Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Competent Authority Agreements’

US int’l developments: CbC exchange

EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.

US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.

Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security.  With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security.  However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data?  This should be a forethought, rather than an afterthought, to the process.

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_17_March_2017/$FILE/2017G_01247-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20March%202017.pdf

BEPS Action 13 CbC reports: To whom, by whom, for whom

The OECD has released its final guidance on BEPS Action 13, Country-by-Country (CbC) Reporting Implementation Package.  The CbC reporting complements the previous drafts for transfer pricing documentation in the form of a master file and local country file.  The three pillars of reporting for this Action have been acknowledged by OECD as representing its definitive approach, with the dissemination of the Action 13 document to be issued later this year with the other Action items.

http://www.oecd.org/ctp/transfer-pricing/beps-action-13-country-by-country-reporting-implementation-package.pdf

Key points:

  • Three model Competent Authority Agreements based on the Multilateral Convention on Administrative Assistance in Tax Matters, bilateral tax conventions, and Tax Information Exchange Agreements (TIEAs).
  • In accordance with the recent OECD webcast, countries will have 6 months for the initial year to exchange such information (i.e. June 30, 2018 calendar year basis for the 2016 tax information submitted by Dec. 31, 2017, and 3 months for the following reporting year).
  •   Introduces the term “Surrogate Parent Entity” for substitute reporting.
  • Provides conditions for application of the Surrogate Parent Entity approach.
  • The CbC report shall be filed in a form identical to the OECD template.
  • Confidentiality provisions are discussed.
  • Penalties: “It is assumed that jurisdictions would wish to extend their existing transfer pricing documentation penalty regime to the requirements to file the CbC report.”

The manner in which countries implement this initiative should be closely monitored, as there will be differences to the general approach.  For example, Poland recently introduced this proposal into its domestic legislation, whereas other countries have relied on the ultimate parent entity concept for collecting such information.  Additionally, Spain also requires amounts to be reported in local currencies, a process that will not be uniform globally.

MNE’s should be cognizant of the flexibility required for this new transfer pricing risk initiative, while also foreseeing the recent public disclosure proposals by the European Parliament, European Commission and other interested parties.

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