Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘CA’

US CA relief: LOB / BEPS focus

The IRS issued Rev. Proc. 2015-40 recently, and this EY summary provides details re: the Limitation on Benefits (LOB) provisions for granting competent authority assistance.

The new rules highlight rules focusing on recent proposals for the US Model Tax Convention as well as the intent of BEPS re: “special regimes.”

http://www.ey.com/Publication/vwLUAssets/US_IRS_releases_revised_procedures_for_obtaining_assistance_from_US_competent_authority,_including_discretionary_relief_under_a_tax_treaty/$FILE/2015US_CM5749_US%20IRS%20releases%20revised%20procs%20for%20obtaining%20assistance%20from%20US%20CA.pdf

These changes are critical to resolving issues, and the impact of double taxation, accompanying an increasing trend in foreign tax adjustments.  This new procedure will become more visible as more countries implement BEPS guidelines via unilateral legislation and adoption of the OECD multilateral instrument.

TEI’s comments: OECD BEPS Actions 10 and 14

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:

http://www.tei.org/Documents/TEI%20Comments%20BEPS%20Action%2010%20-%20Low%20Value%20Added%20Services%20-%20FINAL%20to%20OECD%2013%20January%202015.pdf

http://www.tei.org/Documents/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.

OECD FTA MAP forum to develop Best Practices

A new forum, open to all members of the Forum on Tax Administration (FTA), will convene later this year to discuss Best Practices for improving MAP.  Topics that may be discussed include:

  • Development of a strategic plan
  • Resource limitations
  • Relationship building
  • Identifying trends in disputes
  • Increasing APA’s and accelerated CA procedures
  • Roll-over adjustments
  • Multilateral case procedures
  • Taxpayer’s involvement in MAP resolution
  • Achieving certainty sooner for a win-win result

This new forum will be an interesting development for all.

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