary is a valuable reference tool, although the MAP procedure has been acknowledged by many as an inefficient, costly and timely process.  Accordingly, it will be interesting to watch the OECD BEPS Action items progress in this area to minimize double taxation in an efficient and timely process.

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APAC: BEPS Best Practices by tax administrations

The Study Group on Asian Tax Administration and Research (SGATAR) met recently in Sydney, resulting in the creation of a new task force for the Asia-Pacific region to collaborate on OECD BEPS initiatives while enabling cooperation to develop cohesive tax systems in each jurisdiction.  A link to the Communique is attached for reference:

https://www.sgatar2014.org/media/communique

SGATAR 2014 brought together almost 200 delegates, including representatives from the Asian Development Bank (ADB), Inter-Amercian Center of Tax Administrations (CIAT), Asia-Oceania Tax Consultants’ Association (AOTCA), International Bureau of Fiscal Documentation (IBFD), OECD and the World Bank Group (WBG).

SGATAR members include the following jurisdictions: Australia, Cambodia, People’s Republic of China, Hong Kong SAR, Indonesia, Japan, Republic of Korea, Macao SAR, Malaysia, Mongolia, New Zealand, Papua New Guinea, The Philippines, Singapore, Chinese Taipei, Thailand and Vietnam.

Best Practice observations:

As each of these countries propose unilateral legislation, it should be closely monitored as it may well form a foundation of Best Practices  and SGATAR collaboration for the Asia-Pacific region.  A recent example of potential early guidance is Singapore’s transfer pricing documentation paper by the Inland Revenue Authority of Singapore; (refer to my earlier post of 31 October 2014).

The Asia-Pacific regional approach is worth watching to discern trends that may vary from the OECD BEPS Guidelines, forming additional complexities and different interpretations for international tax norms.

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OECD / UN

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Treaty Abuse: OECD follow-up

The OECD has published a public discussion draft on its BEPS Action Item 6: Preventing Treaty Abuse.  Comments by interested parties are due by 9 January 2015.  A link to the draft is attached for reference:

Click to access discussion-draft-action-6-follow-up-prevent-treaty-abuse.pdf

Some key points:

  • Comments are invited on the Limitation of Benefits (LOB) clause re: interaction with Competent Authority (CA) relief
  • Alternative LOB provision for EU countries?
  • “Active business” test of the LOB: clarification/application
  • Process for approval to apply the “Principal Purpose” test for disallowing treaty benefits
  • Interaction of domestic and treaty anti-abuse rules

This Action item is very comprehensive and will also serve as a blueprint for some countries designing unilateral legislation.  Accordingly, the LOB and Principal Purpose tests, among other complex provisions in the draft, should be reviewed to convey its terms succinctly and simply to others not well versed in the technical intricacies to promote further understanding and practical application.

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OECD: Best Practices for Tax administrations

OECD – Tax Administration 2013
This is a unique reference source of high level comparative information on aspects of tax administration system design and practice covering the world’s major revenue bodies. This edition updates performance-related and descriptive material contained in prior editions with new data and supplements this with new features including coverage of 3 additional countries (i.e. Brazil, Columbia, and Hong Kong (China). For the first time, this edition of the series includes comparative information on all 34 member countries of the OECD, the EU and, the G20, as well as certain other countries (e.g. Singapore and South Africa). New subject covered in this series include: 1) a description of how revenue bodies engage and support tax intermediaries. In addition, the series includes extensive description of organizational reforms underway in many countries to improve efficiency and effectiveness, for many in an environment where public sector funding is being significantly reduced.

http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/tax-administration-2013_9789264200814-en#page1

Summary of Topics:

  • Institutional arrangements for tax administrations
  • Organisation of revenue bodies
  • Strategic management
  • Human resource management and tax administration
  • Resources
  • Operational performance
  • Electronic services
  • Tax administration and tax intermediaries
  • Administrative frameworks
  • Various appendices

As the concept of co-operative compliance becomes more commonly practiced, this reference is a valuable contribution to form Best Practices for tax administrations.

Additionally, it is useful for MNE’s to review and gain a better understanding of the issues faced by tax administrations, with a proactive effort needed to form a win-win opportunity to achieve a fair and consistent international tax framework.

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OECD BEPS Strategy for Developing Countries

The OECD has released its plans for developing countries to play a greater role in its BEPS initiatives.  A link to the OECD release is attached:

http://www.oecd.org/newsroom/developing-countries-toplay-greater-role-in-oecdg20-efforts-to-curb-corporate-tax-avoidance.htm

Summary:

  • Three-part strategy
    • Attendance at meetings by 10 developing countries, including Albania, Jamaica, Kenya, Peru, Philippines, Senegal and Tunisia.
    • Five regional networks of tax policy and administration officials will be established for coordination and dialogue on BEPS issues.  The regional focus includes developing countries located in Asia, Africa, Central Europe, Middle East, Latin America / Caribbean and Francophone regions.  The regional network will also be a forum for developing countries to discuss negotiation and implementation of the multilateral instrument under Action 15 of the BEPS Project.
    • BEPS toolkits to be developed for practical implementation and capacity building.
  • A two-day workshop is scheduled in December 2014 that will allow developing countries to discuss practical aspects and their priority issues.

Developing countries generally have less resources, experience and training to implement BEPS effectively, therefore this initiative should be monitored to determine ultimate success of the BEPS initiatives around the world.

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OECD BEPS Action 10: TP Low Value Add Services

The OECD has released guidance on its BEPS Action Plan item 10: Transfer Pricing Guidelines re: Low Value-Adding Intra-Group Services.  Comments should be submitted by 14 January 2015.  A copy of the guidance is attached for reference:

Click to access discussion-draft-action-10-low-value-adding-intra-group-services.pdf

The Guidance, in summary:

  • Defines low value-adding intra-group services
  • Clarifies the meaning of duplicative activities and shareholder costs
  • Provides a 2-5% range for mark-up
  • Addresses cost allocation methodologies
  • Discusses a simplified benefit test
  • Discusses documentation to support the simplified approach

This guidance is required reading for all interested parties working with transfer pricing methodologies addressing intra-group services, noting the fact that simplification in one area of such services may introduce further complexities and ambiguities.

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OECD BEPS Action 7 Guidance: PE Avoidance

OECD has released guidance on the BEPS Action Plan item 7: Preventing the Artificial Avoidance of PE Status.  Comments should be sent by 9 January 2015.  A link to the OECD guidance is attached for reference:

Click to access action-7-pe-status-public-discussion-draft.pdf

Key observations:

  • Commissionaire arrangements: 4 alternatives are provided re: PE avoidance
  • “Independent agent” activities: the independent agent must not act exclusively for one enterprise
  • Options to counter specific activity exemptions are introduced to counter artificial avoidance of PE
  • Two options are provided re: splitting up of construction contracts to avoid the 12 month rule, one of which is the Principal Purpose test general anti-abuse rule
  • Insurance agent PE proposals are introduced
  • Profit attribution concepts to PE are discussed

In summary, additional subjectivity rules are introduced while the current exemption definitions are narrowed.  These actions will tend to significantly increase tax appeals and the risk of double taxation.

All MNE’s should review the guidance to understand the trend for future PE guidance, while also identifying current structures that may be affected by the new rules.  Notably, countries may unilaterally develop legislation based upon this guidance without waiting for final guidelines to be issued, thereby introducing greater complexity and challenges in the determination of PE.

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TEI’s comments: Singapore’s TP documentation – Marching to a different drummer

Tax Executives Institute, Inc. (TEI) has provided excellent comments to the transfer pricing documentation paper by the Inland Revenue Authority of Singapore (IRAS).  TEI responds to five questions of the Consultation Paper.  A link to their comments, and the Singapore Consultation Paper,  are included for reference:

Click to access TEI%20submission%20re%20IRAS%20TP%20Documentation.pdf

Click to access pconsult_IT_Transfer%20Pricing%20Documentation_2014-09-01.pdf

Key observations:

  • The proposed rules for documentation by December elevate Singapore’s transfer pricing documentation requirements to a higher level than the current OECD guidelines, prior to its final recommendations, including how the Master File should be filed and transition thereto.
  • The Consultation sets forth guidelines for non-related Singapore entities including the provision of a functional analysis for contributions to value creation by each related group member, consolidated financial statements of the group, and transfer pricing policies re: all types of transactions between group members.  
  • Confidentiality concerns arise with respect to the proposed rules, accordingly appeals for exemption should be appropriately provided.
  • Adverse consequences for not providing “adequate documentation” (term not defined), including withdrawal of MAP support set forth in the relevant treaty.
  • TEI has proposed de minims thresholds to exclude immaterial transactions and excluding documentation for intra-country transactions.
  • TEI has suggested an approach to implementing new documentation guidance tracking OECD BEPS developments, with lead time to adjust processes accordingly.

TEI has provided a valuable contribution in their well-written and thoughtful comments to significant issues posed by countries unilaterally adopting new transfer pricing documentation rules prior to finalization of the OECD BEPS initiatives.

Most importantly, Singapore has suggested using domestic legislation to override the MAP process in treaties as well as introducing overly comprehensive documentation that has no relevance to the domestic entity and its intercompany transactions or transfer pricing methodologies.

This initiative by IRAS is indicative of a parade with an OECD banner, although each member has  a different drummer and leader with distinct initiatives and its concept for application of the “arm’s-length principle” to determine its fiscal fair share of tax to be collected from multinationals that will be determined prior to official OECD guidelines.  It is imperative that all interested parties follow this initiative by Singapore, in addition to correlative initiatives by other countries.

 

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OECD / UN, Transfer Pricing

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MAP Vision: Forum on Tax Administration

The Forum on Tax Administration (FTA), representing heads of tax administrations from 38 countries, concluded their 9th meeting on 24 October, 2014.  The meeting represented attendance by over 130 delegations, including representatives from the African Tax Administration Forum (ATAF), Inter-American Center of Tax Administrations (CIAR), Centre de Rencontre des Administrations Fiscales (CREDAF), International Monetary Fund (IMF) and the Intra-European Organisation of Tax Administrations (IOTA).  The meeting included strategic visions for the Mutual Agreement Procedure (MAP) and Co-operative Compliance programs.

Links to the meeting summary and MAP vision are included for reference:

Click to access fta-2014-communique.pdf

Click to access map-strategic-plan.pdf

The following actions were agreed:

  • Enhanced cooperation strategy, based on existing legal instruments.
  • Created a new international tax platform, Joint International Tax Shelter Information and Collaboration (JITSIC Network) to focus on tax avoidance.
  • Implement the new standard on automatic exchange of information while protecting taxpayer confidentiality.
  • Improve practical operation of Mutual Agreement Procedure (MAP) to address double tax issues more quickly and efficiently, integrated with the OECD BEPS action item.  Competent authorities of all member countries are “encouraged” to actively participate in this initiative.
  • Promote a voluntary compliance structure.
  • Develop principles on Co-operative Compliance arrangements that form an integral part of effective tax control frameworks.

MAP Strategic Plan summary – “Statement of Vision and Commitment”

  1. Collaboration of the FTA MAP Forum with other multilateral bodies, including OECD’s Working Party 1’s Focus Group, to further its goals.
  2. Participating Competent Authorities (CAs) commit to the stated goals and be accountable thereto.
  3. Allocation of adequate staffing levels and resources to meet CAs working demands.
  4. Adequate training programs and personnel practices.
  5. FTA MAP Forum’s engagement to address resource challenges.
  6. Empowerment of CAs to effect agreements in accordance with principles in the respective tax conventions.
  7. Absence of undue influence by administrative policies, practices or goals.
  8. Support resolution of MAP cases in accordance with multilateral principles, avoiding efforts such as maximizing revenue collection.
  9. Adoption of principle based and mutual trust principles.
  10. Adopt Best Practices in the pursuit of new initiatives to streamline and enhance processes to expedite MAP resolution.
  11. Sharing MAP Best Practices among FTA MAP participants.
  12. New MAP processes to elevate difficult cases.
  13. Enhance taxpayer’s involvement in case resolution, including bilateral/multilateral meetings and sharing case developments.
  14. Seek ways to avoid MAP cases, including APAs, joint audits, “roll-forward” adjustments and other techniques.
  15. Use multilateral MAP procedures.
  16. Adopt agreements for issue consistency.
  17. Avoidance of MAP manipulation by auditors.
  18. Deliver training on double taxation and CA processes via a “Global Awareness Training Module.”

The above meeting commitments and objectives are welcome as tax controversies increase and MAP procedures have seeming lost the elements of  timeliness, cost-effective resolution, avoidance of double taxation, transparency and efficiency.

It is hopeful that most tax administrations endorse, and commit to, the above MAP framework in an effort to achieve Best Practices for a win–win opportunity.

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OECD / UN

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BEPS Action Plan 5: Harmful tax practices & transparency focus

Loyens & Loeff provides a comprehensive and concise summary of the focus for the OECD BEPS Action 5, Countering Harmful Tax Practices.  One of the priorities for this action is to improve transparency, with the EU Directive on Cooperation as a possible tool to carry out this objective.  The Council Directive on administrative cooperation is highlighted to draw attention to its possible role in the OECD BEPS drama.  An excerpt from their summary, and a link to their article, are provided for reference:

“Another priority under Action 5 is to improve transparency, including compulsory spontaneous exchange on rulings related to preferential regimes. To that extent the FHTP has put together a framework that describes in which situations, which information on which rulings should be exchanged between which countries. The Report mentions that the information exchange may take place on the basis of existing legal instruments, such as bilateral information exchange instruments, the Convention on Mutual Administrative Assistance in Tax Matters and the EU Directive on cooperation in the field of taxation. However, it remains unclear on what legal basis countries would have the obligation to exchange this specific information and how confidentiality can be guaranteed. Furthermore, it can be expected that such obligation may conflict with domestic legal requirements. The Report is also silent on how this should be handled.”

http://www.loyensloeff.com/nl-NL/Documents/Action%205%20–%20Countering%20Harmful%20Tax%20Practices%20More%20Effectively.pdf?_cldee=ZXZlbnRzQGxveWVuc2xvZWZmLmNvbQ%3D%3D&urlid=5

Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation, is applicable as of 1 January 2013 and is repealing the Directive 77/799/EES and lays down clearer and more precise rules governing administrative cooperation, in order to establish a wider scope of administrative cooperation between Member States.

The opportunity for OECD to successfully carry out is Action Plans relies on a legal instrument that provides automatic and timely implementation by the relevant countries.  A forthcoming multilateral instrument may also be a possible tool to accomplish its objective.  It is critical to monitor the implementation of this objective, as countries may comply completely, partially or not at all.  Therein lies the complexity.

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OECD / UN

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