On 22 June 2017, the “Platform for Collaboration on Tax” (the Platform) – a joint effort of the Organisation for Economic Co-operation and Development (OECD), United Nations (UN), International Monetary Fund (IMF) and World Bank Group (WBG) – released a toolkit (the Toolkit) designed to help developing countries address the lack of “comparables” for transfer pricing analyses and better understand mineral product pricing practices.
This Toolkit should also be reviewed by multinationals (MNEs) in developing countries to address the potential lack of comparables to better understand how the tax authorities will approach a transfer pricing audit. The mining supplement is required reading for those working in that industry.
Additional toolkits will be forthcoming:
- TP documentation
- Indirect transfer of assets
- Base eroding payments
- Tax treaty negotiation capacity
- Supply chain management
- BEPS risk assessment
As the first edition of the Toolkit has now been published, it will be interesting to watch developing countries apply the tools prescribed, providing a baseline going forward. All international tax practitioners should be familiar with this latest joint endeavor, as it is an indication of the shared resource approach that is now our future.
EY’s Global Tax Alert provides additional details, and the OECD Toolkit are referenced for review.
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.
The European Commission has proposed a new Directive calling for additional transparency into cross-border arrangements. Initially, this proposal has the liability for such reporting borne by the advisor, however it may apparently be also transferred to the taxpayer. The effective date would be 1//1/2019 with recurring reporting by the EU Member States on a quarterly basis thereafter.
In a common theme when the “transparency’ envelope is opened, the relevant basket of potential transactions is widened from the most aggressive to ordinary tax-planning transactions. Hopefully, if the Directive is adopted, the Member States will use discretion and ask questions about such transactions prior to drawing intuitive conclusions and assessing taxpayers before having all facts and transactional history for consideration.
The potential transactions include arrangements:
- To which a confidentiality clause is attached
- Where the fee is fixed by reference to the amount of the tax advantage derived or whether a tax advantage is actually derived
- That involve standardized documentation which does not need to be tailored for implementation
- Which use losses to reduce tax liability
- Which convert income into capital or other categories of revenue which are taxed at a lower level
- Which include circular transactions resulting in the round-tripping of funds
- Which include deductible cross-border payments which are, for a list of reasons, not fully taxable where received (e.g., recipient is not resident anywhere, zero or low tax rate, full or partial tax exemption, preferential tax regime, hybrid mismatch)
- Where the same asset is subject to depreciation in more than one jurisdiction
- Where more than one taxpayer can claim relief from double taxation in respect of the same item of income in different jurisdictions
- Where there is a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved
- Which circumvent EU legislation or arrangements on the automatic exchange of information (e.g., by using jurisdictions outside exchange of information arrangements, or types of income or entities not subject to exchange of information)
- Which do not conform to the “arms’ length principle” or to OECD transfer pricing guidelines
- Which fall within the scope of the automatic exchange of information on advance cross-border rulings but which are not reported or exchanged
The proposal will be submitted to the European Parliament for consideration; this additional layer of transparent information will also be viewed by other countries as potential tools to uncover similar arrangements. Several “arrangements” are also highly subjective, leading to additional transfer pricing disputes and increased double taxation.
EY’s Global Tax Alert provides additional details for this important proposal:
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.
OECD has issued its latest discussion draft on hard-to-value intangibles; comments are due by June 30, 2017.
OECD’s press release states: The Final Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”) mandated the development of guidance on the implementation of the approach to pricing hard-to-value intangibles (“HTVI”) contained in Section D.4 of Chapter VI of the Transfer Pricing Guidelines.
This discussion draft, which does not yet represent a consensus position of the Committee on Fiscal Affairs or its subsidiary bodies, presents the principles that should underline the implementation of the approach to HTVI, provides examples illustrating the application of this approach, and addresses the interaction between the approach to HTVI and the mutual agreement procedure under an applicable treaty.
As intangibles are one of the most contested issues in transfer pricing, also fact specific with subjectivity, this discussion draft merits a review by all international tax practitioners to view the current thinking by the OECD, as well as a chance to provide comments in reaction.
EY’s Global Tax Alert and the Discussion Draft references are provided:
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.