Strategizing Multinational Tax Risks

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:

Click to access TEI%20Comments%20BEPS%20Action%2010%20-%20Low%20Value%20Added%20Services%20-%20FINAL%20to%20OECD%2013%20January%202015.pdf

Click to access 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.