The OECD report to G20 Finance Ministers and Central Bank Governors, resulting from the recent meeting in Riyadh this month, is attached for reference.
The report highlights that BEPS will continue to be a focus through 2025, indicating the increased transparency and reporting that is envisioned.
The recent issues of Pillar One and Two reflecting digital and global minimum taxation are addressed, based on the perception that these methodologies are a “must have” and not a “nice to have,” in the face of unilateral taxation efforts already underway.
The OECD recently published Transfer Pricing Guidance on Financial Transactions, an inclusive framework on BEPS Actions 4, 8-10. This guidance takes into consideration comments received in the July 2018 discussion draft on financial transactions.
The guidance represent an update to the OECD Transfer Pricing Guidelines.
This importance guidance presents guidance for:
Determination if the purported loan should be regarded as a loan
Treasury functions, including cash pooling, intracompany loans and hedging
Risk-free and risk-adjusted rates of return
These principles are significant in scope and consequences that also allow countries to implement approaches in their domestic legislation, so there will be areas of dispute as this new guidance is implemented and interpreted.
The OECD has published its consultation document: Review of Country-by-Country Reporting (BEPS Action 13). Comments are requested no later than March 6th.
Chapter 1 contains general topics concerning the implementation and operation of BEPS Action 13, including the MNE group experience of CbC reporting implementation by jurisdictions, the use of CbC reports by tax administrations and other aspects of BEPS Action 13, being the master file and local file.
Chapter 2 contains topics concerning the scope of CbC reporting, including the definition of an MNE group, and the level and operation of consolidated group revenue threshold.
Chapter 3 contains topics concerning the content of a CbC report, including whether aggregate or consolidated information should be provided in Table 1, whether information in Table 1 should be presented by entity rather than by tax jurisdiction, and whether additional or different information is needed.
One key item in the report is in Section 12: Should Table 1 information be presented on an entity or jurisdictional basis? There are arguments pro and con, and this is an important item to monitor.
The OECD/G20d BEPS Project has published: Harmful Tax Practices – 2018 Peer Review Reports on the Exchange of Information on Tax Rulings, referenced herein. This is the third annual peer review of the transparency framework. It covers individual reports for 112 jurisdictions, including 20 jurisdictions reviewed for the first time.
The transparency framework requires spontaneous exchange of information on five categories of taxpayer-specific rulings: (i) rulings related to certain preferential regimes, (ii) unilateral advance pricing arrangements (APAs) or other cross-border unilateral rulings in respect of transfer pricing, (iii) rulings providing for a downward adjustment of taxable adjustment of taxable profits (iv) PE rulings and (v) related party conduit rulings.
The requirement to exchange information on the rulings in the above categories includes certain past rulings as well as future rulings, pursuant to pre-defined periods which are outlined in each jurisdiction’s report and that varies according to the time when a certain jurisdiction has joined the Inclusive Framework or has been identified as a Jurisdiction of Relevance. The exchanges occur pursuant to international exchange of information agreements, which provide the legal conditions under which exchanges take place, including the need to ensure taxpayer confidentiality.
The Organisation for Economic Co-operation and Development (OECD) held a public consultation on the Secretariat Proposal for a “Unified Approach” under Pillar 1 of the BEPS 2.0 project on 21-22 November 2019 in Paris at the OECD Conference Centre.
The OECD Secretariat laid out the timeline for meetings of the Inclusive Framework for the end of January 2020 and in June/July 2020, and suggested that, at a minimum, a high-level political agreement on the Pillar One framework must be achieved by the January meeting.
One commonality voiced at the meeting was that the existing global transfer pricing system, based on the arm’s-length principle, needs to be changed and should at least be augmented by some more formulaic rules.
This common voice is expressed in terms of Pillar One re: digital tax, although this concept has also been trending for international tax in general. It will be interesting to watch this development as the meetings address Pillar Two and a global minimum tax.
Videos of the meeting and other details can be referenced in the EY Global Tax Alert.
The OECD has released a public consultation document on Global Anti-Base Erosion (GloBE), providing novel new rules to address a global minimum tax structure. Comments are due by 02 December 2019, which will assist members of the Inclusive Framework in the development of a solution for its final report to the G20 in 2020.
Comments are requested specifically in three areas: (i) use of financial accounts for tax tax base/timing differences, (ii) combining high-tax and low-tax income, and (iii) carve-out and threshold mechanisms.
The document is well worthy to read, as it shows the new direction (worldwide minimum tax), although the EU and others are yet to be completely convinced.