Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Action 4’

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?

 

BEPS: APAC Network update

The Asia-Pacific Regional Network on BEPS discussed the impact of BEPS on their region in its meeting on 12-13 February 2015, with over 50 senior tax officials from 21 jurisdictions and international organisations attending.  Attendees included the Asian Development Bank, IMF, US Agency for International Development (USAID) and the Study Group on Asian Tax Administration and Research (SGATAR).

Twelve direct participants in the BEPS project consist of Australia, Japan, Korea, New Zealand, China, India, Indonesia, Malaysia, Singapore, Bangladesh, Philippines and Vietnam.  The discussion summary is included for reference:

http://www.oecd.org/ctp/beps-regional-network-asia-co-chairs-summary-of-discussions.pdf

Discussion Summary:

  • Participants supported the cooperative and inclusive process for developing countries to support the OECD/G20 strategy.
  • All stakeholders, including MNE’s, should be engaged to address BEPS solutions.
  • Recognition of uncoordinated regional efforts addressing interest deductibility (Action 4), PE (Action 7), transfer pricing issues (Actions 8-10), and transfer pricing documentation (Action 13).
  • The introduction of toolkits, further support, and assistance is welcomed, including their participation in the OECD dialogue process.
  • Further guidelines on dispute resolution were requested by business and NGO representatives.
  • Future involvement will focus on additional engagement, participation and collaboration with various partners.
  • Next meeting is scheduled for 16-18 March 2015.

As the BEPS project proceeds to finalize its deliverables this year, the input of this organization and other interested parties will provide a limited window of opportunity to share views and practical suggestions to ensure consistency for taxpayers and tax administrations regionally and globally.  Accordingly, monitoring (including active participation in) future developments will be critical to form Best Practices for taxpayers and tax administrations.

Most importantly, it will be critical to ensure regional participants do not execute unitary legislation prior to release of the final OECD guidelines to ensure the BEPS process is successful.  The timing of such initiatives should also be a priority for the Asia-Pacific Network, its participants and other countries around the world. 

Related posts:

  1. OECD Tax Inspectors Without Borders (TIWB) and Toolkit: 30 January 2015
  2. Creation of task force and prior meeting of SGATAR: 1 December 2014
  3. OECD BEPS Strategy for Developing Countries: 13 November 2014

 

 

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