EY’s Global Tax Alert provides a succinct summary of the latest OECD and BEPS developments, including:
- G20 and exchange of information upon request standard
- Multilateral instrument, 68 countries moving forward
- Peer reviews on BEPS 4 minimum standards:
- Action 5, harmful tax practices
- Action 6, treaty abuse
- Action 13, country-by-country reporting (CbCR)
- Action 14, dispute resolution
- Action 5 peer reviews of preferential tax regimes
- Action 13, CbCR exchange relationships; important for US MNE’s and similar jurisdictions without obligatory 2016 reporting
- MAP peer reviews
- Discussion drafts on profit splits and attribution of profits re: PE’s; comment period to Sept. 15, 2017
- Branch mismatch forthcoming revisions
- Common reporting standard
- Digital taxation
OECD is still very busy, with a plethora of BEPS follow-up and other activities, although there seems to be continuing flexibility to gain collaboration that will also lead to added complexity and disputes.
The European Commission has proposed a new Directive calling for additional transparency into cross-border arrangements. Initially, this proposal has the liability for such reporting borne by the advisor, however it may apparently be also transferred to the taxpayer. The effective date would be 1//1/2019 with recurring reporting by the EU Member States on a quarterly basis thereafter.
In a common theme when the “transparency’ envelope is opened, the relevant basket of potential transactions is widened from the most aggressive to ordinary tax-planning transactions. Hopefully, if the Directive is adopted, the Member States will use discretion and ask questions about such transactions prior to drawing intuitive conclusions and assessing taxpayers before having all facts and transactional history for consideration.
The potential transactions include arrangements:
- To which a confidentiality clause is attached
- Where the fee is fixed by reference to the amount of the tax advantage derived or whether a tax advantage is actually derived
- That involve standardized documentation which does not need to be tailored for implementation
- Which use losses to reduce tax liability
- Which convert income into capital or other categories of revenue which are taxed at a lower level
- Which include circular transactions resulting in the round-tripping of funds
- Which include deductible cross-border payments which are, for a list of reasons, not fully taxable where received (e.g., recipient is not resident anywhere, zero or low tax rate, full or partial tax exemption, preferential tax regime, hybrid mismatch)
- Where the same asset is subject to depreciation in more than one jurisdiction
- Where more than one taxpayer can claim relief from double taxation in respect of the same item of income in different jurisdictions
- Where there is a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved
- Which circumvent EU legislation or arrangements on the automatic exchange of information (e.g., by using jurisdictions outside exchange of information arrangements, or types of income or entities not subject to exchange of information)
- Which do not conform to the “arms’ length principle” or to OECD transfer pricing guidelines
- Which fall within the scope of the automatic exchange of information on advance cross-border rulings but which are not reported or exchanged
The proposal will be submitted to the European Parliament for consideration; this additional layer of transparent information will also be viewed by other countries as potential tools to uncover similar arrangements. Several “arrangements” are also highly subjective, leading to additional transfer pricing disputes and increased double taxation.
EY’s Global Tax Alert provides additional details for this important proposal:
The OECD provides a comprehensive list of countries that have signed the new multilateral instrument (MLI).
Most importantly, each country’s position on the various positions with other countries can be viewed. While being transparent, this myriad of menu selections will produce an even more complex environment globally. The strive for collaboration is somewhat achieved, based on more than 60 countries executing this document. However, the goal of simplification can certainly be questioned.
OECD’s press release and a link to this list is provided for reference. All international tax practitioners should review this long-awaited document.
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:
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.
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.
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.