OECD has updated guidelines for several aspects of Country-by-Country (CbC) reporting, including:
- Dividends included in pre-tax book income
- Definition of revenues and taxes paid
- Aggregate data in one jurisdiction/eliminations
- Accumulated earnings/loss
- Treatment of major shareholdings / ownership by multiple groups
- Short accounting periods
- Parent surrogate filing
As the 2017 CbC report is almost due for US calendar-year taxpayers, it is imperative to review the OECD guidelines to ensure year-to-year consistency, with relevant statements attached for transparency.
A link to the guidelines is attached for reference.
The Organisation for Economic Co-operation and Development (OECD) on 30 August released a fourth round of stage 1 Base Erosion and Profit Shifting (BEPS) Action 14 peer reports on improving tax dispute resolution mechanisms. The reports assess each country’s efforts to implement the Action 14 minimum standard.
Valuable insights from these reports can be gained, especially if a taxpayer is under audit where some of these questions/uncertainties may arise. The peer reports are performed on a desk audit basis, with other parties comments considered by OECD.
Some insights are APA rollbacks, granting of MAP in all/certain transfer pricing cases, etc. Reference links are provided.
Reports covering Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand and Portugalwere published.
Attached are the latest BEPS developments; of particular importance is the International ComplianceAssurance Programme (ICAP). This program is a voluntary program that focuses on the Country-by-Country (CbC) reports to openly discuss tax risks.
This is a welcome collaborative effort between the tax administrations and MNEs, vs. using the CbC reports to draw unfounded assumptions.
Tax audits should also use this approach at the beginning of an audit to foster understanding and risks.
The Council of the European Union (ECOFIN) has published its list of uncooperative tax jurisdictions, numbering 17:
American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates
The listing criteria are focused on three main categories: tax transparency, fair taxation and implementation of anti-BEPS measures.
There are potential counter-measures that could be employed by other jurisdictions, and there is the possibility of other countries aligning such countries on a comparable list. This list will be reviewed annually, thereby expanding or diminishing accordingly.
EY’s Global Tax Alert provides historical context for development of this list.
EY’s Global Tax Alert outlines an excellent presentation of the verbiage contained in the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), in addition to specificity re: China’s intent of each of the BEPS Action Items.
The MLI contains four types of provisions. Depending on the type of provision, the interaction with CTAs varies. A provision can have one of the following formulations: (i)”in place of”; (ii)”applies to”; (iii)”in the absence of”; and (iv)”in place of or in the absence of.”
A provision that applies ”in place of” an existing provision is intended ”to replace an existing provision” if one exists, and is not intended to apply if no existing provision exists. Parties shall include in their MLI positions a section on notifications wherein they will list all CTAs that contain a provision within the scope of the relevant MLI provision, indicating the article and paragraph number of each of such provision.
A provision that ”applies to” provisions of a CTA is intended ”to change the application of an existing provision without replacing it,” and therefore may only apply if there is an existing provision. Parties shall include in their MLI positions a section on notifications wherein they will list all CTAs that contain a provision within the scope of the relevant MLI provision, indicating the article and paragraph number of each of such provision.
A provision that applies ”in the absence of” provisions of a CTA is intended ”to add a provision” if one does not already exist. Parties shall include in their MLI positions a section on notifications wherein they will list all CTAs that does not contain a provision within the scope of the relevant MLI provision.
A provision that applies ”in place of or in the absence of” provisions of a CTA is intended ”to replace an existing provision or to add a provision.” This type of provision will apply in all cases in which all the parties to a CTA have not reserved their right for the entirety of an article to apply to its CTAs. If all Contracting Jurisdictions notify the existence of an existing provision, that provision will be replaced by the provision of the MLI to the extent described in the relevant compatibility clause. Where the Contracting Jurisdictions do not notify the existence of a provision, the provision of the MLI will still apply. If there is a relevant existing provision which has not been notified by all Contracting Jurisdictions, the provision of the MLI will prevail over that existing provision, superseding it to the extent that it is incompatible with the relevant provision of the MLI (according to the explanatory statement of the MLI, an existing provision of a CTA is considered “incompatible” with a provision of the MLI if there is a conflict between the two provisions). Lastly, if there is no existing provision, the provision of the MLI will, in effect, be added to the CTA.
China’s intent with respect to its positions for each of the BEPS Actions are also outlined in the EY Global Tax Alert, as such intent would affect over 100 double tax treaties.
New Zealand’s government has announced the introduction of new BEPS compliant rules that will be effective mid-2018. Additionally, the government has taken this opportunity to expand upon the OECD’s rules, in an attempt to ensure that a “fair share of tax” is paid by multinationals doing business in the country.
Acknowledging the OECD’s intent to provide flexibility with its BEPS Actions and subjective language therein, New Zealand is looking for this legislation to impose rules above and beyond the BEPS Actions. For example, anti-PE rules will be introduced that look to Australia’s provisions, which were initially introduced by the UK as diverted profit tax schemes to collect additional tax.
International tax practitioners should review these provisions and plan their tax strategies accordingly, knowing that New Zealand will introduce double taxation sooner vs. later in the global concept.
EY’s Global Tax Alert provides relevant details of New Zealand’s proposals.
EY’s Global Tax Alert provides a succinct summary of the latest OECD and BEPS developments, including:
- G20 and exchange of information upon request standard
- Multilateral instrument, 68 countries moving forward
- Peer reviews on BEPS 4 minimum standards:
- Action 5, harmful tax practices
- Action 6, treaty abuse
- Action 13, country-by-country reporting (CbCR)
- Action 14, dispute resolution
- Action 5 peer reviews of preferential tax regimes
- Action 13, CbCR exchange relationships; important for US MNE’s and similar jurisdictions without obligatory 2016 reporting
- MAP peer reviews
- Discussion drafts on profit splits and attribution of profits re: PE’s; comment period to Sept. 15, 2017
- Branch mismatch forthcoming revisions
- Common reporting standard
- Digital taxation
OECD is still very busy, with a plethora of BEPS follow-up and other activities, although there seems to be continuing flexibility to gain collaboration that will also lead to added complexity and disputes.