EY’s Global Tax Alert details several important global developments worth watching:
- Phase 2 US tax reform – individual taxes, what else?
- OECD’s first peer review reporting on BEPS Action 13: TP Documentation and County-by-Country (CbC) reporting (attached herein for reference)
- EU Directive on cross-border reportable arrangements, reporting to commence in 2020 although effective date will be June/July 2018.
The reportable arrangements are a must read for international tax colleagues to understand the impact of arrangements planned for currently that may become a transparent arrangement to be reported in the EU.
The OECD CbC report is also helpful to understand the trend that CbC reports will generate ongoing, and the viewpoint of the countries that administer this process.
The OECD BEPS Actions, including CbC reporting, significantly impact international tax compliance burdens and challenges going forward. Additionally, US tax reform still has experts deliberating their practical application, notwithstanding future legislation.
The 2016 draft of the UN TP Manual includes India’s latest expression of alignment, as well as differing views from the OECD BEPS Actions 8-10 and 13.
Accordingly, the Indian tax administration is of the view that the guidance flowing from the final report of the BEPS project on Actions 8-10 should be utilized by both the transfer pricing officers (TPOs) and taxpayers in situations of ambiguity in interpretation of the law. However, India has not endorsed the guidance in the BEPS report pertaining to low value adding intra group services under Action 10 and has not opted for the simplified approach. Further, India has endorsed the recommendations contained in the BEPS final report on Action 13, which supported the three-tiered documentation regime comprising a Local File, a Master File and a Country-by-Country Report and has already carried out legislative changes in its domestic law.
India is known for its creativity, non-technical aggressive positions, and the number of years required to appeal initial assessments. Some of these positions, currently in litigation and dispute, have been reiterated as a further stance in their hard line position on transfer pricing to enhance its economic fisc. Accordingly, interested international tax practitioners should be cognizant of these positions, as other countries will surely “look and see” if such positions could also benefit their economic fisc similarly.
EY’s Global Tax Alert is provided for reference.
Thirty-one countries have signed the OECD’s multilateral competent authority agreement (MCAA) for the automatic exchange of country-by-country (CbC) reports, excluding the U.S.
The signatory countries are:
- Costa Rica
- Czech Republic
- Slovak Republic
- South Africa
The position of the US, noticeably absent from the list, is to enter into bilateral agreements with appropriate countries that have safeguards and governance in place, as well as countries that have an income tax treaty or tax information exchange agreement in effect.
OECD BEPS Action 13 provided models for the recommended CbC reporting options; a multilateral agreement, a double tax convention model and a model based on a tax information exchange agreement.
It will be critical to monitor the development of the CbC exchange process, in addition to timing mismatches and the necessity to identify a surrogate country, with additional complexities to consider.
The EU Council has provided a Directive that would introduce legislation ensuring the EU maintains its leadership role in anti-BEPS recommendations, as well as providing good tax governance for the rest of the world. EY’s summary of the Directive is provided for reference:
- Automatic exchange of tax rulings would be effective 1/1/2017.
- Changes would be introduced for the EU Code of Conduct.
- EU anti-BEPS proposal to include the following BEPS Actions:
- 2: Hybrid mismatches
- 3: CFC rules
- 4: Interest limitations
- 6: General anti-abuse rule (noting its inclusion for the Royalty & Interest Directive, similar to the Parent-Subsidiary Directive)
- 7: PE status
- 13: Country-by-Country (CbC) reporting
- Common Corp. Tax Base (absent later consolidation phase) proposal to be introduced in 2016
The EU continues its pace to maintain its global lead in addressing anti-BEPS concerns, which will impact non-EU countries around the world. Thereby, it provides another set of rules that would be mandated to achieve EU conformity.
Denmark has published its requirements for country-by-country reporting (CbCR), effective for the 2016 tax year by ultimate Danish parent companies. The content of the report aligns with OECD BEPS Action 13, including the reporting date by the end of 2017.
There are notification requirements re: a “surrogate parent entity” for which the parent jurisdiction will be entering into exchange information agreements for CbCR.
Details are provided in EY’s Global Tax Alert:
The Dutch State Secretary of Finance has released a draft law that correlates to BEPS Action 13 for transfer pricing documentation and country-by-country (CbC) report.
The CbC report will not be required to be filed in the Netherlands if such report is filed with a jurisdiction that has an information exchange agreement with the Netherlands on such reports.
- The draft law states that a transfer pricing adjustment may not be based on the CbC report.
- The CbC report aligns with the BEPS Action 13 requirements.
- The Master and Local file re: transfer pricing documentation will be required contemporaneously with the filing of the tax return, with such information to be provided upon request.
- A criminal offense will take place, for the most serious cases, if the CbC reporting requirements are not satisfied.
The draft law should be reviewed by organisations with operations in the Netherlands, noting it follows the BEPS Action 13 proposal.
The contemporaneous requirement for the Master file and Local file should be met to avoid potential fines/penalties.