LIVE WEBCASTUPDATE ON BEPS PROJECT

2 April 20143:00pm – 4:00pm (CEST)

2

WELCOME

3

• The BEPS project is proceeding on track• 4 Discussion Drafts

- Country by Country Reporting: 30 January 2014

- Tax Treaty Abuse: 14 March 2014

- Hybrid Mismatch Arrangements: 19 March 2014

- Digital Economy: 24 March 2014

• 3 other 2014 deliverables- Action 5: Harmful Tax Practices- Action 8: TP Aspects of Intangibles- Action 15: The Multilateral Instrument

• Work on 2015 deliverables is also ongoing

Overview

4

• Planned Public Consultations:– Preventing Treaty Abuse: 14-15 April 2014

– Digital Economy: 23 April 2014

– Hybrid Mismatch Arrangements: 15 May 2014

– TP Documentation and CbC Reporting: 19 May 2014

• Engagement with NOEs– Global Forum on Transfer Pricing (111 countries, 300 delegates)

– 4 Regional Meetings (South Korea, Colombia, South Africa, France)

• Australia G20 Symposium: 9-10 May 2014

Engagement withStakeholders

5

• Key Priorities: Interest deductibility, other base eroding payments, treaty abuse and transfer pricing actions

• Other issues: tax incentives, capacity building and awareness raising

• IMF contribution: indirect transfer of interest

• Report to the G20 Development Working Group

Review of Consultationwith Developing Countries

6

• Digital Economy

• Hybrid Mismatch Arrangements

• Tax Treaty Abuse

• Transfer Pricing aspects of Intangibles

• Transfer Pricing and Country by Country Reporting

Update

7

DIGITAL ECONOMY

8

• Overview of developments in ICT over time 

• Not possible nor useful to ring-fence the digital economy

• Some key features of the digital economy warrant attention – Mobility

– Reliance on data

– Multi-sided businesses

– Network effects

– Tendency to mono/oligopoly and

– Volatility

 

The Digital Economy

9

• Focus on BEPS structures: – No unique BEPS issue related to the digital economy but

– Some of the key features of the digital economy do exacerbate these issues

– For both income and consumption tax purposes

• BEPS Project expected to address these BEPS issues in a comprehensive manner

• Draft identifies features of the digital economy that should be taken into account when doing the work on other actions

The Digital Economyand BEPS

10

• Tax challenges that go beyond BEPS and that can be seen as more systemic: – possibility of doing business in a country without being physically

present there

– whether and how to attribute value to data

– tax characterisation issues related to payments for cloud services

– certain consumption tax aspects

• Short description of the options that so far have been considered - more work to be done

• Stakeholders input very important in this respect

The Digital Economy andbroader tax challenges

11

• Consultation:

– Comments due by 14 April 2014

– Public consultation on 23 April 2014

• Next steps on report:

– Add a chapter on fundamental tax principles

– Further development of the options

– Framework for analysing options

– More detailed examples of BEPS structures in the digital economy

Digital EconomyNext steps

12

HYBRID MISMATCHES

13

Hybrids

• What is a hybrid mismatch arrangement?– An arrangement that exploits the different tax treatment in two jurisdictions to produce

a mismatch in tax outcomes– Mismatch is either two deductions for the same payment or a deductible payment that

is not included in income by the recipient

• Where are we on the Action Item (Action Item 2)?– Early release of Public Consultation Draft on 19 March 2014– Comments due by 2 May 2014 and Public Consultation on 15 May 2014

• What are we trying to achieve?– Recommendations for domestic law changes and changes to OECD Model

Convention to deal with hybrids.– Clear, automatic and comprehensive rules that neutralise the tax mismatch without

disturbing the commercial or regulatory consequences.

http://www.oecd.org/tax/discussion-drafts-action-2-hybrid-mismatch-arrangements.htm

14

What is in the report?

• Domestic recommendations cover 3 areas:– Hybrid financial instruments (including transfers)– Payments made by a hybrid entity that give rise to duplicate deductions or

deduction / no-inclusion outcomes– Imported mismatch structures.

• Linking rules that base the tax treatment of hybrid on tax treatment in the other state.

• Deny a deduction for payment or require for it to be included in income.• Primary / secondary rule ordering to determine which jurisdiction

applies its rules first.

15

• Questions for public consultation set out in document• Interested in feedback on whether the rules proposed in the

report will give rise to unanticipated difficulties for taxpayers or industries

• Scope of the rules (particularly for hybrid financial instruments):– Applies to related parties, parties acting in concert and structured

arrangements– Approach to definition of scope still under consideration– What is perceived impact of approach to scope on tax compliance

and administration?

Questions for consultation

16

PREVENTING TREATY ABUSE

17

Three elements:A. Prevent the granting of treaty benefits in inappropriate

circumstances– Circumventing the limitations of the treaty itself– Circumventing application of domestic tax law by using

treaties

B. Clarify that Tax Treaties are not intended to generate double non-taxation

C. Tax policy considerations to consider before entering into a treaty

Treaty Abuse (1)

18

• Discussion draft: 14 March 2014

• Comments deadline: 9 April 2014

• Public consultation meeting: 14-15 April 2014

Treaty Abuse (2)

19

1. Specific treaty anti-abuse rules targeted at circumventing the limitations provided by the treaty itself:

“Treaty shopping”: Limitation-on-benefits (LOB) - Question: inclusion of a “derivative benefits” clause in the LOB

rule?

Other specific anti abuse rules:– Minimum holding period dividend transfer transactions– Transactions that circumvent the application of Art. 13 (4)– Tie breaker rule dual residence entities: MAP– Anti-abuse rule for permanent establishments situated in third

States

Prevent the granting of treaty benefits in inappropriate circumstances

20

2. Main purpose test rule– Incorporates in the Articles the guidance

already found in the Commentary on Art. 1

Prevent the granting of treaty benefits in inappropriate circumstances

21

3. Abuse targeted at circumventing domestic tax law by using treaties (relationship treaties and domestic anti- abuse rules)– Refine the analysis in Commentary (clearer

distinction between specific and general anti abuse rules)

– Case-by-case analysis for specific rules– Saving clause

Prevent the granting of treaty benefits in inappropriate circumstances

22

TRANSFER PRICING ASPECTS OF INTANGIBLES

23

• WP6 had productive meetings the previous weeks

• Tentative agreements were reached on most aspects of the 30 July 2013 Revised Discussion Draft

• Issue to be further discussed in May: Integration and correlation of Section B of Chapter VI with 2015 BEPS work on risk, re-characterisation and capital (funding)

Transfer Pricing Aspectsof Intangibles

24

TRANSFER PRICING DOCUMENTATION AND

COUNTRY BY COUNTRY REPORTING

25

• BEPS Action 13 requires development of improved TP documentation standards including a country – by – country reporting template.

• Discussion Draft 30 January 2014• 150+ comment letters / 1300 + pages• Two days of WP6 discussions last week

TP Documentation andCbyC Reporting

26

• Tentative decisions taken by WP6– Eliminate transactional reporting in C by C template – limit

transactional reporting to local file– Retain reporting of activity measures on a country basis –

number of employees, tangible assets, capital and retained earnings

– Require country level financial data for all countries but not entity-by-entity reporting

– Include a list of entities and PE’s included in each country with numbers / activity codes for each

WP6 Discussions

27

• Tentative decisions taken by WP6 (cont.)– Provide flexibility regarding sources financial data provided a

consistent approach followed for entire group and from year to year

– C by C template a separate document / not part of master file– Clarify that the master file is supposed to be a high level

overview– Flexibility as to whether master file should be prepared on a

group – wide basis or by line of business

WP6 Discussions

28

• Issues still under discussion– Filing and sharing process for C by C

template and for master file– Guidance on language– Meeting again in May

WP6 Discussions

29

QUESTIONS AND ANSWERS

30

Stay tuned!

Further Information

http://www.oecd.org/tax/beps.htm

Register to receive free e-mail alerts on the latest tax news from the OECD Centre for Tax Policy and Administration www.oecd.org/oecddirect