Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘BEPS’

BEPS update-MLI’s, UN, ATAF…

EY’s Global Tax Alert highlights the recent BEPS developments, including the country-specific Multilateral Instruments (MLIs) with varying changes to its covered treaties and other treaty provisions.

It is noteworthy, at these MLIs approach legislation targets, that it is no longer intuitive as to how a country’s treaty provisions interact with other treaty partners, apart from general guiding principles that will vary as to the relevant details therein.

UN developments; In June 2019, the Report on the Eighteenth Session of the Committee of Experts on International Cooperation in Tax Matters (Committee), which was held by the United Nations (UN) on 23-26 April 2019 in New York, was released. The report describes a number of substantive issues related to tax cooperation in tax matters that were discussed during the session. Among others, the session addressed: (i) the next update of the UN Model Double Taxation Convention between developed and developing countries; (ii) the update of the UN Transfer Pricing (TP) Manual; (iii) dispute avoidance and resolution; and (iv) tax consequences of the digitalized economy.

African Tax Administration Forum (ATAF): In June 2019, the African Tax Administration Forum (ATAF) issued a paper on “The Place Of Africa In The Shift Towards Global Tax Governance: Can the taxation of the digitalised economy be an opportunity for more inclusiveness?” (the paper). The paper provides an overview of the current international tax governance landscape and inroads towards inclusiveness.

Country updates: Austria, Russia, Bulgaria, Canada, Finland, Guernsey, India, Ireland, Netherlands, Switzerland, Israel, China, Italy, Myanmar, New Zealand, Panama, Slovak Republic, Spain, Sweden, and Zimbabwe.

https://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_28_June_2019/$FILE/2019G_003051-19Gbl_The%20Latest%20on%20BEPS%20-%2028%20June%202019.pdf

OECD Digital Tax: Consensus Solution?

On 31 May 2019, the Organisation for Economic Co-operation and Development (OECD) released its document Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy (the Workplan).

The Workplan describes the planned approach for addressing the tax challenges of the digitalization of the economy that has been agreed upon by the 129 jurisdictions participating in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Workplan was approved at the 28-29 May plenary meeting of the BEPS Inclusive Framework, which brought together 289 delegates from 99 member countries and jurisdictions and 10 observer organizations.

A final report is envisioned for 2020, including:

Pillar One focuses on the allocation of taxing rights, and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules;

Pillar Two focuses on the remaining BEPS issues and seeks to develop rules that would provide jurisdictions with a right to “tax back” where other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of effective taxation.

Under Pillar One, the first option (i) Modified Residual Profit-Split method would allocate to market jurisdictions a portion of an MNE group’s non-routine profit that reflects the value created in markets that is not recognised under the existing profit allocation rules, or (ii) the fractional apportionment method involves the determination of the amount of profits subject to the new taxing rights without making any distinction between routine and non-routine profit, or (iii) distribution-based approached that would provide a baseline profit attributable to marketing, distribution, and user-related activities.  The concept of losses is also to be recognized in the relevant model.

 

As stated in the workplace, the real risk is that “A further issue is the recognition that if the Inclusive Framework does not deliver a comprehensive consensus-based solution within the agreed G20 time frame, there is a risk that more jurisdictions will adopt uncoordinated unilateral tax measures.”

Additionally, the current workplace is focused on digital tax, although some concepts may creep into discussions of income tax.

A reference to the Workplan is provided for reference.

 

https://www.oecd.org/tax/beps/programme-of-work-to-develop-a-consensus-solution-to-the-tax-challenges-arising-from-the-digitalisation-of-the-economy.pdf

MLI: A New Year

As time for implementation of the Multilateral Instrument (“MLI”) draws near, it may be time to refresh the history and current status of this instrument.

Reference links are provided for The Multilateral Convention, Guidance for the Development of Synthesised Texts published by the OECD in November 2018,  and Status of the Parties to a MLI as of December 21, 2018.  An extract from the

An extract from the Synthesized Texts is provided as context:

This Guidance has been prepared to provide suggestions to Parties to the MLI for the development of documents they could produce to help users of the MLI to understand its effects on tax agreements it covers and modifies (the “Covered Tax Agreements”). The objective is to present in a single document and for each covered tax agreement: the text of a Covered Tax Agreement, including the text of relevant amending instruments; the elements of the MLI that have an effect on the Covered Tax Agreement as a result of the interaction of the MLI positions of its Contracting Jurisdictions; and information on the dates on which the provisions of the MLI have effect in each Contracting Jurisdiction for the Covered Tax Agreement. Such documents would be referred to as “synthesised texts”.

To ensure clarity and transparency for the application of the MLI, Parties that intend to develop documents setting out the impact of the MLI on their Covered Tax Agreements should be as consistent as possible. This Guidance sets out a suggested approach for the development of synthesised texts. The Guidance also suggests sample language that could be included in the synthesised texts. At this stage, the sample language includes: a sample general disclaimer on the synthesised texts; a sample disclaimer on the entry into effect of the provisions of the MLI; for each MLI Article, “sample boxes” of the provisions of the MLI that could modify the covered tax agreements; and sample footnote texts on the entry into effect of the provisions of the MLI.

As the New Year draws near from a personal perspective, it is also a New Year for birth of the MLI and its impact on worldwide tax treaties.

 

http://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf

http://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf

http://www.oecd.org/tax/treaties/beps-mli-guidance-for-the-development-of-synthesised-texts.pdf

OECD update: CbC reporting

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.

http://www.oecd.org/tax/beps/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

OECD peer reports: Valuable insights

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.

http://www.oecd.org/tax/beps/oecd-releases-fourth-round-of-beps-action-14-peer-review-reports-on-improving-tax-dispute-resolution-mechanisms.htm

 

BEPS update: ICAP

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.

http://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_29_January_2018/$FILE/2018G_00553-181Gbl_The%20Latest%20on%20BEPS%20-%2029%20January%202018.pdf

EU’s List is published: Uncooperative Jurisdictions

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.

http://www.ey.com/Publication/vwLUAssets/Council_of_the_European_Union_publishes_list_of_uncooperative_jurisdictions_for_tax_purposes/$FILE/2017G_06895-171Gbl_Council%20of%20the%20EU%20publishes%20list%20of%20uncooperative%20jurisdictions%20for%20tax%20purposes.pdf

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