Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘multilateral instrument’

OECD / BEPS update

EY’s Global Tax Alert provides a succinct summary of the latest OECD and BEPS developments, including:

  • G20 and exchange of information upon request standard
  • Multilateral instrument, 68 countries moving forward
  • Peer reviews on BEPS 4 minimum standards:
    • Action 5, harmful tax practices
    • Action 6, treaty abuse
    • Action 13, country-by-country reporting (CbCR)
    • Action 14, dispute resolution
  • Action 5 peer reviews of preferential tax regimes
  • Action 13, CbCR exchange relationships; important for US MNE’s and similar jurisdictions without obligatory 2016 reporting
  • MAP peer reviews
  • Discussion drafts on profit splits and attribution of profits re: PE’s; comment period to Sept. 15, 2017
  • Branch mismatch forthcoming revisions
  • Common reporting standard
  • Digital taxation

OECD is still very busy, with a plethora of BEPS follow-up and other activities, although there seems to be continuing flexibility to gain collaboration that will also lead to added complexity and disputes.

http://www.ey.com/Publication/vwLUAssets/OECD_shares_updates_on_tax_activities_in_26_June_2017_Tax_Talk_webcast/$FILE/2017G_04094-171Gbl_OECD%20provides%20updates%20on%20tax%20activities%20in%20Tax%20Talk%20webcast.pdf

MLI instrument is born

The OECD provides a comprehensive list of countries that have signed the new multilateral instrument (MLI).

Most importantly, each country’s position on the various positions with other countries can be viewed.  While being transparent, this myriad of menu selections will produce an even more complex environment globally.  The strive for collaboration is somewhat achieved, based on more than 60 countries executing this document.  However, the goal of simplification can certainly be questioned.

OECD’s press release and a link to this list is provided for reference.  All international tax practitioners should review this long-awaited document.

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

OECD’s Multilateral Instrument: TEI comments

Tax Executives Institute, Inc. (TEI) has recently submitted comments in response to OECD’s public discussion draft on Action 15 re: technical issues for the upcoming Multilateral Instrument.

A link to TEI’s excellent comments are provided for reference:

http://www.tei.org/Documents/TEI-Comments-BEPS-Action-15-Tax-Treaty-Related-Measures-June-29-2016.pdf

Highlights:

  • Mandatory binding arbitration was not included, thus the increase in MAP cases seem inevitable.
  • A “baseball” type of arbitration is recommended.
  • All MAP cases should be eligible for arbitration.
  • All signatories should adopt the Action 14 minimum standard.
  • Countries should have the ability to choose what treaty-related BEPS measures it will adopt.
  • Countries should have the ability to choose what treaty partners and relevant tax treaties would apply for various BEPS provisions.
  • The modified provisions are only effective upon official ratification.
  • A new peer process should be adopted for treaty interpretation.

The multilateral instrument is key to the consistent application of BEPS Actions, and the well-written TEI comments are highly recommended for all interested parties.

OECD Multilateral Instrument: comments due

The OECD has released its draft of details for the impending Multilateral Instrument in alignment with BEPS Action 15, copied herein, with my bold accents highlighted for reference.  Comments are due 30 June 2016, thereby necessitating quick actions to review and respond.

This instrument will be a pivotal tool for many years to come, transforming the interpretation of tax treaties and further developing the intent of the BEPS Actions.  Thus, it will be important to understand such trends for future compliance and planning complexities.  

Development of a Multilateral Instrument to Implement
the Tax Treaty related BEPS Measures

31 May – 30 June 2016

REQUEST FOR INPUT ON THE DEVELOPMENT OF A MULTILATERAL INSTRUMENT
TO IMPLEMENT THE TAX TREATY-RELATED BEPS MEASURES

1. Background
1. The OECD/G20 Base Erosion and Profit Shifting Project produced a number of recommendations that would be implemented through amendments to bilateral tax treaties. If undertaken on a treaty-by-treaty basis, the sheer number of treaties in effect would make such a process very lengthy. Recognising the need for an efficient and effective mechanism to implement the tax-treaty related measures resulting from the BEPS Project, Action 15 of the BEPS Action Plan called for the development of a multilateral instrument.
2. Drawing on the expertise of public international law and tax experts, the report “Developing a Multilateral Instrument to Modify Bilateral Tax Treaties” analysed the possibility of developing a multilateral instrument in order to allow countries to swiftly amend their tax treaties to implement the tax treaty-related BEPS recommendations. It concludes that such a multilateral instrument is not only feasible but also desirable, and that negotiations for the instrument should be convened quickly.
3. Based on this report, an Ad Hoc Group was established on 27 May 2015 with the objective of developing a multilateral instrument to modify existing bilateral tax treaties in order to swiftly implement the tax treaty measures developed in the course of the OECD-G20 BEPS Project. The Ad Hoc Group now includes 96 countries all participating on an equal footing, as well as a number of non-State jurisdictions and international organisations participating as Observers. The purpose of the multilateral instrument is to modify existing tax treaties to implement the tax treaty measures developed through the BEPS Project. As a result, with the exception of the development of a MAP arbitration provision (as discussed in section 2 below), the mandate of the Ad Hoc Group does not include changing the substance of the BEPS outputs or creating new measures that were not developed during the BEPS Project.
4. The Group began its work on 27 May 2015, and aims to conclude its work and open the multilateral instrument for signature by 31 December 2016. Development of the multilateral instrument is currently in progress. As with other bilateral and multilateral treaty negotiations, the draft text of the multilateral instrument is the subject of intergovernmental discussions in a confidential setting. Accordingly, the consultation has been organised around certain key technical issues and questions relating to the development of the instrument on which public input would be useful. Examples of the technical issues and questions on which input would be useful are outlined in sections 3 and 4 of this document. Comments should be focused solely on technical issues of implementation and on issues related to the development of a MAP arbitration provision, rather than on the scope of the provisions to be covered in the multilateral instrument or on the substance of the underlying BEPS outputs.
5. Comments and input should be submitted by 30 June 2016 at the latest, and should be sent by email to multilateralinstrument@oecd.org in Word format (in order to facilitate their distribution to government officials). Please note that all comments received will be made publicly available. Comments submitted in the name of a collective grouping or coalition, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting. Persons and organisations who submit comments on this document are invited to indicate whether they wish to speak in support of their comments at a public consultation meeting that is scheduled to be held in Paris at the OECD Conference Centre on 7 July 2016 beginning at 10.00 am.
6. This consultation meeting will be open to the public and the press. To request to attend the public consultation, please click here [LINK] and follow the instructions. Due to space limitations, priority will be given to persons and organisations who register first and we reserve the right to limit the number of participants from the same organisations. This consultation meeting will also be broadcast live on the internet and can be accessed on line. No advance registration will be required to access the live broadcast.
2. The multilateral instrument
7. The multilateral instrument will modify existing bilateral tax treaties in order to swiftly implement the tax treaty measures developed in the course of the OECD-G20 BEPS Project. The provisions to be implemented include in particular:
The treaty provisions developed under Action 2 of the BEPS Project (Neutralising the Effects of Hybrid Mismatch Arrangements), including (1) the revision of Article 1 (Persons Covered) of the OECD Model Tax Convention to address fiscally transparent entities, and (2) the measures to address issues with the application of the exemption method to relieve double taxation.
The provisions developed under Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances), including the minimum standard on treaty abuse, the introduction of a “saving clause” to make explicit that treaties do not restrict a State’s right to tax its own residents, and the specific anti-abuse rules related to (1) certain dividend transfer transactions; (2) transactions involving immovable property holding companies; (3) situations of dual-resident entities; and (4) treaty shopping using third-country PEs.
Provisions developed under Action 7 (Preventing the Artificial Avoidance of PE Status), including (1) measures to address commissionnaire arrangements and similar strategies; (2) modifications the specific activity exemptions under Article 5(4) of the OECD Model and the addition of an anti-fragmentation rule; and (3) measures to address the splitting-up of contracts to abuse the exception in Article 5(3) of the OECD Model.
Measures included in the minimum standards and best practices produced under Action 14 (Making Dispute Resolution Mechanisms More Effective), including the changes to paragraphs 1 through 3 of Article 25 of the OECD Model, as well as the inclusion of paragraph 2 of Article 9 of the OECD Model.

8. In addition to the implementation of the measures described above, a number of countries declared their commitment to provide for mandatory binding MAP arbitration as a mechanism to guarantee that treaty-related disputes will be resolved within a specified time frame. An optional provision on mandatory binding MAP arbitration is being developed as part of the negotiation of the multilateral instrument. The
3. Technical Issues Arising from Development of the Multilateral Instrument
9. A number of technical issues arise from developing a multilateral instrument to modify bilateral tax treaties. These include, for example, issues related to:
The relationship between the provisions of the multilateral instrument and the existing tax treaty network. Existing tax treaties vary widely from both model tax treaties and from each other. As a result, the multilateral instrument must be able to modify existing tax treaties effectively, either by adding a new provision where no provision exists or by modifying or superseding existing provisions. This can be done by including “compatibility clauses” that describe in detail under what circumstances the new provision is intended to be added to or replace the provisions of an existing tax treaty.
Ensuring consistent application and interpretation. The tax treaty-related BEPS outputs include agreed Commentary to facilitate their interpretation. Ensuring that this Commentary will be used to interpret the provision of the multilateral instrument will be important. In addition, because the multilateral instrument must modify a large network of existing treaties, it cannot provide the level of detail that a bilateral protocol can. The multilateral instrument may therefore need to be accompanied by tools, such as an explanatory statement or commentary, to ensure consistent application of its provisions to diverse bilateral tax treaties. The production of consolidated versions of the underlying bilateral tax treaties is also being considered.
Modifying bilateral treaties in multiple authentic languages. The multilateral instrument is being negotiated in English and French, and is expected to be concluded in only those two authentic languages, but will modify bilateral tax treaties concluded in many authentic languages. It will be important to ensure consistent application to those bilateral treaties despite differences of language.

4. Request for input
10. Comments are requested on the technical issues that may arise from implementing the treaty-related BEPS measures in the context of the network of existing bilateral tax treaties. In particular, comments are requested with respect to:
Technical issues that should be taken into account in adapting the BEPS measures to modify or supersede existing provisions of bilateral tax treaties that may vary from the OECD model, including:
Existing provision or types of provisions that serve the same purpose as the BEPS measures and that would need to be replaced
Existing provisions or types of provisions that are similar to BEPS measures but that would need to be retained
The approach to be taken in developing the optional provision on mandatory binding MAP arbitration, taking into account that it would need to serve the needs of the countries that have already committed to implement mandatory binding arbitration, as well as countries that are considering committing in the future.
The types of guidance and practical tools that would be most useful to taxpayers in understanding the application of the multilateral instrument to existing tax treaties.
Mechanisms that could be used to ensure consistent application and interpretation of the provisions of the multilateral instrument.

OECD’s APAC meeting results

The BEPS Asia-Pacific technical meeting was held last week, with the participants expressing many common themes, while also hinting at future developments.

Key points:

  • 75 participants from 17 countries attended, in addition to many agencies.
  • A strong sense of BEPS collaboration was a consistent message.
  • The Multilateral Instrument will be pivotal for implementation of treaty related issues, especially in developing countries.
  • The use of profit split transfer pricing methods are insightful for the future.
  • Individual tax incentives will continue.
  • Transfer pricing toolkits are welcome, especially for practical application of the rules. 
  • A regional network event has been planned for next year.

Although several countries have already expressed a strong BEPS intent to provide new legislation for unilateral fiscal growth, there appears to be a strong sense of community in the development of practical and effective guidelines that may be implemented to stimulate tax collections.

 

ASIA-PACIFIC TECHNICAL MEETING ON BEPS YOGYAKARTA, INDONESIA, 11-12 NOVEMBER 2015 CO-CHAIRS’ SUMMARY OF DISCUSSIONS

Mr. John Hutagaol1 and Mr. Kyounghwan Moon2 co-chaired the first Asia-Pacific Technical Meeting on BEPS, hosted by Indonesia in cooperation with the OECD Korea Policy Centre (Tax Programme). The Co-Chairs prepared this summary of the discussions of the meeting which was shared with all participants.

The objectives of the technical meeting were 1) to update participants on the outcomes of the BEPS project and reflect country perspectives following the delivery of the BEPS Package, 2) to discuss the implementation and monitoring phase of the BEPS project, and 3) a technical ‘deep dive’ into the toolkits currently being developed by international and regional tax organizations.

This technical meeting follows the consultation held in Seoul, Korea, in February 2015. It gathered together 75 participants from 17 economies from the Asia-Pacific region3, as well as representatives from ATAIC, AIPEG, JICA, the OECD Korea Policy Centre (Tax Programme) and SGATAR.

The Meeting

In his opening address, Mr Mardiasmo, Vice Minister of Finance of the Republic of Indonesia, emphasised the importance of working together in the region to develop solutions to the global tax challenges faced by all. The discussions addressed the following topics:

  • The presentation of the final BEPS Package and its different actions.
  • The development of practical toolkits to implement targeted and workable solutions tocounter BEPS issues.
  • The challenges and opportunities in the BEPS implementation phase, including the areaswhere follow up work is needed and ideas on how to design the inclusive framework with all interested countries on an equal footing as well as continuing regional engagement.

    A. Key Messages

    1. The BEPS Package was welcomed and participants highlighted the importance of learning from other countries’ experiences and best practices.

    2. Participants demonstrated a strong interest in cooperation with each other and with the OECD. They were particularly supportive of developing a platform to work together on an equal footing with regard to the implementation of the BEPS outcomes.

    1 Director of Tax Regulation II, DGT, Indonesia.
    2 Director, MOSF, Korea
    3 Australia, Bangladesh, Brunei Darussalam, Cambodia, Chinese Taipei, Indonesia, Japan, Korea, Malaysia, Myanmar, Papua New Guinea, People’s Republic of China, Philippines, Saudi Arabia, Singapore, Thailand and Vietnam.

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3. Participants recognised the importance of the multilateral instrument to implement the BEPS Project. 12 out of the 17 economies represented at the meeting have already joined the ad hoc Group for the negotiation of the instrument.

4. The importance of regional meetings and cooperation with regional organisations, such as ATAIC and SGATAR, was a means of engaging countries to provide their input and to express their views.

5. Participants highlighted the resource constraints faced in national administrations. They called for effective capacity building initiatives, and welcomed support from international and regional organisations.

6. Participants welcomed the work presented and the progresses made on specific toolkits and reports. They emphasised the need for the toolkits to be practical and based on country experiences.

7. Participants recognised the significance of engagement of business and civil society in implementing BEPS solutions.

B. Discussions

1. BEPS Final Deliverables

Participants welcomed the BEPS package and agreed that the implementation of the BEPS outcomes will be the next big challenge. They highlighted the importance of sharing information, balancing the need to tackle BEPS issues and to promote cross-border commercial activities. They anticipated that the Multilateral Instrument will provide clear guidance on implementing treaty-related measures, particularly with regard to measures to combat treaty abuse. They also looked forward to further guidance to be developed with regard to transfer pricing issues including the use of profit split methods.

There was particular interest in the outputs from Actions 4, 7, 8-10, 13 and the work on the digital economy. Specifically, there was detailed discussion on the scope of the changes to the definition of a permanent establishment, and on the implementation of Action 13 on country-by-country reporting.

2. Toolkits: Tax incentives for investment

Participants welcomed the report published on tax incentives and recognised that the report offered useful building blocks on the design of effective and efficient tax incentives. Participants provided useful examples of the operation of incentives in their economies, noting the opportunities and challenges with the various incentive schemes, and understood the importance of enhanced regional and international cooperation.

3. Toolkits: Indirect transfer of assets

This issue provided particular challenges to the economies in the region, and further information and guidance was welcomed. The meeting agreed to feed into the toolkit process through a questionnaire. There was in-depth discussion of the technical issues raised in the toolkit, as well as the practical implications.

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4. Toolkits: Comparability issues and transfer pricing documentation

Participants welcomed the development of a transfer pricing comparability toolkit. They added that this toolkit would not only be useful for low income countries, but could help to address issues in a broad range of countries. Participants welcomed the planned practical nature of the toolkit, particularly given the importance of transfer pricing measures to their economies.

Participants welcomed the opportunity to work regionally and globally in enhancing the utility and effectiveness of the toolkits on transfer pricing. The OECD will work with SGATAR in disseminating questionnaires on comparability data and transfer pricing documentation to the countries in the region.

C. Implementation phase and participation of the Asia-Pacific countries in the inclusive framework

Participants acknowledged that direct participation in the Committee on Fiscal Affairs and working party meetings were a great opportunity, but that resource constraints may affect direct engagement.

Participants stressed the urgency of implementing the measures agreed in the BEPS package in a consistent manner. In particular, participants were interested in implementing the new transfer pricing documentation rules, and how to implement the treaty-related measures. Participants welcomed the initiative to build a more inclusive framework. They appreciated the positive experience represented by the Global Forum on Transparency and Exchange of Information for Tax Purposes, including the peer review mechanism and the wide participation on an equal footing, but noted differences between the scope of the two initiatives.

Participants supported the OECD capacity building initiatives including the Tax Inspectors Without Borders, Global Relations programme and bilateral Tax and Development programme.

Participants considered that the regional network meetings are a useful mechanism to obtain and to share information and experiences, as well as to build stronger relationships in the region.

Next Steps

1. The outcomes of the meeting will be reported to the CFA in January. This input will feed into the design of a more inclusive framework for which a proposal will be presented in early 2016 to the G20 Finance Ministers.

2. Questionnaires relating to the toolkit process will be sent to participants to provide input to better focus the workstreams addressed and the solutions proposed.

3. A regional network event will be held in 2016.

Finally, participants thanked Indonesia and OECD-Korea Policy Centre (Tax Programme) for hosting the successful and fruitful meeting.

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http://www.oecd.org/ctp/beps-technical-meeting-asia-pacific-co-chairs-summary-of-discussions-november-2015.pdf

US & BEPS conformity: (Un)certainty

The attached letter from the Congressional tax-writing Committees to US Treasury sets the stage for future US BEPS conformity and policy approach.  This letter is especially revealing after the US has declined an invitation to be a member of the ad-hoc group for creating a BEPS Multilateral Instrument, of which over 80 countries have signaled their positive intent.

The letter also questions the positive verbal nods from the US that it has relevant legislative authority to collect the Country-by-Country report, and disseminate it, in accordance with OECD’s intent.

Additionally, the letter confirms that the US strongly adheres to the arm’s length transfer pricing principle, which was in clear evidence during the BEPS proceedings.

Only time will reveal the final answers, however the inward US focus is clearly evident as has been the case for other countries that have already adopted BEPS incentivized legislation that may not conform with OECD’s final guidelines.
The letter is attached for reference, with my highlights for emphasis.

Hatch, Ryan Call on Treasury to Engage Congress on OECD International Tax Project
Lawmakers Push to Ensure Global Tax Law Recommendations Benefit U.S. Interests
June 9, 2015 – PRESS RELEASE
Ryan: BRENDAN BUCK (202) 226-4774
Hatch: JULIA LAWLESS (202) 224-4515

WASHINGTON — In advance of the 2015 Organisation for Economic Cooperation and Development (OECD) conference on Base Erosion and Profit Shifting (BEPS) taking place this week in the nation’s capital, Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Ways & Means Committee Chairman Paul Ryan (R-WI) called on Treasury Secretary Jack Lew to work with Congress to ensure the international tax proposals being considered under the BEPS project are beneficial to American workers and job creators.
“As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees,” wrote Hatch and Ryan in a letter today. “We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.”

The text of the letter is a below and a signed copy can be found here.

June 9, 2015

The Honorable Jacob Lew

Secretary of the Treasury

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Dear Secretary Lew:

As the leaders of the Congressional tax-writing committees, we are writing to you about the need for the Treasury Department to remain engaged with Congress as you and your colleagues negotiate and develop proposals with member countries of the Organisation for Economic Co-operation and Development (OECD) and others on fundamental changes in international tax rules under the OECD’s Base Erosion and Profit Shifting (BEPS) project.

Congress is tasked with writing the tax laws of the United States, including those associated with cross-border activities of U.S. companies. Regardless of what the Treasury Department agrees to as part of the BEPS project, Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy. Close consultation between Congress and the Treasury Department should inform the BEPS discussions. We expect that as we move forward on U.S. tax reform, U.S. tax policy will not be constrained by any concessions to other nations in the BEPS project to which Congress has not agreed.

As your BEPS discussions continue and proposals are considered, we strongly encourage you to continue engagement with us and to solicit input from the tax-writing committees. We have been monitoring, and continue to monitor, the BEPS project, and we understand the significance it carries in the global community and its potential impact on U.S. workers and their multinational employers. We stand ready to work with you as the BEPS discussions conclude and final reports are issued this year so that we reach good outcomes for the United States and U.S. companies and provide an atmosphere within which we can continue to work towards U.S. tax reform.

We appreciate some of the work that your team has done as part of the OECDs BEPS project, especially efforts to defend and advocate certain long-standing tax principles, such as the arms-length transfer-pricing standard. However, we are troubled by some positions the Treasury Department appears to be agreeing to as part of this project. For example, we are concerned about the country-by-country (CbC) reporting standards that will contain sensitive information related to a U.S. multinational’s group operations. We are also concerned that Treasury has appeared to agree that foreign governments will be able to collect the so-called “master file” information directly from U.S. multinationals without any assurances of confidentiality or that the information collection is needed. The master file contains information well beyond what could be obtained in public filings and that is even more sensitive for privately-held multinational companies. We are also concerned about interest-deductibility limitation proposals on the basis of questionable empirics and metrics.

Some recent press reports have indicated that the Treasury Department believes it currently has the authority under the Internal Revenue Code to require CbC reporting by certain U.S. companies and that Internal Revenue Service (IRS) guidance on this reporting will be released later this year. We believe the authority to request, collect, and share this information with foreign governments is questionable. In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws. Therefore, we request that, before finalizing any decisions, the Treasury Department and IRS provide the tax-writing committees with a legal memorandum detailing its authority for requesting and collecting this CbC information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals. We also request that you provide a document: (i) identifying how the CbC reporting and other transfer pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be utilized, and; (ii) providing the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments. In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information.

We also have significant concerns about many of the provisions included in several other proposals of the BEPS project, including, among others, modifying the permanent establishment (PE) rules, using subjective general anti-abuse rules (GAAR) in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting. These are but a few of the areas where we recommend that we work together to find consensus and identify a path forward for consideration as part of the BEPS negotiations and, if necessary, Congressional actions.

In the coming months, we look forward to working with you with respect to the BEPS project. In the interim, we want to remind the Treasury Department that it has the ability to refrain from signing on to the BEPS final reports, and we expect you to do just that if doing so protects the interests of the United States and of U.S. persons. Many of the OECD’s BEPS project objectives are sound, and international cooperation – as well as competition – in tax policies is desirable. We trust that you agree, however, that precipitous decisions to impose constraints on U.S. tax policy and added burdens on U.S. companies, especially on the basis of weak empirics and metrics, are not desirable.

Thank you for your attention to these important matters.

BEPS Timing: Mismatch

The Dec. 2016 completion date for BEPS Action 15, Multilateral Instrument (refer to 11 Feb. post) and the completion of the remaining 15 Actions by the end of 2015 is a clear mismatch between issuance of guidelines and an efficient process for implementation.

The multilateral instrument is not projected to be available until the end of 2016, with subsequent enactment by countries in 2017, 2018 or later years.  As a result, countries will need infinite patience to wait for final guidelines, and the corresponding multilateral instrument, without enacting unilateral legislation that may be non-conforming and subject to different interpretations.  Therefore, the result will be increased complexity with more diversity in transfer pricing practices, different interpretations of the arm’s length principle and additional risks of double taxation.

As the pace of BEPS enactment and increased interest by all parties accelerates, it is hopeful that countries will be coordinated in this game of patience to address a new era of transfer pricing interpretation and documentation.  MNE’s should therefore prepare for maximum flexibility to anticipate this divergence.

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