Proposed Regulations were issued for cloud computing and digital transactions; this is an especially important area re: sourcing of income, definitions, etc. especially in light of France and others looking to implement a digital services tax.
Publication 5188 was revised re: FATCA data reporting.
OECD released Peer 2 review reports re: re: BEPS Action 14 (dispute resolution). Interestingly, some US treaties include a MAP provision, although not all are consistent with the minimum standard.
Click to access 2019G_003793-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2016%20Aug%202019.pdf
The OECD has updates available with respect to Action 5 (Intangibles), Action 15 (Multilateral instrument) and Action 13 (Country-by-Country reporting – refer to prior post of 6 Feb. 2015). Links are provided for the OECD’s statement of intent addressing these three actions in particular.
Click to access beps-action-5-agreement-on-modified-nexus-approach-for-ip-regimes.pdf
Click to access beps-action-15-mandate-for-development-of-multilateral-instrument.pdf
Summary – Action 5 (Intangibles):
- The Modified Nexus Approach is generally accepted.
- 30% uplift of qualifying expenses re: outsourcing and acquisition costs in addition to significant R&D activities of taxpayer.
- Existing regimes will be closed by 30 June 2016 to new entrants; legislation to be effected in 2015.
- Grandfather rules for existing regimes may extend 5 years (i.e. 30 June 2021).
- Methodology of tracking / tracing R&D expenditures will be developed.
- Guidance to be issued re: definitions; patents qualify, whereas trademarks do not qualify.
Summary – Action 15 (Multilateral Instrument):
- The intent to develop a multilateral instrument to implement specific BEPS Actions is still desirable and feasible.
- The instrument will be designed to implement treaty-related measures of the BEPS Project.
- Several BEPS Action items that are known to be inclusive are Action 2 (Hybrid entities), Action 6 (Treaty abuse), Action 7 (PE) and Action 14 (Dispute resolution). Other Action items may be included after final guidance is developed, including a mechanism to exchange information for country-by-country reporting.
- Each Action item may be optional, or there may be a minimum number of Actions that a country will have to execute.
- The instrument is not compulsory and is open to all jurisdictions.
- Development of the instrument will be accomplished by an ad-hoc group that is under the aegis of the OECD and G20.
- Outputs are expected Sept. 2015, with final development of the instrument concluded by 31 Dec. 2016.
The timing of 31 Dec. 2016 will be critical to monitor, as many countries may decide to develop unilateral legislation prior to this date. It is hopeful that tax administrations will not try to (informally) implement BEPS guidelines prior to the time that effective legislation is executed.
Tax Executives Institute, Inc. (TEI) recently published comments re: OECD BEPS Action 10, addressing Low Value-Adding Intra-Group Services, and Action 14 re: Dispute Resolution Mechanisms. The comments elicit practical considerations, including worldwide consistency, in their well written and reasoned responses. Although many individuals/organizations have provided comments, TEI’s submissions merit required reading and thoughtful consideration. Links to TEI’s comments are included for reference:
Click to access TEI%20Comments%20BEPS%20Action%2010%20-%20Low%20Value%20Added%20Services%20-%20FINAL%20to%20OECD%2013%20January%202015.pdf
Click to access TEI%20Comments%20BEPS%20Action%2014%20-%20Dispute%20Resolution%20-%20FINAL%20to%20OECD%2015%20January%202015.pdf
Key comments re: Action 10, Low Value-Adding Services
- Non-global implementation will diminish the intended value of this initiative.
- A “rebuttable presumption” should replace the “benefits test” for low value -added services.
- Exclusion of corporate senior management’s services is complex; it may be easier to include such services.
- A mark-up % of 0-5% should replace 2-5% for flexibility and reflecting cost contribution arrangements.
- Any percentage within the safe harbour range should be allowable.
- Guidance should be issued re: coordination of Action 10 and Action 13 re: transfer pricing documentation.
- Reference to the OECD’s previous work on safe harbours has been omitted, for no stated reason.
- The safe harbour should be available if the taxpayer’s method is different in another jurisdiction (i.e. APA’s, non-OECD alignment).
Key comments re: Action 14, Dispute Resolution Mechanisms
- Published MAP guidelines and procedures are welcome, although redacted settlements would also reveal legal basis for outcomes, and may be used as precedent for taxpayers.
- KPI’s should be established.
- Monitoring the MAP process is an excellent proposal suggested in the report.
- A global dispute resolution mechanism and mandatory binding arbitration should be developed, with arbitration available as a pre-MAP appeal avenue.
- Deadlines for Competent Authority (CA) requests should be in place, along with penalties for CA if they do not respond timely.
- Maintaining confidentiality is critical and should be a primary focus, especially for countries initially adopting this process.
- Transparency of independency for Competent Authorities would improve confidence in the process.
- Taxpayers should participate in face-to-face meetings to facilitate the process, and a simplified process should initiate MAP assistance.
- Precluding taxpayers from using MAP, directly or indirectly giving up their rights, is not acceptable.
- Binding arbitration provisions and/or use of a domestic or treaty-based anti-abuse rule should not preclude MAP.
- Tax, interest and penalties should be suspended during the MAP process.
The comments on Action 14 are especially critical, as dispute resolution will be a critical factor in ensuring that the BEPS guidelines legislated into law will have consistent, fair and transparent processes to resolve disputes timely and effectively.