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.
TEI has provided comments in response to several OECD BEPS Actions, linked herein for reference.
Action 10:Profit Splits-Key comments:
- Profit split methodologies should be limited to scenarios where there is not reliable arm’s length pricing.
- Simple examples provided do not provide a comprehensive basis for detailed replies and consideration.
- A profit split approach may be subject to abuse by tax authorities.
- Hindsight application of transfer pricing methodologies should only be used in exceptional circumstances.
Actions 8-10: TP Guidelines
- Transfer pricing analyses discussed in the proposal would require significant resources for MNE’s and tax authorities.
- The possible merging of the approaches of attributing profits for Article 7 (PE) and Article 9 (Associated Enterprises) should be clarified.
- The imposition of “insufficient transfer pricing documentation” penalties should be abandoned/relaxed by tax authorities for a reasonable period of time after implementation of the new guidelines.
- Additional compliance burdens elicit increased complexity and confusion.
Action 4: Interest
- The proposal represents a shift away from the arm’s length principle, introducing difficult and impractical problems to resolve.
- Capitalisation factors include many considerations other than tax.
- Double tax consequences are more likely, as MNE’s will not be able to easily rearrange financing structures worldwide.
- The withholding tax impacts should be clarified for foreign tax credit and related calculations.
- MNE’s with a higher effective tax rate, and thus less prone to base erosion or profit shifting arrangements, should be excluded.
- The concept of global limitation calculations, and interest sharing, needs to be further discussed to determine efficient audit guidance.
Action 10: Commodities
- Right to use publicly available quoted exchange prices as a comparable is a welcome proposal.
- Discussion of other issues, including pricing, pricing date, and documentation should be further considered and clarified.
TEI’s comments are always informative, practical and highlight issues that are both useful as well as problematic. Therefore, these comments provide an excellent forum, along with comments from other interested parties, for further consideration prior to drafting final guidance.