Thursday, May 17, 2018
Governments are continuing to make swift progress in bringing their preferential tax regimes in compliance with the OECD/G20 BEPS standards to improve the international tax framework.
- Four new regimes were designed to comply with FHTP standards, meeting all aspects of transparency, exchange of information, ring fencing and substantial activities and are found to be not harmful (Lithuania, Luxembourg, Singapore, Slovak Republic).
- Four regimes were abolished or amended to remove harmful features (Chile, Malaysia, Turkey and Uruguay).
- A further three regimes do not relate to geographically mobile income and/or are not concerned with business taxation, as such posing no BEPS Action 5 risks and have therefore been found to be out of scope (Kenya and two Viet Nam regimes).
Eleven new preferential regimes are identified since the last update, bringing the total to 175 regimes in over 50 jurisdictions considered by the FHTP since the creation of the Inclusive Framework. Of the 175, 31 regimes have been changed; 81 regimes require legislative changes which are in progress; 47 regimes have been determined to not pose a BEPS risk; 4 have harmful or potentially harmful features and 12 regimes are still under review.
This update shows the determination of the Inclusive Framework to comply with the international standards. For the updated table of regime results, see www.oecd.org/tax/beps/update-harmful-tax-practices-2017-progress-report-on-preferential-regimes.pdf.
Sunday, May 13, 2018
OECD invites public comments on the scope of the future revision of Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines
The OECD is considering starting two new projects to revise the guidance in Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines.
Public comments are invited on:
- the future revision of Chapter IV, “Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes” of the Transfer Pricing Guidelines, and
- the future revision of Chapter VII, “Special Considerations for Intra-Group Services”, of the Transfer Pricing Guidelines.
Interested parties are invited to send their comments no later than 20 June 2018 to TransferPricing@oecd.org in Word format . Comments in excess of ten pages should attach an executive summary limited to two pages.
All comments received will be made publicly available. Comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.
For more information, please contact Jeff VanderWolk, Head of the Tax Treaties and Transfer Pricing Division, Tomas Balco, Head of the Transfer Pricing Unit or the Communications Office at the OECD Centre for Tax Policy and Administration.
Friday, May 11, 2018
Wednesday, April 25, 2018
OECD and IGF invite comments on a draft practice note that will help developing countries address profit shifting from their mining sectors via excessive interest deductions
For many resource-rich developing countries, mineral resources present an unparalleled economic opportunity to increase government revenue. Tax base erosion and profit shifting (BEPS), combined with gaps in the capabilities of tax authorities in developing countries, threaten this prospect. One of the avenues for international profit shifting by multinational enterprises is the use of excessive interest deductions. Download Limiting-excessive-interest-deductions-discussion-draft
Building on BEPS Action 4, this practice note has been prepared by the OECD Centre for Tax Policy and Administration under a programme of co-operation with the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF), to help guide tax officials on how to strengthen their defences against BEPS. It is part of wider efforts to address some of the challenges developing countries are facing in raising revenue from their mining sectors. This work also complements action by the Platform for Collaboration on Tax and others to produce toolkits on top priority tax issues facing developing countries.
Tuesday, April 3, 2018
Notice 2018-31 provides additional guidance concerning country-by-country (CbC) reporting requirements under section 6038 and §1.6038-4. In consideration of the national security interests of the United States, this notice addresses modifications to the reporting requirement under §1.6038-4 with respect to certain U.S. multinational enterprise (MNE) groups.
Based on subsequent consultations with the Department of Defense, the Treasury Department and the IRS have determined that national security interests require modifications to the reporting requirements for U.S. MNE groups that are specified national security contractors.
The Treasury Department and the IRS intend to amend §1.6038-4 to provide the definition of specified national security contractor and modifications to the manner of reporting on Form 8975 for such U.S. MNE groups. The amended regulations will provide that U.S. MNE groups that have a Form 8975 filing obligation under §1.6038-4 and are specified national security contractors may provide Form 8975 and Schedules A (Form 8975) in the following manner:
• Complete Form 8975 with a statement at the beginning of Part II, Additional Information, that the U.S. MNE group is a specified national security contractor as defined in this notice;
• Complete one Schedule A (Form 8975) for the Tax Jurisdiction of the United States with aggregated financial and employee information for the entire U.S. MNE group in Part I, Tax Jurisdiction Information, and only the ultimate parent entity’s information in Part II, Constituent Entity Information; and
• Complete one Schedule A (Form 8975) for the Tax Jurisdiction “Stateless” with zeroes in Part I, Tax Jurisdiction Information, and only the ultimate parent entity’s information in Part II, Constituent Entity Information.
No other Schedule A (Form 8975) or additional information is required.
A specified national security contractor that has already filed Form 8975 and Schedules A (Form 8975) for prior reporting periods may file an amended Federal income tax return (following the instructions for filing of amended Federal income tax returns) and attach an amended Form 8975 and Schedules A (Form 8975) in the manner provided in section 3.02 with the amended report checkbox on Form 8975 marked.
Monday, April 2, 2018
This interim report of the OECD/G20 Inclusive Framework on BEPS is a follow-up to the work delivered in 2015 under Action 1 of the BEPS Project on addressing the tax challenges of the digital economy. It sets out the Inclusive Framework’s agreed direction of work on digitalization and the international tax rules through to 2020. It describes how digitalization is also affecting other areas of the tax system, providing tax authorities with new tools that are translating into improvements in taxpayer services, improving the efficiency of tax collection and detecting tax evasion. Download Digitalization tax interim report 2018
Friday, March 16, 2018
This interim report of the OECD/G20 Inclusive Framework on BEPS is a follow-up to the work delivered in 2015 under Action 1 of the BEPS Project on addressing the tax challenges of the digital economy. It sets out the Inclusive Framework’s agreed direction of work on digitalisation and the international tax rules through to 2020. It describes how digitalisation is also affecting other areas of the tax system, providing tax authorities with new tools that are translating into improvements in taxpayer services, improving the efficiency of tax collection and detecting tax evasion.
More than 110 countries and jurisdictions have agreed to review two key concepts of the international tax system, responding to a mandate from the G20 Finance Ministers to work on the implications of digitalisation for taxation.
The members of the OECD/G20 Inclusive Framework on BEPS will work towards a consensus-based solution by 2020, as set out in their Interim Report on the Tax Challenges Arising from Digitalisation released today. The Interim Report will be presented by OECD Secretary-General Angel Gurría to the G20 Finance Ministers at their meeting on 19-20 March in Buenos Aires, Argentina.
Building on the 2015 BEPS Action 1 Report, the Interim Report includes an in-depth analysis of the changes to business models and value creation arising from digitalisation, and identifies characteristics that are frequently observed in certain highly digitalised business models. Describing the potential implications for the international tax rules, the Interim Report identifies the positions that different countries hold, which drive their approach to possible solutions. These approaches range from those countries that consider no action is needed, to those that consider there is a need for action that would take into account user contributions, through to others who consider that any changes should apply to the economy more broadly. The Interim Report lays the ground to move forward at the OECD towards a long-term multilateral solution in the next phase of work.
“The international community has taken an important step today towards resolving the tax challenges posed by the digitalisation of the economy,” said Mr Gurría. “We have underlined the complexity of the issues, and highlighted the importance of reaching international agreement, both for our economies and the future of the rules-based system. The OECD stands ready to accompany countries as they seek to build a common understanding of the issues related to the digital economy and taxation, as well as the long-term solutions.”
Under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, a number of important new standards were delivered aimed at tackling double non-taxation. Country-level implementation of the wide-ranging BEPS package is already having an impact, with evidence emerging that some multinationals have already changed their tax arrangements to better align with their business operations. The measures are already delivering increased revenues for governments - for example, over 3 billion euros in the European Union alone as a result of the implementation of the new International VAT/GST Guidelines. Despite this success in tackling BEPS, the Interim Report underlines that many countries believe challenges to the international tax system still remain.
Inclusive Framework members recognise that they share a common interest in maintaining a single, relevant set of international tax rules. As part of the next phase of their work, they have agreed to undertake a coherent and concurrent review of the “nexus” and “profit allocation” rules - fundamental concepts relating to the allocation of taxing rights between jurisdictions and the determination of the relevant share of the multinational enterprise’s profits that will be subject to taxation in a given jurisdiction. In exploring potential changes, members would consider the impacts of digitalisation on the economy, relating to the principles of aligning profits with underlying economic activities and value creation.
While agreeing to work towards a long-term solution by 2020, some countries believe that there is a strong imperative to act quickly and are in favour of the introduction of interim measures, while other countries are opposed to them and consider that such measures will give rise to risks and adverse consequences. Those countries in favour have identified a number of considerations that they believe need to be taken into account to limit the possible adverse side-effects.
The Interim Report also looks at how digitalisation is affecting other areas of the tax system, including the opportunities that new technologies offer for enhancing taxpayer services and improving compliance, as well as the tax risks, including those relating to the block chain technology that underlies crypto-currencies.
Thursday, March 15, 2018
IRS provides additional details on section 965, transition tax; Deadlines approach for some 2017 filers
The Internal Revenue Service today provided additional information to help taxpayers meet their filing and payment requirements for the section 965 transition tax.
The Tax Cuts and Jobs Act requires various taxpayers that have untaxed foreign earnings and profits to pay a tax as if those earnings and profits had been repatriated to the United States. The new law outlines details on the tax rates, and certain taxpayers may elect to pay the transition tax over eight years.
As the March 15 and April 17 deadlines approach for various filers, the IRS released information today in a question and answer format. The Frequently Asked Questions address basic information for taxpayers affected by section 965. This includes how to report section 965 income and how to report and pay the associated tax liability. The information on IRS.gov also provides details on several elections under section 965 that taxpayers can make.
The Treasury Department and the IRS previously released three pieces of guidance related to section 965 issues including Notices 2018-07 and 2018-13 and Revenue Procedure 2018-17. The IRS will provide additional guidance and other information on IRS.gov in the weeks ahead.
Friday, February 23, 2018
First Global Conference of the Platform for Collaboration on Tax - Taxation and the Sustainable Development Goals
The Platform for Collaboration on Tax (PCT) held its First Global Conference on February 14-16, 2018 at the United Nations Headquarters in New York. The conference focused on the key directions for tax policy and administration needed to meet the Sustainable Development Goals (SDGs). Speakers and participants included senior country policymakers, tax administrators, and representatives from academia, the private sector, civil society, donor organizations, and regional tax organizations. Conference sessions will cover five thematic areas:
domestic resource mobilization and the state
the role of tax in supporting sustainable economic growth, investment and trade
the social dimensions of tax (poverty, inequality, and human development)
tax capacity development
The conference built on the vibrant global dialogue on taxation, and insights and views from the conference helped inform and shape the future work of the PCT and its members. The conference provided guidance to individual countries and other stakeholders on how to better target tax efforts to achieve the Sustainable Development Goals (SDGs).
Plenary sessions were broadcast live here: http://webtv.un.org
About the PCT
The PCT is a joint initiative of the International Monetary Fund (IMF), Organization for Economic Co-operation and Development (OECD), United Nations (UN), and the World Bank Group to strengthen collaboration on domestic resource mobilization (DRM). The Platform, which is also supported by the governments ofLuxemburg, Switzerland, and the United Kingdom, fosters collective action for stronger tax systems in developing and emerging countries. The four PCT members each support country efforts through policy dialogue, technical assistance and capacity building, knowledge creation and dissemination, and input into the design and implementation of standards for international tax matters. The PCT also produces guidance and tools on key issues of capacity building and international taxation, and has also developed the Medium-Term Revenue Strategy, which is an approach for coordinated and sustained support to country-led tax reform.
Saturday, February 10, 2018
The Inclusive Framework on BEPS has released additional guidance to give certainty to tax administrations and MNE Groups alike on the implementation of Country-by-Country (CbC) reporting (BEPS Action 13). The Inclusive Framework also approved updates to the results for preferential regime reviews conducted by the Forum on Harmful Tax Practices (FHTP) in connection with BEPS Action 5.
Further guidance on Country-by-Country reporting
The additional guidance addresses two specific issues: the definition of total consolidated group revenue and whether non-compliance with the confidentiality, appropriate use and consistency conditions constitutes systemic failure. The complete set of guidance related to CbC reporting issued so far is presented in the document released today. Also released today is a compilation of the approaches adopted by member jurisdictions of the Inclusive Framework with respect to issues where the guidance allows for alternative approaches. These documents will continue to be updated with any further guidance that may be agreed.
Updated conclusions on preferential tax regimes
Members of the Inclusive Framework are continuing to make progress in delivering the international standard on BEPS Action 5. Two Barbados' regimes, the International financial services and the Credit for foreign currency earnings/Credit for overseas projects or services, were concluded as "potentially harmful" by the Inclusive Framework in the 2017 Progress Report on Preferential Regimes. In a ministerial letter Barbados committed to amend these regimes within the FHTP's agreed timelines and in accordance with the criteria of the FHTP. The Inclusive Framework therefore agreed to update the conclusions for these two regimes to "in the process of being amended".
Canada's regime for international banking centres (IBCs) was determined to be "potentially but not actually harmful" by the FHTP in the 2004 Progress Report. Canada has abolished the IBC regime, with limited grandfathering which is consistent with the FHTP guidance and therefore the conclusion for this regime is updated to "abolished".
An updated table of regime results is now available. The OECD will continue to communicate updated results of reviews of preferential regimes as approved by the Inclusive Framework.
Sunday, February 4, 2018
BEPS Action 13: Jurisdictions implement final regulations for first filings of CbC Reports, with over 1400 bilateral relationships now in place for the automatic exchange of CbC information
a further important step was taken to implement Country-by-Country (CbC) Reporting in accordance with the BEPS Action 13 minimum standard, through activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports ("the CbC MCAA").
The automatic exchange of Country-by-Country Reports which is set to start in June 2018 will give tax administrations around the world access to key information on the annual income and profits, as well as the capital, employees and activities of Multinational Enterprise Groups that are active within their jurisdictions. With more than six months before the first exchange deadline, there are now over 1400 automatic exchange relationships in place among jurisdictions committed to exchanging CbC Reports as of mid-2018, including those under EU Council Directive 2016/881/EU and bilateral competent authority agreements (including 31 with the United States).
The full list of automatic exchange relationships that are now in place is available on the OECD website, together with an update on the implementation of the domestic legal framework for CbC Reporting in jurisdictions; on jurisdictions that do not require CbC reporting for 2016 but will permit voluntary parent surrogate filing; and on steps that have been taken by jurisdictions to address a transitional issue for the first year of CbC reporting.
This additional wave of activations of CbC Reporting exchange relationships is another important step towards the timely implementation of Country-by-Country Reporting and reflects the commitment of BEPS Inclusive Framework members from all corners of the world to the fight against base erosion and profit shifting.
Saturday, February 3, 2018
On 15 December 2017, Jersey deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("multilateral convention") with the OECD. Subsequently, on 20 December 2017, Curaçao has joined the multilateral convention, following a communication from the Kingdom of the Netherlands to the OECD. A provisional list of reservations and notifications for Curaçao has been provided and a definitive version will be deposited with the OECD at the time of the deposit of the instrument of ratification of the Kingdom of the Netherlands.
This underlines the strong commitment of Jersey and Curaçao to international tax standards to prevent the abuse of tax treaties and base erosion and profit shifting (BEPS) by multinational enterprises.
The multilateral convention offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. The multilateral convention modifies the application of thousands of bilateral tax treaties concluded to eliminate double taxation. Tax treaty-related measures that may be implemented through the multilateral convention include those on hybrid mismatch arrangements, treaty abuse, permanent establishment, and mutual agreement procedures, including agreed minimum standards to counter treaty abuse and to improve dispute resolution and an optional provision on mandatory binding arbitration.
"As the third jurisdiction after Austria and the Isle of Man to ratify the multilateral convention following the signing ceremony in June 2017, Jersey is a forerunner in the implementation of the far-reaching reforms agreed under the BEPS Project” said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. “I also welcome Curaçao as the 72nd jurisdiction covered by the convention and look forward to other jurisdictions following suit so that the benefits of the convention can take effect and improve the international tax system for the benefit of all our citizens".
Now covering 72 jurisdictions and over 1,100 treaties, the Convention is expected to be signed by additional governments in the near future.
The multilateral convention was adopted by an ad hoc Group of over 100 jurisdictions working on an equal footing on 24 November 2016 and already covers 72 jurisdictions. The Republic of Austria became the first jurisdiction to deposit its instrument of ratification for the multilateral convention on 22 September 2017, the Isle of Man, the second, on 19 October 2017, and Jersey the third on 15 December 2017. The multilateral convention will enter into force three calendar months after the date of deposit of the fifth instrument of ratification, acceptance or approval.
The OECD is the depositary of the multilateral convention and is supporting governments in the process of signature, ratification and implementation. The position of each party and signatory under the multilateral convention is available on the OECD website.
Friday, December 22, 2017
OECD releases first peer reviews of the BEPS Action 5 minimum standard on spontaneous exchange on tax rulings
As part of continuing efforts to improve tax transparency and the international tax framework, the OECD has released the first analysis of individual countries' progress in spontaneously exchanging information on tax rulings in accordance with Action 5 of the BEPS package of measures released in October 2015.
The first annual report on the exchange of information on rulings evaluates how 44 countries, including all OECD members and all G20 countries, are implementing one of the four new minimum standards agreed in the OECD/G20 BEPS Project.
A key aim of the project was to increase transparency, which resulted in a new minimum standard to ensure that information on certain tax rulings is exchanged between relevant tax administrations in a timely manner (Action 5). This minimum standard requires tax administrations to spontaneously exchange information on rulings that have been granted to a foreign related party of their resident taxpayer or a permanent establishment which, in the absence of exchange, could give rise to BEPS concerns. As a minimum standard, all members of the Inclusive Framework on BEPS have committed to implement this standard, and to have their compliance with the standard reviewed and monitored by their peers.
The standard covers rulings such as advance pricing agreements (APAs), permanent establishment rulings, related party conduit rulings, and rulings on preferential regimes. More than 10 000 relevant rulings were identified up to the end of 2016.
The annual report includes almost 50 country-specific recommendations on issues such as improving the timeliness of the exchange of information, ensuring that all relevant information on the taxpayer’s related parties is captured for exchange purposes, and ensuring that exchanges of information are made with respect to preferential tax regimes that apply to income from intellectual property.
The next annual peer review will cover all members of the Inclusive Framework, except for the developing countries that requested a deferral of their review to 2019.
- More information on the BEPS Action 5 peer review and monitoring process.
Wednesday, December 20, 2017
The Bahamas and Zambia join the Inclusive Framework on BEPS, 110 Countries Will Impose Anti-Avoidance Regime
Monday, December 18, 2017
OECD releases second round of peer reviews on implementation of BEPS minimum standards on improving tax dispute resolution mechanisms
As part of continuing efforts to improve the international tax framework and tax certainty, the OECD has released the second round of analyses of individual country efforts to improve dispute resolution mechanisms. These seven peer review reports represent the second round of stage 1 evaluations of how countries are implementing new minimum standards agreed in the OECD/G20 BEPS Project.
The reports relate to implementation by Austria, France (also available in French), Germany, Italy, Liechtenstein, Luxembourg (also available in French) and Sweden. A document addressing the implementation of best practices is also available on each jurisdiction that opted to have such best practices assessed. These seven reports include over 170 recommendations relating to the minimum standard. In stage 2 of the peer review process, each jurisdiction’s efforts to address any shortcomings identified in its stage 1 peer review report will be monitored.
These stage 1 peer review reports continue to represent an important step forward to turn the political commitments made by members of the Inclusive Framework on BEPS into measureable, tangible progress. The seven jurisdictions concerned are already working to address most deficiencies identified in their respective reports. The OECD will continue to publish stage 1 peer review reports in accordance with the Action 14 peer review assessment schedule.
Wednesday, December 6, 2017
Questions and Answers on the EU list of non-cooperative tax jurisdictions
Why has the EU produced a list of non-cooperative tax jurisdictions?
The new list is part of the EU's work to clamp down on tax evasion and avoidance. It will help the EU to deal more robustly with external threats to Member States' tax bases and to tackle third countries that consistently refuse to play fair on tax matters.
Up to now, Member States have had a patchwork approach to dealing with tax havens, which has had limited impact. In its External Strategy for Effective Taxation, the Commission suggested that a common EU list could be a more effective way of tackling countries that encourage abusive tax practices. Member States agreed that a single EU list would hold much more weight than a medley of national lists and would have an important dissuasive effect on problematic third countries.
The EU listing process also prompts change. It creates a positive incentive for international partners to improve their tax systems where there are weaknesses in their transparency and fair tax standards. Throughout the EU listing process, many countries engaged with Member States to address the deficiencies found in their tax systems.
Finally, the common EU list will also create a clearer and fairer environment for businesses and third countries. Divergent national approaches, with different 'triggers' and criteria for listing, send mixed messages to international partners regarding the EU's good governance expectations. A single EU listing process, based on clear criteria and an open dialogue process is much easier for international partners to understand and engage with.
Why weren't EU Member States assessed for this list?
The EU list is a tool to deal with external threats to Member States' tax bases. It is also a means to promote more dialogue and cooperation with international partners on tax issues.
Within the EU, different tools are used to ensure fair and transparent taxation. For example, Member States are bound by far-reaching new transparency rules and anti-avoidance measures, thanks to the ambitious EU agenda against tax abuse. The EU also leads by example when it comes to implementing the OECD BEPS measures and international transparency standards, which are now enshrined in EU hard law.
Member States' laws have been put in conformity with these global standards over the past three years, through several pieces of legislation agreed at EU level. Thanks to these changes, the EU is now is the lead when it comes to tax standards
Besides, Member States tax regimes are also subject to a high degree of scrutiny within the EU, and are challenged if they are considered to be unfair. The Code of Conduct for Business Taxation sets out principles for fair tax competition, which all Member States abide by. The Commission has also launched state aid investigations when it suspected that Member States gave unfair tax advantages to certain companies. The European Semester process is another tool to address national tax schemes which may not be up to scratch when it comes to fair and transparent taxation. It should be noted that, when assessed against the EU list criteria, all Member States are fully compliant.
How was the list compiled?
In May 2016, EU Finance Ministers endorsed the new listing process set out in the External Strategy, and subsequently agreed on common criteria to assess selected countries. They asked the Code of Conduct Group, the body comprising of Member State taxation experts in the Council, to manage the process and to present a first EU list by the end of 2017.
The list was compiled through a three-step process:
1: Pre-Selection: In September 2016, the Commission pre-assessed 213 countries using over 1600 different indicators. These indicators help to classify countries according to their economic ties with the EU, financial activity, legal and institutional stability, and tax good governance levels. This data was compiled in a Scoreboard, and helped Member States to decide which countries should be examined in greater detail. On the basis of the Scoreboard, Member States decided which countries to screen in more depth.
2: Screening: All jurisdictions chosen for screening were formally contacted, to explain the process and invite them to engage with the EU. Member State experts then assessed the selected jurisdictions' tax systems in-depth, using the agreed criteria. There were many contacts with the jurisdictions during the screening stage, to seek clarification, information and explanations from both sides.
3: Listing: Once the experts had finished the screening stage, they delivered their findings to the Code of Conduct Group. On that basis, a letter was sent to each jurisdiction, either confirming that they complied with the criteria, or highlighting deficiencies in their tax systems. Jurisdictions were asked to make high level commitments to address identified deficiencies within a set time period. Those that did not do so were put forward for listing.
The Code of Conduct Group drafted the first EU list, and submitted it to EU Finance Ministers to endorse at their monthly meeting. Member States also took note of the commitments made by various jurisdictions, and agreed on a general approach to sanctions for the listed countries.
Commission reviews third countries' risk levels
Member States agree criteria for screening
Member States assess third countries' tax systems and start dialogue
January – December 2017
Member States list countries that did not commit to addressing identified problems
5 December 2017
Continuous review of all jurisdictions. EU listupdated at least once a year.
OVERVIEW OF THE SCREENING PROCESS
213 pre-assessed for the Scoreboard
92 chosen for screening
20 given all-clear
72 asked to address deficiencies
47 committed to:
Stop harmful tax practices
Introduce substance requirements
Implement OECD BEPS
8 Hurricane Countries have more time
17 on EU List
What criteria were used in the EU listing process to assess countries?
The EU listing criteria are in line with international standards and reflect the good governance standards that Member States comply with themselves. These are:
Transparency:The country should comply with international standards on automatic exchange of information and information exchange on request. It should also have ratified the OECD's multilateral convention or signed bilateral agreements with all Member States, to facilitate this information exchange. Until June 2019, the EU only requires two out of three of the transparency criteria. After that, countries will have to meet all three transparency requirements to avoid being listed.
Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU's Code of Conduct or OECD's Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity.
BEPS implementation:The country must have committed to implement the OECD's Base Erosion and Profit Shifting (BEPS) minimum standards.
Who was responsible for screening the selected jurisdictions?
The process was led by Member States. They nominated national tax experts to screen the tax systems of the selected third countries. These experts were grouped into panels, which examined the jurisdictions against the agreed criteria. The expert panels were given guidance from the Code of Conduct Group and technical support from the Commission.
Did the screened countries have a chance to present their case?
Yes. Since the very beginning of the exercise, the Commission stressed that the EU listing process must be as fair, transparent and open as possible. At each subsequent stage, high priority was given to ensuring that the relevant countries understood the process and could respond. Many bilateral and multilateral meetings were held to this end, and there was extensive correspondence between Member States and the jurisdictions concerned.
The jurisdictions were sent a formal letter when they were selected for screening in January 2017. At the end of the screening process, they received another letter, either confirming that they were compliant or asking them to make specific improvements to their tax systems. At every stage, the jurisdictions were encouraged to engage with the EU, provide any relevant information and seek any clarifications they needed. Each country had a chance to present their position, address concerns and discuss how to deepen their cooperation with the EU on tax matters.
Why didn't Member States list every country that failed to meet the criteria?
The EU list was always intended as a last resort option – when all other efforts to engage with a third country had failed. Jurisdictions that were prepared to cooperate were not listed, so long as they gave a clear and concrete commitment to address the identified tax deficiencies.
For certain jurisdictions, specific factors needed to be taken into account. For example, 8 jurisdictions (Antigua and Barbuda, Anguilla, Bahamas, British Virgin Islands, Dominica, St Kitts and Nevis, Turks and Caicos, US Virgin Islands) that were badly hit by the hurricanes in summer 2017 have been given until early 2018 to respond to the EU's concerns. Special consideration was also given to the situation of developing countries. Least Developed Countries without financial centres were automatically excluded from the screening process, while other developing countries without financial centres were given more time to address their shortcomings.
What positive changes can already be seen as a result of the EU listing process?
A key benefit of the EU listing process is that it re-launched discussions on tax good governance and prompted countries to improve their tax systems, in line with international standards. Many jurisdictions cooperated closely with the EU during the listing process and made firm commitments to fix problems identified in their tax systems. Many others actually improved their standards immediately, in response to the EU listing exercise.
What is the breakdown of the commitments made by jurisdictions to improve their taxation standards?
In total 47 countries committed to improving their transparency standards. Once fulfilled, these commitments should enhance the tax good governance environment, globally. Work must now continue to review the situation throughout 2018.
What type of commitments did countries make in response to the EU listing process?
Member States agreed not to list jurisdictions if they committed to address the deficiencies that were found during the screening process. These commitments had to be made at high political level (e.g. Minister of Finance), and give a clear domestic timeline for implementing the changes. The commitments related to the good governance criteria used in the listing process.
Improve Transparency Standards
Armenia; Bosnia & Herzegovina; Botswana
Improve Fair Taxation
Andorra; Armenia; Aruba; Belize; Botswana; Cape Verde; Cook Islands; Curaçao; Fiji; Hong Kong SAR; Jordan; Labuan Island; Liechtenstein; Malaysia; Maldives; Mauritius; Morocco; Niue; St Vincent & Grenadines; San Marino; Seychelles; Switzerland; Taiwan, Thailand, Turkey; Uruguay; Viet Nam.
Introduce substance requirements
Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; Vanuatu.
Commit to apply OECD BEPS measures
Albania; Armenia; Aruba; Bosnia & Herzegovina; Cape Verde; Cook Islands; Faroe Islands; Fiji; Former Yugoslav Republic of Macedonia; Greenland; Jordan; Maldives; Montenegro; Morocco; Nauru; New Caledonia; Niue; Saint Vincent & Grenadines; Serbia; Swaziland; Taiwan; Vanuatu.
Why did the EU not exclude developing countries from the EU listing process?
The specific situation of developing countries was taken fully into account throughout the EU listing process. The Commission excluded 48 Least Developed Countries from the pre-assessment, in recognition of the particular constraints they face. In addition, developing countries without financial centres have been given an extra year to meet the expected standards, when deficiencies were found in their tax systems with respect to transparency and BEPS implementation.
The Commission is very sensitive to the challenges that developing countries face in the area of taxation. The External Strategy has a whole section on supporting developing countries in fighting tax abuse and collecting domestic revenues, which builds on the Commission's “Collect More, Spend Better” strategy. This delivers on the EU's commitments under the Addis Tax Initiative, such as increased support to low income countries in improving their revenue raising capacities. The Commission and Member States have also started to examine possible effects of EU and national tax policies on developing countries, to prevent negative spill-overs and ensure greater policy coherence.
What sanctions will apply to listed countries?
The EU list should have a real impact on the countries concerned, thanks to new EU legislative measures.
First, following Commission proposals the EU list is now linked to EU funding in the context of the European Fund for Sustainable Development (EFSD), the European Fund for Strategic Investment (EFSI) and the External Lending Mandate (ELM). Funds from these instruments cannot be channelled through entities in listed countries. Only direct investment in these countries (i.e. funding for projects on the ground) will be allowed, to preserve development and sustainability objectives.
Second, the Commission has made reference to the list in other relevant legislative proposals. For example, the public Country-by-Country reporting proposal includes stricter reporting requirements for multinationals with activities in listed jurisdictions. In the proposed transparency requirements for intermediaries, a tax scheme routed through an EU listed country will be automatically reportable to tax authorities. The Commission is also examining legislation in other policy areas, to see where further consequences for listed countries can be introduced.
In addition to the EU provisions, the Commission encouraged Member States to agree on coordinated sanctions to apply at national level against the listed jurisdictions. First steps have been taken in this direction. Member States have agreed on a set of countermeasures which they can choose to apply against the listed countries. These include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The Commission will support Member States' work to develop a more binding and definitive approach to sanctions for the EU list in 2018.
Will the list be updated?
Yes. The list will be updated at least once a year. This update will be based on the continuous monitoring of listed jurisdictions, as well as those that have made commitments to improve their tax systems. Depending on developments, Member States may also decide to screen even more countries in 2018. An interim report will be prepared by mid-2018 to assess progress made.
From June 2019, more stringent transparency criteria come into effect, which will require a re-assessment of all jurisdictions to ensure that they are in line. The EU listing criteria will also be updated in the future, to reflect new elements that Member States agreed upon, such as transparency on beneficial ownership, as well as possible evolutions at international level.
How can a country be de-listed by the EU?
A country will be removed from the list once it has addressed the issues of concern for the EU and has brought its tax system fully into line with the required good governance criteria. The Code of Conduct will be responsible for updating the EU list, and recommending countries for de-listing to the Council.
Is the EU list in line with the international agenda for tax good governance?
Yes, the EU list firmly supports the international tax good governance agenda. The EU listing criteria reflect internationally agreed standards and countries were encouraged to meet these standards to avoid being listed. The EU also took on board OECD assessments of countries' transparency standards and tax regimes, as part of the screening process. The Commission and Member States were in close and regular contact with the OECD throughout the listing process, to ensure that EU and international work in this area remained complementary and mutually reinforcing.
How is the EU list different from the list published by the OECD in July?
The OECD list focussed on countries that failed to meet international transparency standards, as requested by the G20. The EU list is based on a wider set of good governance criteria. In addition to transparency, it also covers fair taxation, adherence to BEPS standards, and the level of taxation, where this might encourage artificial structures and arrangements. As such, there was a wider scope to the EU listing process. This is in line with the broad spectrum of tax good governance standards that EU Member States themselves adhere to.
How does the new EU list compare to the "pan-EU list" published in 2015?
The new EU list is a fully coordinated EU project. It was conceived, developed and managed at EU level. The criteria and process were agreed by EU Finance Ministers at the ECOFIN Council, and Member States worked together to screen selected countries and to decide which ones to list. The final EU list was unanimously endorsed by Member States in Council.
The "pan-EU" list was simply a compilation of Member States' individual lists. The Commission published this consolidated version of national lists in June 2015, as a first step towards a more coordinated EU approach. The "pan-EU" list highlighted how diverse Member States' lists were, and the confusion this created for businesses and international partners. Many countries welcomed the idea of a single EU listing process, which would be clearer and easier to work with than a patchwork of different lists.
What is the difference between this list of non-cooperative tax jurisdictions and the EU anti-money laundering list?
The anti-money laundering (AML) list is focussed on countries with poor anti-money laundering and counter-terrorist financing regimes. It reflects the Financial Action Task Force (FATF) approach to dealing with countries that have not implemented internationally agreed anti-money laundering standards. Banks must apply higher due diligence controls to financial flows towards these listed countries.
The EU tax list targets external risks posed by countries that refuse to respect tax good governance standards. It has different objectives, different criteria, a different compilation process and different consequences to the AML list. Nonetheless, the two lists will complement each other in ensuring double protection for the Single Market against external good governance risks.
Tuesday, December 5, 2017
The first ever EU list of non-cooperative tax jurisdictions has been agreed today by the Finance Ministers of EU Member States during their meeting in Brussels.
In total, ministers have listed 17 countries for failing to meet agreed tax good governance standards. In addition, 47 countries have committed to addressing deficiencies in their tax systems and to meet the required criteria, following contacts with the EU. Download 17 countries
This unprecedented exercise should raise the level of tax good governance globally and help prevent the large-scale tax abuse exposed in recent scandals such as the "Paradise Papers".
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "The adoption of the first ever EU blacklist of tax havens marks a key victory for transparency and fairness. But the process does not stop here. We must intensify the pressure on listed countries to change their ways. Blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. There must be no naivety: promises must be turned into actions. No one must get a free pass."
The idea of an EU list was originally conceived by the Commission and subsequently taken forward by Member States. Compilation of the list has prompted active engagement from many of the EU's international partners. However, work must now continue as 47 more countries should meet EU criteria by the end of 2018, or 2019 for developing countries without financial centres, to avoid being listed. The Commission also expects Member States to continue towards strong and dissuasive countermeasures for listed jurisdictions which can complement the existing EU-level defensive measures related to funding.
The EU listing process is a dynamic one, which will continue into 2018:
- As a first step, a letter will be sent to all jurisdictions on the EU list, explaining the decision and what they can do to be de-listed.
- The Commission and Member States (in the Code of Conduct Group) will continue to monitor all jurisdictions closely, to ensure that commitments are fulfilled and to determine whether any other countries should be listed in the future. A first interim progress report should be published by mid-2018. The EU list will be updated at least once a year.
Thursday, November 23, 2017
The Senate Finance Committee has posted its 515 pages of new Internal Revenue Code language for a vote within 10 days. Relevant text passages for base erosion and profit shifting are excerpted below. Download Senate Version Tax Cuts and Jobs Act
SEC. 951A. GLOBAL INTANGIBLE LOW-TAXED INCOME INCLUDED IN GROSS INCOME OF UNITED STATES SHAREHOLDERS.
Description of Text by Senate Finance Committee
Under the proposal, a U.S. shareholder of any CFC must include in gross income for a taxable year its global intangible low-taxed income (“GILTI”) in a manner generally similar to inclusions of subpart F income. GILTI means, with respect to any U.S. shareholder for the shareholder’s taxable year, the excess (if any) of the shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return. The shareholder’s net deemed tangible income return is an amount equal to 10 percent of the aggregate of the shareholder’s pro rata share of the qualified business asset investment (“QBAI”) of each CFC with respect to which it is a U.S. shareholder.
(a) IN GENERAL.—Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income such shareholder’s global intangible low-taxed income for such taxable year.
(b) GLOBAL INTANGIBLE LOW-TAXED INCOME.
(1) IN GENERAL. The term ‘global intangible low-taxed income’ means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of -
(A) such shareholder’s net CFC tested income for such taxable year, over
(B) such shareholder’s net deemed tangible income return for such taxable year.
(2) NET DEEMED TANGIBLE INCOME RETURN.
The term ‘net deemed tangible income return’ means, with respect to any United States shareholder for any taxable year, an amount equal to 10 percent of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
(c) NET CFC TESTED INCOME.
(1) IN GENERAL.—The term ‘net CFC tested income’ means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
(A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder or such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
(B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
(d) QUALIFIED BUSINESS ASSET INVESTMENT.—
(1) IN GENERAL.—The term ‘qualified business asset investment’ means, with respect to any corporation for any taxable year of such controlled foreign corporation, the average of the aggregate of
the corporation’s adjusted bases as of the close of each quarter of such taxable year in specified tangible property —
(A) used in a trade or business of the corporation, and‘
(B) of a type with respect to which a deduction is allowable under section 167.
(2) SPECIFIED TANGIBLE PROPERTY.—
(A) IN GENERAL.—The term ‘specified tangible property’ means, except as provided in subparagraph (B), any tangible property used in the production of tested income.
(B) DUAL USE PROPERTY. In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property.
SEC. 250. FOREIGN-DERIVED INTANGIBLE INCOME AND GLOBAL INTANGIBLE LOW-TAXED INCOME.
Senate Finance Committee Explanation of Text
In the case of a domestic corporation for its taxable year, the proposal allows a deduction equal to 37.5 percent of the lesser of (1) the sum of its foreign-derived intangible income plus the amount of GILTI that is included in its gross income, or (2) its taxable income, determined without regard to this proposal. The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the corporation’s deemed intangible income as its foreign-derived deduction eligible income bears to its deduction eligible income.
(a) ALLOWANCE OF DEDUCTION.
(1) IN GENERAL.—In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—
(A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus
(B) 50 percent of the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year.
(b) FOREIGN-DERIVED INTANGIBLE INCOME.
(1) IN GENERAL.—The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as—
(A) the foreign-derived deduction eligible income of such corporation, bears to
(B) the deduction eligible income of such corporation.
(2) DEEMED INTANGIBLE INCOME.
(A) IN GENERAL.The term ‘deemed intangible income’ means the excess (if any) of—
(i) the deduction eligible income of the domestic corporation, over
(ii) the deemed tangible income return of the corporation.
(B) DEEMED TANGIBLE INCOME RETURN. The term ‘deemed tangible income return’ means, with respect to any corporation, an amount equal to 10 percent of the corporation’s qualified business asset investment (as defined in section 951A(d), determined by substituting ‘deduction eligible income’ for ‘tested income’ in paragraph (2) thereof).
(C) SPECIAL RULES WITH RESPECT TO RELATED PARTY TRANSACTIONS.
(i) SALES TO RELATED PARTIES.—If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless such property is sold by the related party to another person who is an unrelated party who is not a United States person and the taxpayer establishes the satisfaction of the Secretary that such property is for a foreign use.
SEC. 14222. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY TRANSFERS.
(a) DEFINITION OF INTANGIBLE ASSET. Section 936(h)(3)(B) is amended—
(vi) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment); or
(vii) any other item the value or potential value of which is not attributable to tangible property or the services of any individual.
(b) CLARIFICATION OF ALLOWABLE VALUATION METHODS.
(i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or
(ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers.
SEC. 59A. TAX ON BASE EROSION PAYMENTS OF TAXPAYERS WITH SUBSTANTIAL GROSS RECEIPTS.
Senate Finance Committee Explanation of Text for Tax on Base Erosion Payments
Under the proposal, an applicable taxpayer is required to pay a tax equal to the base erosion minimum tax amount for the taxable year. The base erosion minimum tax amount means, with respect to an applicable taxpayer for any taxable year, the excess of 10-percent of the modified taxable income of the taxpayer for the taxable year over an amount equal to the regular tax liability (defined in section 26(b)) of the taxpayer for the taxable year reduced (but not below zero) by the excess (if any) of credits allowed under Chapter 1 over the credit allowed under section 38 (general business credits) for the taxable year allocable to the research credit under section 41(a).
Modified taxable income means the taxable income of the taxpayer computed under Chapter 1 for the taxable year, determined without regard to any base erosion tax benefit with respect to any base erosion payment, or the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year.
A base erosion payment generally means any amount paid or accrued by a taxpayer to a foreign person that is a related party of the taxpayer and with respect to which a deduction is allowable, including any amount paid or accrued by the taxpayer to the related party in connection with the acquisition by the taxpayer from the related party of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation). A base erosion payment also includes any amount that constitutes reductions in gross receipts of the taxpayer that is paid to or accrued by the taxpayer with respect to: (1) a surrogate foreign corporation which is a related party of the taxpayer, and (2) a foreign person that is a member of the same expanded affiliated group as the surrogate foreign corporation. A surrogate foreign corporation has the meaning given in section 7874(a)(2), but does not include a foreign corporation treated as a domestic corporation under section 7874(b).
A base erosion tax benefit means any deduction allowed with respect to a base erosion payment for the taxable year. Any base erosion tax benefit attributable to any base erosion payment on which tax is imposed by sections 871 or 881 and with respect to which tax has been deducted and withheld under sections 1441 or 1442, is not taken into account in computing modified taxable income as defined above. If the rate of tax required to be deducted and withheld under sections 1441 or 1442 with respect to any base erosion payment is reduced, the above exclusion only applies in proportion to such reduction.
(a) IMPOSITION OF TAX.—There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle.
(b) BASE EROSION MINIMUM TAX AMOUNT.
(1) IN GENERAL.—Except as provided in paragraph (2), the term ‘base erosion minimum tax amount’ means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of—
(A) an amount equal to 10 percent of the modified taxable income of such taxpayer for the taxable year, over
(B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of—
(i) the credits allowed under this chapter against such regular tax liability, over
(ii) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a).
(2) MODIFICATIONS FOR TAXABLE YEARS BEGINNING AFTER 2025.
In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied—
(A) by substituting ‘12.5 percent’ for ’10 percent’ in subparagraph (A) thereof.
(d) BASE EROSION PAYMENT.
(1) IN GENERAL.—The term ‘base erosion payment’ means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter.
(2) PURCHASE OF DEPRECIABLE PROPERTY. Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with
the acquisition by the taxpayer from such person of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation).
(3) CERTAIN PAYMENTS TO EXPATRIATED ENTITIES.
(A) IN GENERAL Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer.
(1) IN GENERAL.—The term ‘applicable taxpayer’ means, with respect to any taxable year, a taxpayer—
(A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation,
(B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and
(C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 4 percent or higher.
Tuesday, November 21, 2017
The Inclusive Framework (IF) welcomes Qatar and Saint Kitts and Nevis, bringing to 106 the total number of countries and jurisdictions participating on an equal footing in the BEPS Project. Members of the IF have the opportunity to work together with other OECD and G20 countries on implementing the BEPS package consistently and on developing further standards to address BEPS issues.