LIVE WEBCASTUPDATE ON BEPS PROJECT

2014 DELIVERABLES AND BEYOND

16 September 20144:00pm – 5:00pm (CEST)

2

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

3

Ask questions and comment throughout the webcast

Join the discussion

Directly: Enter your question in the space provided

Via email: CTP.BEPS@oecd.org

Via Twitter: Send a tweet with the hashtag #BEPS

OVERVIEW

5

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)

6

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

8

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 201512

DE and broader tax challengesKey conclusions (2)

ACTION 2:

NEUTRALISING THE EFFECTS OF

HYBRID MISMATCH ARRANGEMENTS

14

• 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

15

Overview of key features

15

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.

16

Next steps

Substantive issues

1. 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 issues

Transitional rules and guidance on implementation and operation of rules

Resolution of substantive

issues

Develop commentary

and transitional rules

Finalise September

2015

17

• 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

19

Overview

19

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

20

• 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 

21

• 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...

26

27

• 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

29

• 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

30

• 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

31

• 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

33

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

34

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

35

• 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

37

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

38

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

39

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

41

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

43

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?

45

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

47

Ask questions and comment

Join the discussion

Directly: Enter your question in the space provided

Via email: CTP.BEPS@oecd.org

Via Twitter: Send a tweet with the hashtag #BEPS

Further Information

Website: www.oecd.org/tax/beps-2014-deliverables.htm

Contact: CTP.BEPS@oecd.org

Tax email alerts: www.oecd.org/oecddirect