Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘OECD’

TP BEPS soft law: UK / Sweden

The UK tax authority, HM Revenue & Customs (HMRC), will refer to the OECD base erosion and profit shifting (BEPS) report on BEPS Actions 8-10 in transfer pricing audits.  Maura Parsons, HMRC deputy director and head of transfer pricing, has stated that HMRC will look to the 2015 BEPS reports in addition to the current OECD guidelines (although British law explicitly refers to the 2010 version on the transfer pricing guidelines).

Additionally, Sweden has taken a similar position and adopted the final OECD report in audits.

This line of reasoning is primarily based upon the premise / supposition that the new OECD guidelines are merely a clarification of existing rules, not requiring new legislation.  

In addition to the inherent uncertainty of the new rules, UK, Sweden and other countries that will adopt this position introduce additional challenges into understanding the current law, requirements and grounds upon which appeals / court cases will be based.  This is a new trend that promises to expand quickly into other countries, undermining the intent of transparency and consistency worldwide.  

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OECD

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OECD endorses European Commission’s Anti-Tax Avoidance Package

OECD’s press release highlights their endorsement of the recently announced Anti-Tax Avoidance Package proposal.

“OECD Secretary-General Angel Gurría welcomed the Commission’s proposal, which he said marks an important milestone towards the development of a comprehensive, coherent and co-ordinated approach against corporate tax avoidance in Europe.”

http://www.oecd.org/tax/oecd-secretary-general-angel-gurria-welcomes-european-commission-corporate-tax-avoidance-proposals.htm

This acknowledgment puts additional pressure on the EU Member States for unilateral adoption, as a Member State will not want to be seen as an outlier to transparency and the tax avoidance political landscape.  Thereby, the possibility of unilateral adoption is (highly) likely.  

Placing additional context behind the BEPS statement, the press release provided the following statement: “The OECD conservatively estimates revenue losses from BEPS at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues.”

 

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OECD

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CbC Surrogate: A reporting trap!

OECD’s BEPS Action 13 provides for a Surrogate Entity substitution concept if the headquarter jurisdiction of a multinational does not provide for country-by-country (CbC) reporting for the 2016 tax year.  The concept is ideal, if a CbC reporting country considers this Surrogate Entity concept in its legislation.

A review of CbC legislative actions by different countries reveals that such legislation will be inconsistent and will require the multinational to file separate CbC reports in various countries, irrespective of its choice of appointing a surrogate country that has an extensive tax treaty network with exchange of information provisions.  

For example, the legislative language of Spain does not provide for the Surrogate Entity concept, thereby requiring a Finnish (and possibly U.S., dependent on Final Regulations) based multinational to file the 2016 Spanish CbC report in Euros.  One of the Spanish tax authority representatives recently expressed an opinion that no advance rulings/arrangements will be acceptable for CbC Surrogate Entity filing: The law is the law.

Several issues for consideration by a multinational thinking of a Surrogate include:

  • Every country’s CbC adopted legislation will require review to determine if a Surrogate filing is acceptable.
  • For countries that will require a local filing, adoption of such country’s CbC rules will be required re: content, timing, reporting currency, etc.
  • Upon conclusion of the dynamic review, the CbC template may require adaptation for  local filings of countries that have OECD + CbC legislation, adding details beyond those prescribed in BEPS Action 13.   
  • Most countries have penalties (fines/civil/criminal) applicable for failure to file a CbC report.

The definition of a Surrogate Entity, in addition to BEPS Action 13, are included for reference.

Click to access beps-action-13-country-by-country-reporting-implementation-package.pdf

The term “Surrogate Parent Entity” means one Constituent Entity of the MNE Group that has been appointed by such MNE Group, as a sole substitute for the Ultimate Parent Entity, to file the country-by-country report in that Constituent Entity’s jurisdiction of tax residence, on behalf of such MNE Group, when one or more of the conditions set out in subsection (ii) of paragraph 2 of Article 2 applies.

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OECD / UN, Tax Risk Management

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European Commission: Full speed ahead

The European Commission has clearly announced it’s intent to be the global leader in advancing OECD’s BEPS initiatives, with some proposals exceeding the scope / intent of the OECD.

Copies of the following documents are provided for reference, with subsequent posts addressing highlights of significant initiatives.  It is important to distinguish the documents between Proposals for a Council Directive, Communications, Studies and Recommendations.  

  1. Anti Tax Avoidance Package
  2. Proposal for a Council Directive re: tax avoidance practices
  3. Proposal for a Council Directive re: automatic exchange of information
  4. Annex to automatic exchange of information proposal
  5. Communication on an External Strategy for Effective Taxation
  6. Annexes to the external strategy communication
  7. Communication re: Tax Avoidance Package
  8. Study on Structures of Aggressive Tax Planning & Indicators
  9. Recommendation on implementation of measures against tax treaty abuse

The documents are required reading for all international tax practitioners, as they highlight the complex post-BEPS world and the trend indicators for the near future.  We can assume that some of these developments will proceed for action very quickly, thereby imputing a doctrine that “time is of the essence.”

http://ec.europa.eu/taxation_customs/taxation/company_tax/anti_tax_avoidance/index_en.htm

http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=COM:2016:26:FIN&from=EN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:89937d6d-c5a8-11e5-a4b5-01aa75ed71a1.0014.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:25:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_1&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

http://eur-lex.europa.eu/resource.html?uri=cellar:b5aef3db-c5a7-11e5-a4b5-01aa75ed71a1.0018.03/DOC_3&format=HTML&lang=EN&parentUrn=COM:2016:24:FIN

Click to access swd_2016_6_en.pdf

Click to access taxation_paper_61.pdf

Click to access c_2016_271_en.pdf

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OECD / UN

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OECD Multilateral pact is signed

Thirty-one countries have signed the OECD’s multilateral competent authority agreement (MCAA) for the automatic exchange of country-by-country (CbC) reports, excluding the U.S.

The signatory countries are:

  1. Australia
  2. Austria
  3. Belgium
  4. Chile
  5. Costa Rica
  6. Czech Republic
  7. Denmark
  8. Estonia
  9. Finland
  10. France
  11. Germany
  12. Greece
  13. Ireland
  14. Italy
  15. Japan
  16. Liechtenstein
  17. Luxembourg
  18. Malaysia
  19. Mexico
  20. Netherlands
  21. Nigeria
  22. Norway
  23. Poland
  24. Portugal
  25. Slovak Republic
  26. Slovenia
  27. South Africa
  28. Spain
  29. Sweden
  30. Switzerland
  31. UK

The position of the US, noticeably absent from the list,  is to enter into bilateral agreements with appropriate countries that have safeguards and governance in place, as well as countries that have an income tax treaty or tax information exchange agreement in effect.

OECD BEPS Action 13 provided models for the recommended CbC reporting options; a multilateral agreement, a double tax convention model and a model based on a tax information exchange agreement.

It will be critical to monitor the development of the CbC exchange process, in addition to timing mismatches and the necessity to identify a surrogate country, with additional complexities to consider.

 

 

 

 

 

 

 

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OECD / UN

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Finland: CbC Surrogate search

Finland has proposed its new country-by-country (CbC) reporting requirements, having an effective date of 1/1/2017, as further summarized in EY’s Global Tax Alert provided for reference.  Other countries have legislated CbC 2016 effective dates, thus a Finland multinational that does business in other countries requiring a 2016 effective date CbC report will be looking to adopt a surrogate country for its 2016 tax year.

This delay in effective date, while the intention may have been to help Finnish headquartered multinationals, presents significant complexities for their 2016 CbC reporting requirements.  However it does the provide the Finnish / US tax authorities another year to ensure reporting processes are in place to review, and exchange, CbC information.

This legislation mirrors the US proposed regulations (i.e. Final Regulations yet to be issued), which delays the effective date past 2016.

This complexity, although anticipated by the OECD’s BEPS Actions in identifying a surrogate mechanism, understates the practical uncertainties that loom ahead.  For example, some issues are called into question:

  • Will the choice of a surrogate country lock in their CbC requirements, as would be the case if its present headquarter jurisdiction adopted CbC for 2016?  Or could other countries that have add-on CbC requirements, such as Mexico’s intercompany transactional detail, claim/assert that their local requirements could apply in a surrogate situation since the headquarter jurisdiction is not subject to the CbC automatic exchange of information?
  •  The search for a surrogate country will entail the review of treaty exchange mechanisms to reduce additional CbC filings, and complexities, in other countries.
  • The identification of a surrogate will require review of CbC legislation by every country to ensure that a surrogate’s reporting / information exchange satisfies the literal reading of statutory requirements.  This comprehensive review, that may not have been required by a US or Finnish multinational due to extensive exchange of information legislation, will need to be read in the broadest sense to avoid penalties.
  • The identification of a surrogate has not been expressly anticipated by other countries that have proposed CbC legislation, apart from addressing the non-applicability of automatic exchange of information requirements for CbC reporting.

Post BEPS complexity increases with delayed reporting years for CbC reporting.  It may take some time to fully understand all the nuances and complexities of surrogate reporting to ensure potential CbC disclosures are timely met and penalties avoided.

With these complexities becoming reality, countries should clarify CbC reporting in their respective jurisdiction by CbC surrogates.  

 

Click to access 2016G_CM6162_TP_Finnish%20Government%20submits%20CbC%20reporting%20proposal.pdf

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OECD

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Global BEPS update

EY’s Global Tax Alert summarizes recent BEPS developments around the world:

Click to access 2016G_CM6166_The%20Latest%20on%20BEPS%20-%2018%20January%202016.pdf

Highlights:

  • Australia’s client experience roadmap re: its multinational anti-avoidance law (MAAL)
  • Belgium’s adverse State Aid ruling by the European Commission re: its excess profit tax rulings, which is expected to be appealed
  • Chile’s new sworn statement / tax disclosures (highlighted in a recent post)
  • Finland’s draft proposal for country-by-country (CbC) reporting and transfer pricing documentation in a Master / Local file context
  • Greece’s circular identifying preferential tax regimes
  • Korea’s draft decree for transfer pricing documentation
  • Luxembourg’s IP amendments and adoption of the EU Parent-Subsidiary Directive’s proposals
  • Netherland’s CbC and transfer pricing documentation requirements
  • Norway’s new rules for interest limitations, participation exemption regime inapplicable for hybrid instruments, and CbC reporting requirements
  • Panama to announce its decision, in March, for adoption of the OECD BEPS recommendations

The trend for recent BEPS updates reflects an expansion of definitive actions into unilateral measures, decisions whether / when to adopt OECD’s BEPS recommendations, new disclosures, subjective anti-avoidance rules with inherent complexity, and each country’s expression of intent re: BEPS Actions coupled with local add-on documentation requirements.

Monitoring of the global developments in the post-BEPS era has introduced new challenges, requiring additional resources and thought processes for documenting transfer pricing methodologies and the business aspect of significant transactions.

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OECD / UN

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CbC: US timing issues

The timing for implementation of country-by-country (CbC) reporting for non-US jurisdictions is of significant importance to US multinationals, due to the wording of the Proposed Regulations (23 Dec 2015 post).

The Proposed Regulations would require CbC reporting by US MNE’s starting in 2017, thereby not having such requirement in 2016.  If there are no changes in the Final Regulations, US MNE’s will be required to submit CBC reports in many jurisdictions around the world.  Some countries, such as Mexico, that aim to provide additional reporting items beyond the OECD model would present additional complications for a US MNE.  Contemporaneous deadlines will also have to be met, that are prior to the US deadline.

Additionally, if an election provision is adopted in the Final Regulations, this may not solve the dilemma, as many countries are drafting legislation providing that if the parent jurisdiction does not require CbC reporting, then a separate CbC report has to be filed in their local jurisdiction.  A literal reading of such language would result in a required domestic filing, as an election is not a “per se” requirement.

Similar complications will arise in countries that do not adopt CbC reporting for the tax year 2016.

Monitoring of the timing implications for CbC reporting should be a high priority to be addressed currently, with timelines established for the preparation of back-up reporting plans around the world.

 

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OECD

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EU Council: New Directive

The EU Council has provided a Directive that would introduce legislation ensuring the EU maintains its leadership role in anti-BEPS recommendations, as well as providing good tax governance for the rest of the world.  EY’s summary of the Directive is provided for reference:

Click to access 2015G_CM6047_EU%20Council%20adopts%20directive%20on%20exchange%20of%20info%20on%20tax%20rulings,%20agrees%20on%20other%20corporate%20tax%20issues.pdf

Key points:

  • Automatic exchange of tax rulings would be effective 1/1/2017.
  • Changes would be introduced for the EU Code of Conduct.
  • EU anti-BEPS proposal to include the following BEPS Actions:
    • 2: Hybrid mismatches
    • 3: CFC rules
    • 4: Interest limitations
    • 6: General anti-abuse rule (noting its inclusion for the Royalty & Interest Directive, similar to the Parent-Subsidiary Directive)
    • 7: PE status
    • 13: Country-by-Country (CbC) reporting
  • Common Corp. Tax Base (absent later consolidation phase) proposal to be introduced in 2016

The EU continues its pace to maintain its global lead in addressing anti-BEPS concerns, which will impact non-EU countries around the world.  Thereby, it provides another set of rules that would be mandated to achieve EU conformity.

 

 

 

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OECD

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TAXE: Final report for Parliamentary actions

The EU Parliament’s resolutions were passed by a vote of 508 to 108, with 85 abstentions.  The proposals call for mandatory country-by-country (CbC) reporting, a common consolidated corporate tax base (CCCTB), defined tax terms and transparency / exchange of tax rulings.  A summary press release and the full report are provided for reference:

http://www.europarl.europa.eu/news/en/news-room/content/20151120IPR03607/html/Parliament-calls-for-corporate-tax-makeover

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2015-0408+0+DOC+XML+V0//EN&language=EN

Key points:

  • Welcomes the EU Parent-Subsidiary Directive amendments, effective at year-end 2015, for a general anti-abuse rule and hybrid mismatches.
  • EU Commission has breached its obligations under Article 108 of the Lisbon Treaty by not launching state aid investigations previously.
  • EU Member States should respect the principle of profits taxation where they are generated.
  • Promote good practices on transfer pricing and the pricing of loans and finance fees in intra-group transactions.
  • Commission to further investigate restrictions of deductions for intercompany royalty payments (i.e. counter profit shifting).
  • All rulings that have an impact on other Member States to be presented in the CbC report, and shared with the Commission and tax administrations.  Rulings to be publicly disclosed in accordance with confidentiality requirements.
  • Mandatory CCCTB, with a deadline for the consolidation element and without any further impact assessments.
  • Develop measures to tackle cross-border VAT fraud.
  • Reform of the Code of Conduct on business taxation.
  • New State Aid guidelines by mid-2017.
  • EU to be a global leader in tax transparency.
  • More extensive CbC report, with intra-group transactions.
  • Accelerate European Tax Identification Number project.
  • Aggressive tax planning is incompatible with Corporate Social Responsibility (CSR).
  • Outgoing financial flows from EU are taxed at least once (i.e. withholding tax).
  • Transition period for developing countries to align with Global Standard on Automatic Information Exchange.

This report is compelling, far-reaching and a resource that will be used worldwide, as most non-EU countries will attempt to follow the ever-increasing EU intensity and propensity for changes in the international tax arena.  Thereby, it is a must read and a learning tool for non-tax executives in multinational organisations, as well as tax advisors, tax administrations and other interested parties.

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OECD / UN

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UK Autumn Statement: 2015

UK’s Autumn Statement 2015 has been announced, with several measures aimed at changing corporate tax behavior and promoting transparency with the objective to achieve a modern and fairer tax system.  A link to the Statement is provided for reference:

https://www.gov.uk/government/publications/spending-review-and-autumn-statement-2015-documents/spending-review-and-autumn-statement-2015

Key points:

  • A 60% penalty of tax due for successful general anti-abuse rule (GAAR) cases, to be implemented in 2016.  The revenue impact of this measure is highly uncertain, as it is also meant to be an incentive to change corporate tax behavior.
  • A desire to be to the most digitally advanced tax administration in the world.
  • New criminal offense for corporates failing to prevent tax evasion; failure to prevent their agents from criminally facilitating tax evasion by an individual or entity.
  • Hybrid mismatch rules to be effective 1/1/2017, following the OECD’s BEPS Guidelines.
  • Corporates to publish tax strategies as they relate to, or affect, UK taxation.
  • Cooperative compliance framework.
  • “Special measures” regime to tackle businesses that persistently engage in aggressive tax planning.

A carrot, stick and transparency approach is contained within the Statement, and thus important to follow as other countries will surely review UK’s leading initiatives to gauge impact on their respective economy.  The GAAR related penalty, which is inherently subjective, will be dictated in some fashion by HMRC’s aggressiveness to assess GAAR and a willingness to pursue it through the respective appeal avenues or court.  The tax strategy initiative will also be interesting to monitor as to its breadth and potential impact upon a company’s risk rating.

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Tax Risk Management

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Transparency & Disclosure: zooming in

EY’s recent publication takes a close-up view of transparency and disclosure trends, including a detailed analysis of several countries’ latest trends.  A link to the report is provided for reference:

Click to access EY-are-you-ready-for-your-close-up.pdf

Key Points:

  • Transparency issues of the future:
    • Country-by-Country (CbC) implementation and inconsistency of approaches
    • New transfer pricing documentation requirements
    • Public access for CbC reports and tax rulings
    • Growing trend to disclose a company’s planning, strategy, risk appetites and effective tax rates
    • Tax codes of conduct, formal and informal
    • Increased disclosure of aggressive tax positions
    • Electronic data gathering
    • Use of third-party data
    • Direct ERP access
    • Matching of data and watching for transactional trends
  • EU transparency update, including proposed Directives
  • Country transparency updates: Argentina, Australia, Brazil, China, Denmark, Ecuador, France, Germany, Greece, Mexico, Netherlands, Poland, Singapore, South Africa, South Korea, Spain, UK, US

The level of future transparency will continue to increase, with new and dissimilar demands by countries around the world.  This report unveils the global trends and issues, with comprehensive analyses of various transparency trends of major countries.  Accordingly, it is a publication that should be reviewed to better understand where the current trends are requiring future demands for transparency in a new world of international taxation.

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Tax Risk Management

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UN: Corp. tax responsibility

Principles for Responsible Investment (PRI), a UN sponsored initiative, published a report entitled “Engagement Guidance on Corporate Tax Responsibility.”  The guidance is investor oriented addressing the conduct of corporate tax responsibility, disclosure, transparency and good tax risk governance.  Therefore, this report is a valuable reference to understand today’s trend of tax disclosure and transparency from an investor’s perspective, and how multinationals may be queried in the new world of international tax transparency.

A link is attached for reference:

Click to access PRI_Tax-Guidance-2015.pdf

Key points:

  • Earnings that rely on tax planning vs. economic activity are vulnerable to tax regulatory changes, earnings risk via strategies are increasing, and some Boards may be unaware of the effect that incentives have on tax planning.
  • Corporate sustainability officers should understand tax decisions and their impact on financial results and stakeholders, with alignment between tax strategies and sustainability commitments.
  • ” Companies should be able to defend how they allocate profit to each country both to tax authorities and the general public to avoid reputational risk and investor backlash.”
  • Before engaging with companies on tax practices, investors should understand various strategies, including IP transfers, financing, marketing service arrangements, principal structures, tax havens, shell companies and tax incentives, that are summarily explained. 
  • A step plan to engage companies:
    • Identify red flags, including a formula to measure tax gap
    • Questions for Senior Management/Board re: tax policy, tax governance, managing tax-related risk, effective tax rate, tax planning strategies including structure and IP rights, and country-by-country (CbC) reporting.  

Appendices are provided for additional reference of the OECD BEPS project, examples of good tax practices re: disclosures, summary of findings from discussions with Heads of Tax in eight multinational organisations, and a Glossary / Resources.

The report, in providing formulas and explanations, includes educational material for the investor community re: tax strategies and governance, while also providing examples of tax queries and good tax governance by many multinationals.

Best Practices:

The report should be used as a metric to assess readiness and alignment for these important topics that may be raised by stakeholders, both internal and external.  To the extent such questions have not been a primary focus, this report is an impetus to raise the priority threshold in addressing tax policies, strategies and governance in a very transparent world.  Additionally, it is also worthy to review the names of multinationals cited in the report for awareness and recognition.

 

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OECD / UN

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Global mobility & BEPS risks

Global mobility will face, directly and indirectly, various challenges resulting from OECD’s BEPS proposals.  PwC’s Insights provide a concise summary of these proposals, included for reference:

Click to access pwc-oecd-final-beps-package-what-does-it-mean-for-global-mobility.pdf

Key points:

  • Treaty changes, either bilaterally or via the Multilateral Instrument, will affect key issues and risks, including permanent establishment (PE).
  • Unilateral changes, several of which have been enacted, should be reviewed with a focus on global mobility functions.
  • The transparency initiative will encourage tax authorities to aggressively pursue PE and treaty based rules.
  • What is the impact of the change for PE dependent/independent test.
  • Responsibilities of senior executives, sales representatives and regionally based employees will need to be reviewed for the new rules.
  • People functions re: controlling risk should receive separate review.
  • Intercompany agreements (i.e. legal form) should be compared to practical substance responsibilities to evidence conformity, as analyses will use legal agreements as only a first step to understand the transactions and potential consequences.

Post BEPS, it is imperative that global mobility’s function and responsibilities should be reviewed, from a tax risk awareness perspective as well as internal governance controls.  To the extent that global mobility is not closely collaborated with the tax function, the ways of working and reporting should be reviewed to address this new world of international tax transparency and the emphasis on multinationals paying their fair share of tax, however construed.

 

 

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OECD

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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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Click to access beps-technical-meeting-asia-pacific-co-chairs-summary-of-discussions-november-2015.pdf

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