The OECD recently issued a consultation document, with comments due by Dec. 18th, addressing dispute resolution mechanisms which arose from BEPS Action 14.
There are 27 questions for comment, including APAs, statistical categories, penalties/interest, timelines, training, etc.
The document is comprehensive and a valuable reference for review, and most importantly an opportunity for stakeholders to submit comments.
Proposed Regulations were issued for cloud computing and digital transactions; this is an especially important area re: sourcing of income, definitions, etc. especially in light of France and others looking to implement a digital services tax.
Publication 5188 was revised re: FATCA data reporting.
OECD released Peer 2 review reports re: re: BEPS Action 14 (dispute resolution). Interestingly, some US treaties include a MAP provision, although not all are consistent with the minimum standard.
The OECD is considering starting two new projects to revise the guidance in Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines.
OECD has issued scoping papers for public comments addressing transfer pricing disputes and intra-group services, provided for reference herein in addition to Deloitte’s Global TP Alert with insightful comments.
Comments on both subjects are due by June 20, 2018. Both topics are significant, thus a review of the scoping paper focus is recommended, with an opportunity to provide comments.
Click to access dttl-tax-global-transfer-pricing-alert-18-013-11-may-2018.pdf
Click to access scoping-of-future-revision-of-chapterIV-of-the-transfer-pricing-guidelines.pdf
The Council of the European Union has proposed a draft EU Directive, to be in effect by June 30 2019, that would resolve double taxation disputes between Member States. A summary of the Draft Directive is provided, as well as referenced herein.
This proposal is based upon the foundation of the Union Arbitration Convention (90/436/EEC) re: cross-border tax disputes.
Key points:
As the key point summary infers, there are many provisions in the Draft Directive, requiring a proactive effort by the taxpayer and relevant CA’s. The Directive can be reviewed via the attached link:
http://data.consilium.europa.eu/doc/document/ST-9420-2017-INIT/en/pdf
After a long waiting period, with many discussions as to its predicted content, the OECD’s Multilateral Convention pursuant to BEPS Action 15 is ready for prime time. Links to EY’s Global Tax Alert, and OECD’s Explanatory Statement and Multilateral Convention are provided for reference.
The Multilateral Convention is very flexible as to what a country wants, or does not want, within its treaty related provisions to signify its alliance with BEPS Actions.
EY’s Global Tax Alert states: “The tax treaty related BEPS measures covered by the multilateral instrument include (elements of): (i) Action 2 on hybrid mismatch arrangements, (ii) Action 6 on treaty abuse, (iii) Action 7 on the artificial avoidance of the PE status; and (iv) Action 14 on dispute resolution. The substance of the tax treaty provisions relating to these actions was agreed under the final BEPS package released in October 2015. The multilateral instrument does not modify or add to the substance of these provisions. The instrument is solely focused on how to modify the provisions in bilateral or regional tax treaties in order to align these treaties with the BEPS measures.”
Due to the flexibility of the new Convention, this unilateral based process poses many questions as to the consistency of intent for the related BEPS Actions around the world. It is certain that, in the short term, there will be considerable complexity and varying interpretations of what the Convention means. Accordingly, the Explanatory Statement and Multilateral Convention are to be reviewed carefully to understand short and long-term trends in this new era of international tax.
The European Commission issued a significantly important proposal for a Double Taxation Dispute Resolution; it hopes to remain a leader in this ever-changing international tax arena with a mandate for binding arbitration, as applicable, as one of the leading initiatives. This proposal would require a unanimous adoption by all EU Member States (although UK’s vote may be considered to be of less significance as time moves on, it still counts).
Other proposals of the three-prong package include a renewed focus on the Common Consolidated Corporate Tax Base (CCCTB) and hybrid mismatches with third countries. The last initiative is interesting, as the EU now seeks to expand its reach with those countries outside the EU.
Although each proposal is significant as a stand-alone initiative, the Dispute Resolution would provide the most benefit at a critical time for a win-win relationship going forward.
EY’s Global Tax Alert provides further details on this initiative for reference.
The European Commission has recently released a public consultation on improving double taxation dispute resolution mechanisms, with comments accepted through 10 May 2016. It is a process / Best Practices approach to enact future efficiencies. A summary story and consultation links are provided for reference:
http://ec.europa.eu/taxation_customs/common/consultations/tax/double_tax_dispute_en.htm
Click to access survey_consult_doc_double_tax_en.pdf
Highlights:
This document is pivotal in establishing practical and efficient EU dispute resolution mechanisms ongoing, and all interested parties should submit thoughtful input.
The proposal, as noted, would only be effective between EU Member States, not between one Member State and another non-EU jurisdiction or between non-EU jurisdictions. The EU has been a strong proponent in leading global best practices in the post-BEPS environment. Therefore, global consistency of the EU approach is also encouraged, especially by countries having no such dispute mechanism.
Additionally, other countries’ need to rethink sovereignty arguments in trying to evade / negate the effect that such transparent measures would have on their ability to address local tax practices.
The Indonesian Ministry of Finance has issued updated MAP guidelines, evidencing focus by the Indonesian Tax Office (ITO) on multilateral dispute resolution. This regulation is the third MAP related guidance, with the inclusion of additional restrictions. A link to KPMG’s Tax News Flash is provided for reference:
Click to access Tax-News-Flash-January-2015.pdf
Key summary:
Indonesia is uniquely interpreting the tax treaty to limit the opportunity for MAP appeals, while introducing additional subjectivity in the rules via vagaries of the Indonesian tax court’s hearing process. Most importantly, it will be important to consider the MAP process upon the commencement of an Indonesian audit due to ongoing uncertainties.
Notably, this guidance is being issued prior to the finalization of the OECD dispute resolution guidelines that will most likely result in inconsistent guidelines for MAP.
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:
Key comments re: Action 10, Low Value-Adding Services
Key comments re: Action 14, Dispute Resolution Mechanisms
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.
Strategizing Multinational Tax Risks 