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:
Click to access 2015G_CM6047_EU%20Council%20adopts%20directive%20on%20exchange%20of%20info%20on%20tax%20rulings,%20agrees%20on%20other%20corporate%20tax%20issues.pdf
- 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.
TEI has provided recent comments addressing OECD’s Discussion Draft for BEPS Action 3: CFC rules. A link to their comments are provided for reference:
Click to access TEI%20Comments%20BEPS%20Action%203%20-%20CFC%20Rules%20FINAL%20to%20OECD%2030%20April%202015.pdf
- Lack of definitive guidance will introduce additional complexity, double taxation and inconsistency of treaty applications.
- Overlap with other BEPS Actions and the role of CFC rules questions new complex rules at this time.
- Confusion re: transfer pricing rules and excess profits approach with arm’s length principle.
The well drafted comments provide clarity surrounding the complexity and uncertainty for new rules addressing BEPS concerns by interested parties. The first question therefore should always be: Do we need these rules at this time?
Notwithstanding the Discussion Draft’s proposals and comments by TEI, among others, MNE’s should plan for increased efficiencies to coordinate and report information, while ensuring global consistency for application of transfer pricing methodologies.
EY’s Global Tax Alert of 13 April 2015 sets forth the latest summary of OECD BEPS developments, including the recent discussion drafts under BEPS Actions 3 and 12.
Additionally, the Alert also notes the copycat tactics of Australia re: the UK Diverted Profits Tax (DPT) that went into effect 1 April 2015. More news on this development should be forthcoming in the 2015-16 Australian Budget expected mid-May.
Click to access 2015G_CM5365_The%20Latest%20on%20BEPS%20-%2013%20April%202015.pdf
The recent BEPS discussion drafts, Action 3 re: CFC rules and Action 12 re: Aggressive tax planning arrangements, are of paramount importance for all MNE’s and tax administrations.
Australia’s tactics re: a UK DPT mechanism also highlights the controversial manner in which each jurisdiction is fighting for its fisc to the detriment of other tax administrations. However, what is not transparent in the rules provided to date for the UK DPT is the intent to avoid double taxation. It is hopeful that Australia will provide a balanced approach to this newfound mechanism for gaining tax revenues in a scheme that asks for full payment by a MNE prior to relevant appeals being filed and discussed.
The OECD has provided its latest consultation inviting comments re: CFC rules, using 7 building blocks for discussion.
- Definition of a CFC
- Threshold requirements
- Definition of control
- Definition of CFC income
- Rules for computing income
- Rules for attributing income
- Rules to prevent or eliminate double taxation
A link to the consultation is provided for reference:
Click to access discussion-draft-beps-action-3-strengthening-CFC-rules.pdf
As CFC rules are the foundation underlying a country’s right of taxation, while fiscal pressures are forcing administrations to increase their fisc creatively and aggressively, this consultation indicates the long-term strategies for CFC taxation. Accordingly, MNE’s and other interested parties should review and provide comments accordingly.