Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD’ Category

Intangibles: OECD’s discussion draft

OECD has issued its latest discussion draft on hard-to-value intangibles; comments are due by June 30, 2017.

OECD’s press release states:  The Final Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”) mandated the development of guidance on the implementation of the approach to pricing hard-to-value intangibles (“HTVI”) contained in Section D.4 of Chapter VI of the Transfer Pricing Guidelines.
This discussion draft, which does not yet represent a consensus position of the Committee on Fiscal Affairs or its subsidiary bodies, presents the principles that should underline the implementation of the approach to HTVI, provides examples illustrating the application of this approach, and addresses the interaction between the approach to HTVI and the mutual agreement procedure under an applicable treaty.

As intangibles are one of the most contested issues in transfer pricing, also fact specific with subjectivity, this discussion draft merits a review by all international tax practitioners to view the current thinking by the OECD, as well as a chance to provide comments in reaction.

EY’s Global Tax Alert and the Discussion Draft references are provided:

http://www.ey.com/Publication/vwLUAssets/OECD_releases_implementation_guidance_on_hard-to-value_intangibles/$FILE/2017G_03394-171Gbl_OECD%20releases%20implementation%20guidance%20on%20hard-to-value%20intangibles.pdf

http://www.oecd.org/tax/transfer-pricing/BEPS-implementation-guidance-on-hard-to-value-intangibles-discussion-draft.pdf

CbC: “Best Practices” to notify

As 2016 draws to a close, and 2016 country-by-reporting (CbC) obligations become effective for the 2016 tax year, Dec. 31, 2016 is an important filing deadline to file CbC “notifications” in many countries advising tax administrations which entity/ “surrogate entity” will be filing such report when it is due.

This deadline is significant for MNE’s with HQ’s in countries that do not require CbC reporting in 2016 (US, Switzerland, and others), with legislatively imposed fines/penalties for non-compliance.

Apart from various forms of guidance, there is not one place to gather such dynamic information.  Thus, every MNE should prepare a matrix of countries in which they conduct business operations (including dormant entities, etc.) with corresponding legislation from every country to ensure such deadlines are timely met.  Some countries prescribe forms for the notification, although these forms may not be currently printed or available.  Therefore, it is recommended to provide some written notification that should ensure no penalties are ultimately applicable.

EY’s Global Tax Alert provides information for Singapore’s recently announced 2016 CbC voluntary filing rules.

This topic will be dynamic, changing almost daily during the next week.  Therefore, prudent monitoring of new developments is suggested for this new reporting tool.

http://www.ey.com/Publication/vwLUAssets/Singapore_Tax_Authorities_accept_voluntary_filing_of_CbC_Reports_for_Singaporean_tax_resident_MNE_groups_for_FY_2016/$FILE/2016G_04534-161Gbl_SG%20TA%20accept%20voluntary%20filing%20of%20CbCR%20for%20SG%20tax%20resident%20MNE%20groups%20for%20FY%202016.pdf

Multilateral Convention of the OECD; Prime time

After a long waiting period, with many discussions as to its predicted content, the OECD’s Multilateral Convention pursuant to BEPS Action 15 is ready for prime time.  Links to EY’s Global Tax Alert, and OECD’s Explanatory Statement and Multilateral Convention are provided for reference.

The Multilateral Convention is very flexible as to what a country wants, or does not want, within its treaty related provisions to signify its alliance with BEPS Actions.

EY’s Global Tax Alert states: “The tax treaty related BEPS measures covered by the multilateral instrument include (elements of): (i) Action 2 on hybrid mismatch arrangements, (ii) Action 6 on treaty abuse, (iii) Action 7 on the artificial avoidance of the PE status; and (iv) Action 14 on dispute resolution. The substance of the tax treaty provisions relating to these actions was agreed under the final BEPS package released in October 2015. The multilateral instrument does not modify or add to the substance of these provisions. The instrument is solely focused on how to modify the provisions in bilateral or regional tax treaties in order to align these treaties with the BEPS measures.”

Due to the flexibility of the new Convention, this unilateral based process poses many questions as to the consistency of intent for the related BEPS Actions around the world.  It is certain that, in the short term, there will be considerable complexity and varying interpretations of what the Convention means.  Accordingly, the Explanatory Statement and Multilateral Convention are to be reviewed carefully to understand short and long-term trends in this new era of international tax.

http://www.ey.com/Publication/vwLUAssets/OECD_releases_multilateral_instrument_to_modify_bilateral_tax_treaties_under_BEPS_Action_15/$FILE/2016G_04025-161Gbl_OECD%20releases%20MI%20to%20modify%20bilateral%20tax%20treaties%20under%20BEPS%20Action%2015.pdf

http://www.oecd.org/tax/treaties/explanatory-statement-multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf

http://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf:

NL CBC notification: Thoughtful delay

The Dutch Secretary of Finance has thoughtfully issued a Decree, whereby the notification period for informing the tax administration of the Country-by-Country (CbC) report for tax year 2016 is delayed until Sept. 1, 2017.

it is intended to officially confirm that the Dutch tax authorities will accept CbC reports that have been filed in other jurisdictions on a voluntary basis (parent surrogate filing) in line with guidance issued by the Organisation for Economic Co-operation and Development (OECD)

The Dutch State Secretary of Finance expects that it may take until August 2017 to have clarity on the automatic exchange of information matching process for reporting fiscal years starting on or after 1 January 2016.

Hopefully, other countries will follow this practical approach, as it represents a win-win for taxpayers and the tax administration.  However, other countries still need to be reviewed, especially for US multinationals, to verify additional notifications required by Dec. 31, 2016.

http://www.ey.com/Publication/vwLUAssets/Dutch_Government_publishes_Decree_extending_deadline_for_filing_first_notifications_under_Country-by-Country_reporting_rules/$FILE/Dutch%20Gvt%20publishes%20Decree%20extending%20deadline%20for%20filing%20first%20notifications%20under%20CbC%20reporting%20rules.pdf

US: BEPS Action 5 sharing

 

The IRS has indicated its willingness to share unilateral Advance Pricing Agreement (APA) information to align with BEPS Action 5 re: transparency and substance.

As other jurisdictions have provided taxpayers to submit summary information that will be shared in such exchange, the IRS has not yet indicated such procedures.  Thus, it is advised that any multinational with such rulings attempt to obtain a copy of the information to be shared, prior to the automatic sharing process, to ensure its accuracy.

The EY Global Alert provides additional details of this new development.

Most importantly, any taxpayer with tax rulings should already be looking at the information that could be shared to address potential questions/issues by other tax authorities, especially if there are different transfer pricing arrangements in place.

http://www.ey.com/Publication/vwLUAssets/US_IRS_will_follow_BEPS_Action_5_recommendation_by_exchanging_summaries_of_unilateral_APAs_V2/$FILE/2016US_03632-161US_TP_US%20IRS%20will%20follow%20BEPS%20Action%205%20rec%20by%20exchanging%20summs%20of%20unilateral%20APAs.pdf

CbC timing: OECD’s intent fails

As MNE’s are preparing for the country-by-country (CbC) reporting in 2017 for the 2016 tax year, it is readily apparent that the OECD’s intent of Dec. 31, 2017 is readily being eroded by several countries.

For example, US has proposed reporting (obligatory for the 2017 tax year) as of Sept. 15 of the following year, aligned with timing for filing of the federal income tax return.

China has imposed a May 31 date, if a Cbc report is required, aligned with its tax return due date.

Other countries are choosing different dates for CbC reporting, as well as Master File and Local File reporting, that impose additional compliance and timing demands on all MNE’s, based on the earliest date chosen by a country in which it operates.

What does this mean?  Earlier preparation, compressed timelines, mismatching of Master File, Local File and CbC reports, notwithstanding its intended comprehensive alignment.

Additionally, all US MNE’s must now review rules to determine if a surrogate filing entity is required for the 2016 CbC report as the US report is not obligatory.  The stated filing entity must be communicated by this year-end, 2016, with varying penalty amounts applicable for non-reporting.

As a simple idea is turning into a tsunami of complexity, tax administrations will have to understand how such information is beneficial for transfer pricing risk analysis, as most people will concede that a CbC report has no direct relationship to transfer pricing.

 

 

 

OECD: CbC collaboration/(un)certainty

The OECD, in its June release of country-by-country (CbC) guidance, sets forth guidance of BEPS Action 13 re: parent-surrogate reporting that includes the US, Japan and tentatively Switzerland, for which there are no obligatory filing requirements for the calendar tax year 2016.

However, several countries have previously enacted legislation that may not literally accommodate such rules (i.e. voluntary filing to a parent surrogate).  To the extent there is this possibility, will the parent surrogate country indemnify such taxpayers for non-filing penalties, etc. imposed by another country for failing to file according to its specific legislation?  Alternatively, a detailed review of the specific legislation of all countries adopting CbC is in order.  Simplification of CbC filing is the intent of the OECD Guidelines, however additional assurance would be welcome by the parent surrogate countries to support this presumption.

The OECD guidance is attached for reference:

http://www.oecd.org/tax/exchange-of-tax-information/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

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