LIVE WEBCASTUPDATE ON BEPS PROJECT 2014 DELIVERABLES AND BEYOND
16 September 20144:00pm – 5:00pm (CEST)
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Pascal Saint-AmansDirector, Centre for Tax Policy and Administration
Raffaele RussoHead of BEPS Project
Achim ProssHead of International Cooperation and Tax Administration Division
Marlies de RuiterHead of Tax Treaty, Transfer Pricing and Financial Transactions
Speakers
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Ask questions and comment throughout the webcast
Join the discussion
Directly: Enter your question in the space provided
Via email: [email protected]
Via Twitter: Send a tweet with the hashtag #BEPS
OVERVIEW
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The BEPS Project
CoherenceHybrid Mismatch Arrangements (2)
Harmful TaxPractices (5)
InterestDeductions (4)
CFC Rules (3)
SubstancePreventing Tax
Treaty Abuse (6)
Avoidance ofPE Status (7)
TP Aspects of Intangibles (8)
TP/Risk andCapital (9)
TP/High RiskTransactions (10)
TransparencyMethodologies and Data Analysis (11)
DisclosureRules (12)
TP Documentation (13)
DisputeResolution (14)
Digital Economy (1)
Multilateral Instrument (15)
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After 12 months of work, committee meetings, online collaboration, engagement with developing countries, discussion drafts, stakeholders input, and public consultations …
… The seven 2014 deliverables have been agreed by consensus by OECD and G20 countries, together with a statement that explains their content and nature.
With this first set of deliverables, the OECD/G20 Project has gone a long way in achieving consensus on key measures to address BEPS.
Where are wein the process?
THE 2014 DELIVERABLES
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Explanatory Statement 3 Reports:
• two final reports on the Digital Economy (Action 1) and the Feasibility of a Multilateral Instrument (Action 15)
• one interim report on harmful tax competition (Action 5) 4 Instruments
• Hybrid Mismatch Arrangements• Treaty Abuse• TP Intangibles• TP Documentation and CBC template
The 2014 Deliverables
ACTION 1:
ADDRESSING THE TAX CHALLENGES
OF THE DIGITAL ECONOMY
DE and BEPS:Key conclusions
• Not possible to ring-fence digital economy for tax purposes• Key features and “new” business models that exacerbate
BEPS risks identified• Those BEPS risks will be addressed by other work in BEPS
project, which will need to consider specific issues linked to digital economy, notably:– Action 3 (CFC rules) – Action 7 (Artificial Avoidance of PE)– Actions 8-10 (Transfer Pricing) 10
DE and broader tax challengesKey conclusions (1)
• Digital economy also raises broader direct tax challenges (nexus, characterisation, and data) as well as indirect tax (VAT collection in destination country for cross-border B2C transactions)
• Options discussed (including modifications to nexus rules and withholding tax on digital goods/services) and agreement on framework for evaluation re direct tax challenges 11
• Collection of VAT in B2C transactions shall be addressed by end of 2015 through work of WP9
• Refine potential options re direct tax challenges, and evaluate impact of BEPS work on them
• Consider economic incidence of VAT and CIT and impact on potential options
• If further actions are necessary to address BEPS concerns in digital economy, consider limiting application of options for broader challenges to situations in which BEPS concerns arise
• Work will be completed by December 2015 12
DE and broader tax challengesKey conclusions (2)
ACTION 2:
NEUTRALISING THE EFFECTS OF
HYBRID MISMATCH ARRANGEMENTS
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• 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• 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.
Hybrid mismatches
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Overview of key features
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Linking rules
DN/I Instruments / entities
Indirect DN/I Instruments / entities
DD Entities only
Special rule on dividend
exemption for instruments
General rule:deny deduction
Rule order
Scope
Primary rule & defensive rule.
Controlled groups and structured arrangements.Related parties for instruments.
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Next steps
Substantive issues1. Application of hybrid instrument rule to :
• intragroup hybrid regulatory capital• certain on-market stock-lending and
repos 2. Further consideration of application of
imported mismatch rule 3. Further consideration of whether CFC
inclusion should be treated as inclusion under rule
Implementation issuesTransitional rules and guidance on implementation and operation of rules
Resolution of substantive
issues
Develop commentary
and transitional rules
Finalise September
2015
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• We have consensus on: - Linking rules as a concept and their detailed application.- Scope to ensure rules are comprehensive but still administrable by taxpayers and tax
administrations.- Rules that neutralise hybrid mismatches even if counterparty jurisdiction does not
have them.- Rules that ensure application do not lead to double taxation.
• Rules both reduce transaction costs and tax risks for cross-border investment when compared with uncoordinated action.
• Ongoing work to ensure co-ordination with other Actions• Commitment to a second phase of work with a focus on implementation issues.
Where have we got to?
ACTION 5:
COUNTERING HARMFUL TAX
PRACTICES MORE EFFECTIVELY,
TAKING INTO ACCOUNT
TRANSPARENCY AND SUBSTANCE
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Overview
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Sep. 2014
Sep. 2015
Dec. 2015
Revamp work of FHTP with a focus on •Requiring substantial activity for all preferential regimes
•Transparency and compulsory exchange of information on rulings on preferential regimes
•Review of member and associate regimes
Strategy to expand participation to non-members
Consider revision to existing criteria
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• Update on work on substantial activity as it would apply to IP regimes – Primary focus on nexus approach
• Framework for exchanging information on taxpayer specific rulings – Rulings broadly defined, also cover pre and post
transaction • List of member and associate regimes under review
Progress report on work of FHTP
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• Finalise agreement on an approach to substantial activity for IP regimes
• Agree how to apply elaborated substantial activity criteria to other, non IP regimes
• Apply framework on rulings and start to exchange information • Engage with third countries on participation in FHTP• Consider revisions or amendments to the existing criteria
applied to preferential regimes
Next steps
ACTION 6:
PREVENTING THE GRANTING OF
TREATY BENEFITS IN
INAPPROPRIATE CIRCUMSTANCES
How does the report deal with treaty abuse?
• Clear statement that treaties should avoid creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including treaty shopping
• A general treaty anti-abuse rule aimed at arrangements one of the principal purposes of which is to obtain treaty benefits
• A number of specific treaty anti-abuse rules• Clarification of the interaction of tax treaties and domestic anti-
abuse rules• Tax policy considerations to be considered before entering into a
treaty 23
How does the reportdeal with treaty abuse?
• Specific treaty anti-abuse rules proposed in the report– Limitation-on-benefits (LOB) rule to address a large number of treaty
shopping situations based on the legal nature, ownership in, and general activities of, residents of a Contracting State
– Minimum shareholding period to prevent dividend transfer transactions– Changes to Article 13(4) to prevent transactions that circumvent the
application of that rule dealing with capital gains on shares of immovable property companies
– Changes to the tie-breaker rule for determining the treaty residence of dual-resident entities
– Anti-abuse rule for permanent establishments situated in third States24
• A key outcome of the report is agreement of a minimum level of protection against treaty shopping
• At a minimum countries should agree to include in their tax treaties – An express statement that their common intention is to eliminate
double taxation without creating opportunities for treaty shopping, and – Either
• The general treaty anti-abuse rule • The LOB rule supplemented by a mechanism that would deal with conduit
arrangements not already dealt with in tax treaties• Both the general treaty anti-abuse rule and the LOB rule 25
A minimum standard toprevent treaty shopping
…before entering into a treaty• Report also provides that the OECD Model Tax
Convention will include a description of key tax policy considerations that countries should consider before deciding to conclude a treaty with another country or when considering whether to modify, replace or, as a last resort, terminate a treaty
Tax policy considerationsto be considered...
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• Model provisions and related Commentary included in the report, in particular the LOB rule, are in draft form and need to be refined
• Further work is also needed with respect to– the implementation of the minimum standard adopted to address treaty
shopping and – the treaty entitlement of various investment funds
• It will also be necessary to take account of the interaction between tax treaties and the recommendations for the design of new domestic anti-abuse rules that may result from the work on other parts of the Action Plan
Action 6:Follow-up work
ACTION 8:
GUIDANCE ON TRANSFER PRICING
ASPECTS OF INTANGIBLES
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• Final guidance:– Chapter I of the Transfer Pricing Guidelines expanded to discuss
• Location savings and other local market features• Assembled workforce• Group synergies
– New Chapter VI contains guidance on identifying intangibles and on determining arm’s length conditions
• Comparability in intangibles transactions• Transfer pricing methods and use of valuation techniques for intangibles
transactions• Numerous examples
TP of intangibles:Phase 1
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• Interim guidance on allocation of returns derived from intangibles– Legal ownership and contractual arrangements are the starting
point for the transfer pricing analysis– But parties contributing to the development, enhancement,
maintenance, protection, and exploitation of the intangible must be appropriately remunerated. This includes parties performing functions, using assets, bearing risks, as well as parties controlling such activities.
TP of intangibles:Phase 2
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• Guidance is interim because of strong links between section on returns derived from intangibles and 2015 work on risk, recharacterisation, capital and possible special measures (Actions 8-10)
• Guidance will be finalised taking into consideration issues such as excessive capitalisation, ‘cash-box’ owners of intangibles with low functionality, mere contractual allocation of risk, dealing with hard to value intangibles
TP of intangibles:Phase 2
ACTION 13:
GUIDANCE ON TRANSFER PRICING
DOCUMENTATION AND COUNTRY-BY-
COUNTRY REPORTING
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3-Tiered Approach
• Master file – High-level overview of the MNE group business
• Local file– Detailed information on specific group transactions
• Country by country report– Aggregate, jurisdiction-wide information on global allocation of
income, taxes paid, indicators of economic activity– Useful for transfer pricing risk assessment and for evaluating other
BEPS-related risks
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Content:CbC reporting template
By jurisdiction:• Revenues (related party / unrelated)• Profit (loss) before income tax• Income tax paid (cash basis) and accrued• Stated capital and accumulated earnings• Number of employees• Tangible assets other than cash/ cash equivalents
By constituent entity :• Country of organisation / incorporation (if it differs)• Main business activity
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• Content of reports finalised, but implementation and especially filing and dissemination mechanisms for master file and CbC report to be addressed over coming months
• Options include direct filing to all tax administrations, central filing, treaty exchange, technological solutions
• Major considerations cover:– Confidentiality – Timeliness– Consistency– Appropriate usage– Phase-in rules?
Implementation Report
ACTION 15: DEVELOPING A
MULTILATERAL INSTRUMENT TO
MODIFY BILATERAL TAX TREATIES
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Action 15 report
Focus on feasibility of use of a multilateral instrument to implement BEPS measures and modify bilateral tax treaties
Report drafted with help of experts Approved by government representatives
in CFA
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Based on precedents from various areas other than tax, a multilateral instrument is feasible
Annex contains a number of examples It is also desirable to ensure the sustainability of the
consensual framework to eliminate double taxation Goal is to expedite and streamline the implementation
of the measures developed to address BEPS and amend tax treaties
Key Conclusions
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In January 2015, the CFA will consider a draft mandate for the negotiation of a multilateral instrument (who / what / when / how)
Next steps
DEVELOPING COUNTRIES
ENGAGEMENT
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BEPS is of major significance due to heavy reliance on CIT, but issues may differ
Regional consultations, Global Fora and UN facilitated input into technical work and informed two-part report sent to the G20 Development Working Group highlighting priorities
Global Forum on Tax Treaties and meeting with the UN in Paris next week
Plans to strengthen and institutionalise the engagement
Developing countriesand BEPS
STAKEHOLDERS’ INPUT
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462 Comments, 5 Public Consultations, more than 10.000 webcast viewers, conferences, seminars and workshops
Consultation will continue in 2014 and 2015• First discussion drafts out in Nov/Dec• Public consultations in Jan/Feb/March
Check the updated stakeholders’ calendar online
Stakeholders’ inputvery valuable
WHAT’S NEXT?
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Work in 2014 and 2015
2014 deliverables agreed by consensus, but remain in draft form so that outstanding technical issues and impact of the 2015 deliverables can be incorporated before finalising them.
Work on 2015 under way at the level of the subsidiary bodies
JOIN THE DISCUSSION
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Ask questions and comment
Join the discussion
Directly: Enter your question in the space provided
Via email: [email protected]
Via Twitter: Send a tweet with the hashtag #BEPS
Further Information
Website: www.oecd.org/tax/beps-2014-deliverables.htm
Contact: [email protected]
Tax email alerts: www.oecd.org/oecddirect
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