Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD’ Category

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.

 

 

 

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OECD

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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:

Click to access guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

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OECD update

OECD has released discussion drafts on Action 7, attribution of profit to permanent establishments (PEs) and Actions 8-10 (profit splits).

It also requested public review of the document containing conforming changes to Chapter IX (business restructurings) of the OECD Transfer Pricing Guidelines (TPG).

The PE Discussion Draft is not restricted to issues related to PEs that will result from the changes made by the Action 7 Final Report, but also takes into account the results of the work on other parts of the BEPS Action Plan dealing with transfer pricing, in particular the work related to intangibles, risk and capital.  This factor is especially important if countries do not adopt the new Action 5 PE Guidelines in a bilateral tax treaty or via the pending multilateral instrument.  Thus, this section will be all-encompassing and important to understand the drivers, such as key people functions, behind this issue.

The profit split guidance is indicia of a trend for some governments to apply this standard, albeit not from a pure economic/technical perspective.  Therefore, this complex guidance will enhance knowledge of those being asked the question from tax authorities, as well as in developing transfer pricing guidance.

EY’s Global Tax Alert describes these developments in greater detail.

Click to access 2016G_02042-161Gbl_OECD%20releases%20drafts%20on%20profit%20splits,%20attribution%20of%20profits%20to%20PEs%20and%20TPG%20business%20restructuring.pdf

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US: Country-by-country (CbC) reporting

The US administration has released final regulations on its CbC reporting requirements.  This guidance provides voluntary filing for a 2016 calendar year US MNE, whereas 2017 is the required reporting year, due in 2018.  The OECD has also issued guidance to provide impetus for countries to accept voluntary filings by US MNE’s with IRS, rather than rely solely on its legislation for 2016.  However, this premise should be carefully reviewed, as countries have already enacted legislation and may not wish to change it.

Additionally, the filing period for a US MNE is Sept. 15th for a calendar year taxpayer, accelerating the Dec. 31st date proposed by the OECD.

This guidance will have widespread impact and contains many clarifications that should be  understood prior to collecting data.

Click to access 2016US_01933-161US_Final%20US%20CbC%20reporting%20regulations%20analyzed%20in%20depth.pdf

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OECD, Tax Risk Management

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US: International update

EY’s Global Tax Alert highlights some significant areas of proposed reform:

  • Section 385 debt/equity regulations proposed for Labor Day issuance, noting there is alot of uncertainty until then based on the Proposed Regulations, including the impact on physical and/or notional cash pools.
  • US House tax reform blueprint to be released this month.
  • Country-by-country (CbC) voluntary reporting is being acknowledged as a gap and problematic for US based MNE’s, thus one US CbC global report is not anticipated to be the result, requiring multiple CbC reporting required by relevant countries.  For countries that have agreed to accept voluntary filing, it would be beneficial to provide a simple public chart by the administration for taxpayer access.

Click to access 2016G_01361-161Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%203%20June%202016.pdf

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OECD Multilateral Instrument: comments due

The OECD has released its draft of details for the impending Multilateral Instrument in alignment with BEPS Action 15, copied herein, with my bold accents highlighted for reference.  Comments are due 30 June 2016, thereby necessitating quick actions to review and respond.

This instrument will be a pivotal tool for many years to come, transforming the interpretation of tax treaties and further developing the intent of the BEPS Actions.  Thus, it will be important to understand such trends for future compliance and planning complexities.  

Development of a Multilateral Instrument to Implement
the Tax Treaty related BEPS Measures

31 May – 30 June 2016

REQUEST FOR INPUT ON THE DEVELOPMENT OF A MULTILATERAL INSTRUMENT
TO IMPLEMENT THE TAX TREATY-RELATED BEPS MEASURES

1. Background
1. The OECD/G20 Base Erosion and Profit Shifting Project produced a number of recommendations that would be implemented through amendments to bilateral tax treaties. If undertaken on a treaty-by-treaty basis, the sheer number of treaties in effect would make such a process very lengthy. Recognising the need for an efficient and effective mechanism to implement the tax-treaty related measures resulting from the BEPS Project, Action 15 of the BEPS Action Plan called for the development of a multilateral instrument.
2. Drawing on the expertise of public international law and tax experts, the report “Developing a Multilateral Instrument to Modify Bilateral Tax Treaties” analysed the possibility of developing a multilateral instrument in order to allow countries to swiftly amend their tax treaties to implement the tax treaty-related BEPS recommendations. It concludes that such a multilateral instrument is not only feasible but also desirable, and that negotiations for the instrument should be convened quickly.
3. Based on this report, an Ad Hoc Group was established on 27 May 2015 with the objective of developing a multilateral instrument to modify existing bilateral tax treaties in order to swiftly implement the tax treaty measures developed in the course of the OECD-G20 BEPS Project. The Ad Hoc Group now includes 96 countries all participating on an equal footing, as well as a number of non-State jurisdictions and international organisations participating as Observers. The purpose of the multilateral instrument is to modify existing tax treaties to implement the tax treaty measures developed through the BEPS Project. As a result, with the exception of the development of a MAP arbitration provision (as discussed in section 2 below), the mandate of the Ad Hoc Group does not include changing the substance of the BEPS outputs or creating new measures that were not developed during the BEPS Project.
4. The Group began its work on 27 May 2015, and aims to conclude its work and open the multilateral instrument for signature by 31 December 2016. Development of the multilateral instrument is currently in progress. As with other bilateral and multilateral treaty negotiations, the draft text of the multilateral instrument is the subject of intergovernmental discussions in a confidential setting. Accordingly, the consultation has been organised around certain key technical issues and questions relating to the development of the instrument on which public input would be useful. Examples of the technical issues and questions on which input would be useful are outlined in sections 3 and 4 of this document. Comments should be focused solely on technical issues of implementation and on issues related to the development of a MAP arbitration provision, rather than on the scope of the provisions to be covered in the multilateral instrument or on the substance of the underlying BEPS outputs.
5. Comments and input should be submitted by 30 June 2016 at the latest, and should be sent by email to multilateralinstrument@oecd.org in Word format (in order to facilitate their distribution to government officials). Please note that all comments received will be made publicly available. Comments submitted in the name of a collective grouping or coalition, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting. Persons and organisations who submit comments on this document are invited to indicate whether they wish to speak in support of their comments at a public consultation meeting that is scheduled to be held in Paris at the OECD Conference Centre on 7 July 2016 beginning at 10.00 am.
6. This consultation meeting will be open to the public and the press. To request to attend the public consultation, please click here [LINK] and follow the instructions. Due to space limitations, priority will be given to persons and organisations who register first and we reserve the right to limit the number of participants from the same organisations. This consultation meeting will also be broadcast live on the internet and can be accessed on line. No advance registration will be required to access the live broadcast.
2. The multilateral instrument
7. The multilateral instrument will modify existing bilateral tax treaties in order to swiftly implement the tax treaty measures developed in the course of the OECD-G20 BEPS Project. The provisions to be implemented include in particular:
The treaty provisions developed under Action 2 of the BEPS Project (Neutralising the Effects of Hybrid Mismatch Arrangements), including (1) the revision of Article 1 (Persons Covered) of the OECD Model Tax Convention to address fiscally transparent entities, and (2) the measures to address issues with the application of the exemption method to relieve double taxation.
The provisions developed under Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances), including the minimum standard on treaty abuse, the introduction of a “saving clause” to make explicit that treaties do not restrict a State’s right to tax its own residents, and the specific anti-abuse rules related to (1) certain dividend transfer transactions; (2) transactions involving immovable property holding companies; (3) situations of dual-resident entities; and (4) treaty shopping using third-country PEs.
Provisions developed under Action 7 (Preventing the Artificial Avoidance of PE Status), including (1) measures to address commissionnaire arrangements and similar strategies; (2) modifications the specific activity exemptions under Article 5(4) of the OECD Model and the addition of an anti-fragmentation rule; and (3) measures to address the splitting-up of contracts to abuse the exception in Article 5(3) of the OECD Model.
Measures included in the minimum standards and best practices produced under Action 14 (Making Dispute Resolution Mechanisms More Effective), including the changes to paragraphs 1 through 3 of Article 25 of the OECD Model, as well as the inclusion of paragraph 2 of Article 9 of the OECD Model.

8. In addition to the implementation of the measures described above, a number of countries declared their commitment to provide for mandatory binding MAP arbitration as a mechanism to guarantee that treaty-related disputes will be resolved within a specified time frame. An optional provision on mandatory binding MAP arbitration is being developed as part of the negotiation of the multilateral instrument. The
3. Technical Issues Arising from Development of the Multilateral Instrument
9. A number of technical issues arise from developing a multilateral instrument to modify bilateral tax treaties. These include, for example, issues related to:
The relationship between the provisions of the multilateral instrument and the existing tax treaty network. Existing tax treaties vary widely from both model tax treaties and from each other. As a result, the multilateral instrument must be able to modify existing tax treaties effectively, either by adding a new provision where no provision exists or by modifying or superseding existing provisions. This can be done by including “compatibility clauses” that describe in detail under what circumstances the new provision is intended to be added to or replace the provisions of an existing tax treaty.
Ensuring consistent application and interpretation. The tax treaty-related BEPS outputs include agreed Commentary to facilitate their interpretation. Ensuring that this Commentary will be used to interpret the provision of the multilateral instrument will be important. In addition, because the multilateral instrument must modify a large network of existing treaties, it cannot provide the level of detail that a bilateral protocol can. The multilateral instrument may therefore need to be accompanied by tools, such as an explanatory statement or commentary, to ensure consistent application of its provisions to diverse bilateral tax treaties. The production of consolidated versions of the underlying bilateral tax treaties is also being considered.
Modifying bilateral treaties in multiple authentic languages. The multilateral instrument is being negotiated in English and French, and is expected to be concluded in only those two authentic languages, but will modify bilateral tax treaties concluded in many authentic languages. It will be important to ensure consistent application to those bilateral treaties despite differences of language.

4. Request for input
10. Comments are requested on the technical issues that may arise from implementing the treaty-related BEPS measures in the context of the network of existing bilateral tax treaties. In particular, comments are requested with respect to:
Technical issues that should be taken into account in adapting the BEPS measures to modify or supersede existing provisions of bilateral tax treaties that may vary from the OECD model, including:
Existing provision or types of provisions that serve the same purpose as the BEPS measures and that would need to be replaced
Existing provisions or types of provisions that are similar to BEPS measures but that would need to be retained
The approach to be taken in developing the optional provision on mandatory binding MAP arbitration, taking into account that it would need to serve the needs of the countries that have already committed to implement mandatory binding arbitration, as well as countries that are considering committing in the future.
The types of guidance and practical tools that would be most useful to taxpayers in understanding the application of the multilateral instrument to existing tax treaties.
Mechanisms that could be used to ensure consistent application and interpretation of the provisions of the multilateral instrument.

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EU: CbC marches on

EY’s Global Tax Alert, attached for reference, provides details on the continuing momentum of the country-by-country (CbC) reporting rules in the EU. These rules will certainly be applied by some EU countries in 2016, thus US and other non-EU based multinationals should start to seriously consider options for separate and/or surrogate entity filings in EU and other jurisdictions for the 2016 tax year.

Note, it is likely the continuing transparency momentum will continue and likely to obligate multinationals to more disclosures going forward. Thus, it is imperative the key stakeholders are aligned currently and ongoing.

Global Tax Alert | 25 May 2016
ECOFIN formally adopts directive on country-by-country reporting in the EU
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On 25 May 2016, the Economic and Financial Affairs Council of the European Union (ECOFIN) which is made up of the Finance Ministers of all European Union (EU) Member States unanimously voted in favor of the amendments to the EU directive on exchange of information (the Directive). The revision, that will implement the recommendations of Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 on country-by-country reporting, is one of the elements of the European Commission’s Anti-Tax Avoidance package from January 2016.2 According to the ECOFIN, “the principal aim of the directive is to prevent multinationals from exploiting the technicalities of the tax system, or mismatches between different tax systems, in order to reduce of avoid their tax liabilities.”

The Directive requires multinationals to report information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees on a country-by-country basis. This information must be reported for fiscal years starting on or after 1 January 2016, to the tax authorities of the Member State where the group’s ultimate parent entity (UPE) is tax resident. If the UPE is not resident in the EU, the report would have to be filed through a surrogate parent (EU or non-EU based) or the EU based subsidiaries. The Directive would give Member States the option to either require secondary filing for fiscal years starting on or after 1 January 2016 or to defer that obligation to financial years starting on or after 1 January 2017.

The Member States adopted the amendments without discussion, following the agreement reached at the previous ECOFIN meeting held on 8 March 2016. Thus, the details of the Directive remained virtually unchanged to what had previously been reported.3

Next steps
The Directive will require EU Member States to implement a country-by-country reporting obligation in their national legislation in line with the requirements of the Directive within 12 months from the date of its entry into force.

The first reports will have to be filed within 12 months from the end of the fiscal year to which they relate. Member States will have to exchange them within 3 months thereafter, except for the reports relating to fiscal years starting on or after 1 January 2016 where the term would be 18 months after the end of the fiscal year. The European Commission will adopt the necessary practical arrangements for upgrading the existing common platform for automatic exchange in the EU to fit the needs of the new requirements.

Endnotes

1. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

2. See EY Global Tax Alert, European Commission releases anti-tax avoidance package designed to provide uniform implementation of BEPS measures and minimum standards across Member States, dated 28 January 2016.

3. See EY Global Tax Alert, EU Council publishes updated Draft Directive on implementation of country-by-country reporting, dated 23 March 2016.

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Denmark’s TP documentation: OECD+

Denmark has new transfer pricing documentation rules in place, effective for tax year 2016, while country-by-country (CbC) reporting for non-Danish HQ companies is delayed until tax year 2017.

The local transfer pricing file is to include a copy of intercompany arrangements and details of IP re: “DEMPE” functions including the Development, Enhancement, Maintenance, Protection and Exploitation attributes.

The additional details extend beyond the OECD Guidelines and will lead to further complexity re: the ability to efficiently provide globally consistent transfer pricing documentation around the world. This may be followed by other countries as they follow the particular leader at the team, and thus EY”s Alert should be reviewed by interested tax practitioners.

Click to access 2016G_01098-161Gbl_TP_DK%20issues%20stricter%20requirements%20for%20TP%20documentation.pdf

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OECD, Transfer Pricing

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Austria’s CbC / TP rules

The Austrian Ministry of Finance has published its new country-by-country (CbC) and transfer pricing (TP) draft legislative rules, detailed in the referenced EY Global Tax Alert.

The Multilateral Competent Authority Agreement on the Exchange of Country by Country Reports is now included in Austrian domestic law. Moreover, the legal requirements stipulated in the European Directive regarding mandatory automatic exchange of information in the field of taxation (2011/16/EU) is now national law.

The CbC and TP documentation are effective for the 2016 taxable year. TP documentation can be requested by the tax authorities within 30 days after filing the corporate income tax return. CBC information is required, dependent on the size of the organisation, and is subject to significant penalties for late filing/inaccurate information. Information on surrogate entity filing is also within the draft guidance.

Notification of the CbC filer is required by the end of this year, as in several other countries, requiring all US based multinationals to monitor the EU pending legislation and consider alternatives for filing if the US Final Regulations do not obligate CbC filing for the 2016 tax year.

The BEPS/CbC/transparency impetus is still growing, with no signs of slowing down. Demands for additional transparency are mounting, while the complexity of reporting, and filing, the respective reports is significantly increasing.

Click to access 2016G_01054-161Gbl_TP_Austria%20publishes%20draft%20Transfer%20Pricing%20Documentation%20Law.pdf

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UK interest consultation

The UK government has updated its October 2015 interest expense consultation paper as of 12 May 2016, and is seeking comments by 4 August, 2016.  The paper outlines the intent of OECD’s BEPS interest guidelines and provides questions for further consideration of limitations re: interest expense going forward.

The UK previously legislated hybrid mismatch arrangements that will be effective 1/1/2017, and the new rules are not expected to be effective until April 2017.  In the interim, taxpayers will not have certainty re: current arrangements and new rules going forward.

Although following the footsteps of the OECD, UK is not afraid to take an aggressive stance as evidenced by its Diverted Profits Tax legislation, intention to adopt BEPS Actions 8-10 re: transfer pricing at an early stage and inserting risk rules in its Manual with a UK tax strategy governance.  This paper is intended to be a future roadmap for UK tax, thus it should be read by all interested parties.

A reference to the paper is provided for reference, and a summary of the questions.

https://www.gov.uk/government/consultations/tax-deductibility-of-corporate-interest-expense/tax-deductibility-of-corporate-interest-expense-consultation

  1. What are your views on when a general interest restriction should be introduced in the UK?
  2. Should an interest restriction only apply to multinational groups or should it also be applied to domestic groups and stand-alone companies?
  3. Are there any other amounts which should be included or excluded in the definition of interest?
  4. How could the rules identify the foreign exchange gains and losses to be included?
  5. If the rules operate at the UK sub-group level, how should any restriction be allocated to individual companies?
  6. Are there items which should be excluded from both the definition of interest and from “tax EBITDA”, as referred to in the section on a fixed ratio rule?
  7. What do you consider would be an appropriate percentage for a fixed ratio rule within the proposed corridor of 10% to 30% bearing in mind the recommended linkages to some of the optional rules described below?
  8. What are your views on including in any new rules an option for businesses to use a group ratio rule in addition to a fixed ratio rule?
  9. What form of de minimis threshold would be most effective at minimising the compliance burden without introducing discrimination or undermining the effectiveness of any rules?
  10. What level should the de minimis threshold be set at, balancing fairness, BEPS risks and compliance burdens?
  11. Should SMEs as defined by the EU criteria be exempted from the rules, in addition or as an alternative to a de minimis threshold?
  12. What is the best way of ensuring that the rules remain effective and proportionate even when earnings are volatile?
  13. In what situations would businesses choose to use the PBP exclusion? How would this differ if no group ratio rule was implemented?
  14. Do you have any suggestions regarding the design of a PBP exclusion, taking account of the OECD recommendations?
  15. Do you have any views on the specific risks that might sensibly be dealt with through targeted rules?
  16. Do you have any suggestions as to how to address BEPS issues involving interest raised by the banking and insurance sectors?
  17. What are the types of arrangement for which transitional rules would be particularly necessary to prevent any rules having unfair or unintended consequences, and what scope would these rules need to be effective?
  18. To what extent do you believe that the new general interest restriction rule should replace existing rules?

 

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OECD, Transfer Pricing

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BEPS update

EY’s Global Tax Alert provides the latest BEPS developments for the OECD, EU, Israel, Netherlands, Portugal, South Africa, Sweden, Switzerland, Uruguay and Chile.  Brief extracts are provided, with Best Practice comments, with the Tax Alert provided for reference:

Click to access 2016G_00742-161Gbl_The%20Latest%20on%20BEPS%20–%2025%20April%202016.pdf

OECD:

  • Bermuda signed the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (CbC MCAA), becoming the 33rd signatory of this instrument.
  • On 19 April 2016, the OECD released a communiqué announcing that together with the International Monetary Fund (IMF), the United Nations and the World Bank (collectively referred to as the “International Organizations”) have joined efforts to boost global cooperation in tax matters. The joint initiative, named “Platform for Collaboration on Tax” or simply “the Platform,” aims to produce concrete joint outputs and deliverables under an agreed work plan, strengthen dynamic interactions between standard setting, capacity building and technical assistance, and share information on activities more systematically.

The Platform will work on:

Developing appropriate tools for developing countries
Supporting developing countries to participate in the implementation of BEPS
Building effective tax systems and building awareness
Providing a venue for information sharing

The first of the toolkits addresses tax incentives and was issued in November 2015. The remaining seven toolkits will address the indirect transfer of assets (September 2016), transfer pricing comparability (October 2016), transfer pricing documentation (October 2016), tax treaty negotiation capacity (December 2016), base eroding payments (June 2017), supply chain management (March 2018), and BEPS risk assessment (March 2018).

The proposed amendments to the Accounting Directive would require large multinational companies operating in the European Union to draw up and publically disclose reports on income tax information, including a breakdown of profits, revenues, taxes and employees.  Note, this is an Accounting Directive that provides another legislative approach to implement transparency measures in addition to proposed EU Directives and/or separate country guidelines.  This is also another layer of complexity in reporting by multinational organizations, for which other countries may also adopt as part of statutory reporting that is public information.  This report will also dictate a Q&A proactive approach by organisations to address perceived gaps and comments by the public.  Such reporting, when finalized, should also be summarized to the Board of Directors as an alignment of their responsibilities.

Israel:

The concept of “significant digital presence” has been communicated in a circular to broaden the tax net for internet activities applicable for corporate income tax and VAT purposes.  Other countries have been, and will continue, embracing this subjective area of tax for additional revenue, albeit with subjectivity and avenues for additional disputes.

Portugal & South Africa:
Draft legislation adopting country-by-country (CbC) reporting has been published.  To the extent any US-based multinational thinks additional time is provided due to the potential 1-year lag for US CbC reporting, such legislation demanding obligatory reporting in the parent jurisdiction should reassess future internal reporting timelines and processes.

Switzerland:

A consultation process and draft legislation of CbC reporting for the 2018 tax year has commenced, with voluntary reporting for the 2016 and 2017 tax years.

Chile-Uruguay:

Chile and Uruguay signed a Double Tax Treaty that embodies several BEPS concepts, such as permanent establishment (PE) and hybrid mismatch arrangements.  Note, the new BEPS incentivized treaties are currently legislated in several countries, although the related BEPS guidelines may still not be finalized.  Accordingly, it is relevant to cross-check countries with significant transactions with the signature of new treaties.

 

 

 

 

 

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OECD

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OECD’s new MAP Peer Reviews: will it work?

As the MAP process is acknowledged to be inefficient, ineffective and time-consuming, the OECD will establish a peer review process to monitor performance of countries’ in resolving Mutual Agreement Procedure (MAP) cases.  The reviews should be ready in 2017.

Paascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, has stated: “I don’t know how successful the (BEPS) project will be in the long term, but what is for sure is that we have fed the political beast – the G-20 leaders and finance ministers – and they still have a lot of appetite.  They are asking us for more.  They need some more blood.”

The OECD’s Working Party 1 and the Forum on Tax Administration have started the peer review process under BEPS Action 14.  Reviews will consist of checking number of cases, time needed to resolve, etc.

OECD believes this is a game-changer due to new accountability.  However, without full transparency into what countries are doing, or not doing, how effective will the new peer review process be?  The level of transparency should be commensurate with the transparency demanded from multinationals.  It is hopeful this process will be a revolution for MAP, although many practitioners will be adopting a wait-and-see attitude.  

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ECOFIN’s draft directive re: CbC

The EU Economic and Financial Affairs Council (ECOFIN) has drafted a directive, subject to European Parliament’s opinion, for EU consistency of country-by-country (CbC) reporting.

The proposed EU legal instrument provides for:

  • 2016 CbC reporting to the Member State where it is resident
  • Optional provision for non-EU parent companies; 2016 reporting is optional via its EU subsidiaries and such “secondary reporting” will be mandatory for the 2017 tax year.   
  • Automatic exchange of CbC reports between EU Member States

http://www.consilium.europa.eu/en/press/press-releases/2016/03/08-corporate-tax-avoidance/

This surprising draft directive will alleviate some concerns by US headquartered MNE’s (as 2016 CbC reports will probably not be required), although only within the EU.  To the extent non-EU Member States have CbC reporting obligations for the 2016 tax year, a Surrogate Entity or local filing may still be required for US MNE’s.

The EU is still recognized as a leader in pushing forward BEPS Action items, and this directive would provide much-needed consistency among Member States for CbC reporting.  This development is important to monitor going forward, as well as observing other non-EU countries for a follow-the-leader approach.

 

 

 

 

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OECD

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OECD: Inclusive / transparent objectives

The OECD’s Task Force on Tax and Development met in Paris, France, on 1 March 2016, to discuss the new inclusive framework proposed by the OECD for the global implementation of the BEPS project and to support developing countries on their domestic resource mobilisation efforts. Over 180 participants attended.

Co-Chaired by South Africa and the Netherlands, the Task Force is a multi-stakeholder advisory group set up to help to improve the enabling environment for developing countries to collect taxes fairly and effectively.

Recognition and participation in the Tax Inspectors Without Borders partnership was also an agenda item, including present (and future) toolkits for developing countries as a practical resource to implement BEPS Actions.

Participants also highlighted the need for the documentation toolkit to provide clear guidance on how the Country-by-Country Report should be used for risk assessment purposes.

The Task Force will endeavor to take the following steps, commencing with the first meeting in Kyoto Japan, 30 June- 1 July 2016.

  • Support the development of 7 further toolkits to translate the BEPS deliverables into user friendly guidance for developing countries by 2018.
  • Starting now, fully endorse the ATAF/EC/OECD/WBG transfer pricing capacity building support to address the full range of BEPS challenges in developing countries.
  • Support the Tax Inspectors Without Borders programme project to increase the number of TIWB deployment programmes to 20 by the end of 2017 and 30 by the end of 2018.

A copy of the press release is provided for reference:

Click to access co-chairs-statement-task-force-tax-development-march-2016.pdf

Best Practices – To address mutual transparency, OECD and the member countries should be willing to share the contents, and objectives, of the various toolkits under preparation to better understand the risk process and actions by tax administrations around the world. 

 

 

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OECD

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OECD’s MAP: Timeline & Best Practices

As the OECD renews its efforts to improve the process of dispute resolution, many practitioners, tax authorities and advisors have concluded that the current Mutual Agreement Procedure (MAP) process is slow, inefficient and not effective in resolving tax disputes and avoiding double taxation.

However, it is worthwhile to start with a suggested timeline and Best Practices from OECD’s Manual on Effective Mutual Agreement Procedures (MEMAP) published in 2007.  Annex 1 and 2 provide a suggested timeline and 25 Best Practices (summarized below) that are each discussed in MEMAP.  

To the extent these Best Practices and recommendations have not been implemented by countries around the world, one questions what will be the difference this time around?  It seems that the OECD has tried to provide remedies, although many countries do not view these recommendations as a priority or transparency objective to resolve disputes effectively.  

While the effectiveness of dispute resolution mechanisms continue, it would be prudent to  provide the tax authorities, including competent authorities, this Manual as a reinforcement of Best Practices and timelines that should be proactively followed. 

A link to the Manual is provided for reference:

Click to access 38061910.pdf

Appendix 2: Best Practices:

  1. Resolving and publishing issues of interpretation or application
  2. Robust use of Article 25(3) power to relieve double taxation
  3. Principled approach to resolution of cases
  4. Transparency and simplicity of procedures for accessing and using the MAP
  5. Providing complete, accurate, and timely information to the competent authorities
  6. Allowing electronic submissions
  7. Allowing early resolution of cases
  8. Earlier notification of a potential case
  9. Liberal interpretation of time limits and advising of treaty rights
  10. Avoiding exclusion from MAP relief due to late adjustments or late notification
  11. Consideration of MAP assistance for cases described as “tax avoidance”
  12. Countries eliminate or minimize “exceptions” to MAP
  13. Taxpayer presentations to competent authorities
  14. Cooperation and transparency
  15. Face-to-face meetings between competent authorities
  16. Bilateral process improvements
  17. Decision summaries
  18. Recommendation for MAP cases beyond two years
  19. Avoid blocking MAP access via audit settlements or unilateral APAs
  20. Interest relief
  21. Suspension of collections during MAP
  22. Readily available access to a competent authority
  23. Independence and resources of a competent authority
  24. Performance indicators for the competent authority function and staff
  25. Implementing and promoting ACAP and bilateral APA programs

 

 

 

 

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OECD

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