Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘UN’

UN: Practical Manual on TP

As the OECD ventures forth in digital transactions and global minimum tax standards, it is always helpful to keep in  mind the UN Practical TP Manual for Developing Countries, which adheres to the arm’s-length principle.  Links to the Manual and the Committee of Experts on International Cooperation in Tax Matters are provided for reference.

In April 2019, a new chapter was added on Financial Transactions, Profit Splits and revised text on establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits.

  • Attachment A: the proposed new Chapter B on Financial Transactions. The draft discusses the importance of corporate financing decisions within multinational groups and how those decisions could lead to tax base erosion. The Chapter discusses interaction with rules and measures against base erosion; common types of intra- group financial transactions and of group financing departments; the process of actual delineation and relevant characteristics of financial transactions; the process and system of credit rating; potential transfer pricing methods, including the use of simplification measures/safe harbours; different types of intra group loans and relevant characteristics; determining the arm’s length nature of intra-group loans; different types of intra group financial guarantees and relevant characteristics; determining the arm’s length nature of intra-group financial guarantees; and available methods. The chapter also discusses cash pooling practices and captive insurance, without getting into further detail on the delineation and arm’s length pricing of those specific transactions. Different types of intra-group loans are mentioned, and the draft identifies four steps to determine the arm’s length nature of intra-group loans: (i) analyse economically relevant characteristics; (ii) accurately delineate the entire transaction undertaken as well as (iii) selection and (iv) application, of the most appropriate transfer pricing method. 
  • Attachment B: Revision to the guidance contained in the Manual on the transactional profit-split method (Chapter B.3.3.) with the main focus being on seeking consistency of this guidance with the work done in the context of the Inclusive Framework on BEPS, while providing more practical examples.
  • Attachment C: A progress draft of the work on sections C.2. Establishing Transfer Pricing Capability in Developing Countries (previously C.5.); C.4. Risk Assessment (Previously part of C.3.) and C.5. Transfer Pricing Audits. The purpose is mainly to streamline the sequences of presentation and to eliminate overlaps in the current text.

https://www.un.org/esa/ffd/wp-content/uploads/2019/04/18STM_CRP1_Update-UN-Practical-Manual-on-Transfer-Pricing.pdf

https://www.un.org/esa/ffd/tax-committee/about-committee-tax-experts.html

UN: Manual for Treaty Negotiations

As tax treaties become more important in the international tax landscape, for both developed and developing countries, it is important to review practical guidance provided to tax administrations to enforce such treaties.  This is a valuable primer for those involved in tax treaty interpretation and negotiation.  The recently released Manual is provided as a reference link.

The present publication, entitled United Nations Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (the Manual), aims at strengthening the technical expertise of developing countries’ tax officials as regards the negotiation of tax treaties.

It provides practical guidance to treaty negotiators in developing countries, in particular those who use the United Nations Model Double Taxation Convention between Developed and Developing Countries (the UN Model).

This Manual constitutes an introductory guide to tax treaty negotiations and, as such, provides general explanations on the way treaty negotiations are conducted and on the issues that are typically addressed during these negotiations. While it seeks to identify important issues that treaty negotiators should be aware of, it does not attempt to provide an exhaustive analysis of these issues. When preparing for treaty negotiations, the user of this Manual will therefore often need to go beyond the explanations provided in these pages and to further research the issues that are identified therein. keeping in mind that the detailed Commentaries on the provisions of the United Nations Model Double Taxation Convention between Developed and Developing Countries and of the OECD Model Tax Convention on Income and on Capital constitute the most authoritative source of information on the interpretation of these provisions.

https://www.un.org/esa/ffd/wp-content/uploads/2019/06/manual-bilateral-tax-treaties-update-2019.pdf

US int’l update

Monumental progress was recently made, in the form of 4 treaty protocols being approved; Luxembourg, Switzerland, Japan and Spain.  This will hopefully start a natural progression towards prompt treaty approvals/ratifications.

Additional Section 965, transition tax, FAQ’s were issued.  As you may recall, there was an infamous FAQ issued 13 April, 2018, whereby all overpayments from 2017 were deemed to be credited in their entirety to the 8 years, if elected, of transition tax liability. This important issue is still being contested, and am hopeful that HR 2985 calling for its proper reversal (i.e. IRS was wrong) will attract additional cosponsors and be an integral component of a tax technical corrections package that will be passed this year.

The 2019 United Nations (UN) tax treaty negotiation manual, attached for reference, was updated to reflect changes in the 2017 UN Model Treaty to include changes that resulted from the OECD’s base erosion and profit-shifting project.

Transfer pricing: IRS officials noted that completing the advance pricing and mutual agreement program’s (APMA’s) functional cost diagnostic model (FCDM) is a detailed process and taxpayers may want to submit the model form only in complex cases.

EY’s Global Tax Alert contains additional details, provided as reference.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_19_July_2019/$FILE/2019G_003420-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2019%20July%202019.pdf

https://www.un.org/esa/ffd/wp-content/uploads/2019/06/manual-bilateral-tax-treaties-update-2019.pdf

BEPS update-MLI’s, UN, ATAF…

EY’s Global Tax Alert highlights the recent BEPS developments, including the country-specific Multilateral Instruments (MLIs) with varying changes to its covered treaties and other treaty provisions.

It is noteworthy, at these MLIs approach legislation targets, that it is no longer intuitive as to how a country’s treaty provisions interact with other treaty partners, apart from general guiding principles that will vary as to the relevant details therein.

UN developments; In June 2019, the Report on the Eighteenth Session of the Committee of Experts on International Cooperation in Tax Matters (Committee), which was held by the United Nations (UN) on 23-26 April 2019 in New York, was released. The report describes a number of substantive issues related to tax cooperation in tax matters that were discussed during the session. Among others, the session addressed: (i) the next update of the UN Model Double Taxation Convention between developed and developing countries; (ii) the update of the UN Transfer Pricing (TP) Manual; (iii) dispute avoidance and resolution; and (iv) tax consequences of the digitalized economy.

African Tax Administration Forum (ATAF): In June 2019, the African Tax Administration Forum (ATAF) issued a paper on “The Place Of Africa In The Shift Towards Global Tax Governance: Can the taxation of the digitalised economy be an opportunity for more inclusiveness?” (the paper). The paper provides an overview of the current international tax governance landscape and inroads towards inclusiveness.

Country updates: Austria, Russia, Bulgaria, Canada, Finland, Guernsey, India, Ireland, Netherlands, Switzerland, Israel, China, Italy, Myanmar, New Zealand, Panama, Slovak Republic, Spain, Sweden, and Zimbabwe.

https://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_28_June_2019/$FILE/2019G_003051-19Gbl_The%20Latest%20on%20BEPS%20-%2028%20June%202019.pdf

UN: TP developments

The UN Transfer Pricing Subcommittee has provided a work designed to move forward its guidance in updating the UN Practical Manual on Transfer Pricing for Developing Countries.  The paper provides three attachments addressing:

  • Financial Transactions, a new chapter
  • Profit Splits, revised text
  • Establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits, revised text

All three attachments are significant and timely issues, noting the EU and other countries similar emphasis on these topics.

The paper is a valuable read in understanding UN’s direction on the above issues, and is included as a referenced link.

https://www.un.org/esa/ffd/wp-content/uploads/2019/04/18STM_CRP1_Update-UN-Practical-Manual-on-Transfer-Pricing.pdf

Offshore indirect transfers: TEI’s comments

On October 19, 2017, Tax Executives Institute (TEI) filed a letter with the Platform for Collaboration on Tax, a joint initiative of the World Bank, OECD, International Monetary Fund, and United Nations, regarding the Platform’s draft toolkit on the taxation of offshore indirect transfers.  TEI’s comments focused on the need for the Platform’s toolkit to educate and provide options to nations considering taxing offshore indirect transfers, rather than prescribing a preferred approach, among other things.

The Platform for Collaboration on Tax (the Platform), a joint initiative of the Organisation for Economic Co-Operation and Development, International Monetary Fund, United Nations, and World Bank, released a document entitled The Taxation of Offshore Indirect Transfers – A Toolkit (the Draft Toolkit or Toolkit) on 1 August 2017. The Draft Toolkit was designed to help developing countries address the complexities of taxing offshore indirect transfers of assets, which the Platform states is a practice by which some multinational corporations try to minimize their tax liability.

The toolkit and TEI’s submission paper are referenced herein for review

Highlights of TEI’s comments include the following points:

  • There should be symmetry and neutrality as compared to direct asset transfers
  • Status of toolkit is unclear, and is not a source of authoritative guidance
  • The goal of the draft toolkit is unclear
  • A capital gains tax can distort economic transactions
  • Gains and losses should be the subject of the toolkit
  • Most indirect transfers are made for economic, not tax, reasons
  • The general treaty definition of immovable property seems to have been abandoned with no reason

The toolkit can be applauded for launching a multi-organizational approach with some good ideas, although such ideas should be further challenged and developed prior to an overall vision and detailed rules promulgated

 

https://www.oecd.org/tax/discussion-draft-toolkit-taxation-of-offshore-indirect-transfers.pdf

 

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI-Comments-Offshore-Indirect-Transfers-Oct192017.pdf

The Platform’s TP toolkit

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.

http://www.ey.com/Publication/vwLUAssets/OECD_UN_IMF_and_World_Bank_issue_toolkit_for_addressing_difficulties_in_accessing_comparable_data_for_transfer_pricing_analysis/$FILE/2017G_04037-171Gbl_OECD%20UN%20IMF%20and%20World%20Bank%20issue%20toolkit%20for%20difficulties%20in%20accessing%20comparable%20data%20for%20TP%20analysis.pdf

http://www.oecd.org/tax/toolkit-on-comparability-and-mineral-pricing.pdf

%d bloggers like this: