International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, October 13, 2017

The Platform for Collaboration on Tax invites comments on a draft toolkit on the taxation of offshore indirect transfers of assets

The draft version of The Taxation of Offshore Indirect Transfers – A Toolkit is now available for download  Download Discussion-draft-toolkit-taxation-of-offshore-indirect-transfers

The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – is seeking public feedback on a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets, a practice by which some multinational corporations try to minimise their tax liability.

The tax treatment of 'offshore indirect transfers' (OITs) — the sale of an entity located in one country that owns an OECD_globe_10cm_HD_4c"immovable" asset located in another country, by a non-resident of the country where the asset is located — has emerged as a significant concern in many developing countries. It has become a relatively common practice for some multinational corporations trying to minimise their tax burden, and is an increasingly critical tax issue in a globalised world. But there is no unifying principle on how to treat these transactions, and the issue was not addressed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. This draft toolkit, "The Taxation of Offshore Indirect Transfers – A Toolkit," examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organisations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.

The Platform partners now seek comments by 20 October 2017 from all interested stakeholders on this draft. Comments should be sent by e-mail to taxcollaborationplatform@worldbank.org, a common comment box for all the Platform organisations. Spanish and French language versions of the toolkit are forthcoming and will also be posted for comment. The Platform aims to release the final toolkit by the end of 2017.

Questions to consider

  1. Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
  2. Does it lay out a clear principle for taxing offshore indirect transfers of assets?
  3. Is the definition of an offshore indirect transfer of assets satisfactory?
  4. Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
  5. Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
  6. Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
  7. Are there other implementation approaches that should be considered?
  8. Is the draft toolkit's preference for the 'deemed disposal' method appropriate?
  9. Are the complexities in the taxation of these international transactions adequately represented? 

Please do not restrict yourself to these questions; any other views you have on addressing the taxation of offshore indirect transfers of assets would be welcome. Comments and inputs on the draft will be published, and will be taken into consideration in finalising the toolkit.

Please note that 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.

Media queries should be directed to:

IMF: media@imf.org
OECD: Pascal Saint-Amans, Pascal.Saint-Amans@oecd.org
UN: Alexander Trepelkov, trepelkov@un.org
World Bank Group: Julia Oliver, joliver@worldbankgroup.org

October 13, 2017 in BEPS | Permalink | Comments (0)

Thursday, October 12, 2017

Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment

Country-by-Country (CbC) Reporting is one of the four minimum standards under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to which over 100 countries have CbCR Tax Risks
committed, covering the tax residence jurisdictions of nearly all large MNE groups. Where CbC Reporting is implemented effectively, and in line with the conditions set out in the BEPS Action 13 Report, it will give tax authorities unprecedented access to information on the global allocation of an MNE group's revenue, profit, tax and other attributes for high level transfer pricing risk assessment and the assessment of other BEPS-related risks.

This handbook supports countries in the effective use of CbC Reports by incorporating them into a tax authority's risk assessment process, including:

  • a description of the role of tax risk assessment in tax administration, the core characteristics of an effective risk assessment system, and examples of the approaches used in different countries;
  • an outline of the information contained in CbC Reports, and the potential advantages CbC Reports have over data from other sources;
  • consideration of the ways in which CbC Reports can be incorporated into a tax authority's risk assessment framework and a description of some of the main potential tax risk indicators that may be identified using CbC Reports;
  • a description of some of the challenges that may be faced by a tax authority in using CbC Reports for tax risk assessment and how some of these may be dealt with;
  • an outline of some of the other sources of data that may be used by a tax authority alongside CbC Reports; and
  • an overview of how the results of a tax risk assessment using CbC Reports may be used and the next steps that should be taken.

 

October 12, 2017 in BEPS | Permalink | Comments (0)

Tuesday, October 10, 2017

OECD Forum on Tax Administration (FTA) Announces New Global Compliance Initiatives

We, the heads of 48 tax administrations, met in Oslo for the 11th Plenary meeting of the OECD Forum on Tax Administration (FTA). The meeting brought together over 180 delegates, OECD FTA including the Treasury Minister of Argentina - the incoming G20 Presidency - the Finance Minister of Norway, Tax Commissioners and senior officials, representatives of business as well as international partner organisations. We would like to thank our hosts, the Norwegian Tax Administration, for the excellent arrangements for this meeting and for the warm welcome to Oslo.

The Forum on Tax Administration brings together Tax Commissioners of the most advanced tax administrations worldwide, including OECD and G20 countries, to work collaboratively on global tax administration challenges and take collective action to achieve common goals. Together FTA members collect EUR 8.5 trillion in revenues to fund public services and deliver government objectives. At this year’s Plenary we focused on the following interlocking themes:

At this year’s Plenary we focused on the following interlocking themes:  Supporting the OECD/G20 international tax agenda, in particular through implementing automatic

 Supporting the OECD/G20 international tax agenda, in particular through implementing automatic exchange of information, the BEPS outcomes and actions to enhance tax certainty;
 Improving compliance through work on the shadow economy and a future focus on the effective use of data, including from online intermediaries in the sharing economy;
 Building the tax administration of the future with a focus on digital services and delivery, and supporting wider capacity building in developing countries, core to achieving the Sustainable Development Goals, including through assistance on the implementation of BEPS and automatic exchange of information.

Supporting the international tax agenda

We continue to prioritise implementation of the OECD/G20 international tax agenda. On automatic exchange of bank information, pursuant to the Common Reporting Standard (CRS), we have put everything in place domestically and internationally to exchange within the timelines to which our jurisdictions have committed. The automatic exchange of information is making accounts held offshore visible to tax authorities for the first time, allowing unpaid tax to be recovered and appropriate penalties applied to those who do not come forward voluntarily. As reported by the OECD to the G20, disclosure initiatives previously taken in advance of this change have already identified close to EUR 85 billion in
additional revenue.

September 2017, the time of our Plenary, is a key milestone for the first exchanges of CRS information and we are pleased to announce that such exchanges are now beginning between many of our members. We agreed to continue to work collaboratively to ensure that data exchanged under the CRS is of high quality and is used effectively and appropriately in the common fight against tax evasion. CRS information is being exchanged using the Common Transmission System (CTS), the first global, secure bilateral exchange system connecting tax administrations from around the world. The FTA designed, funded and built the CTS and did so on time and on budget. The CTS has substantially reduced costs, enhanced security levels, and eliminated the need for over 5000 bilateral transmission channels. We thank all ofthose involved in this huge collective effort, which we see as a template for future FTA co-operation, and we welcome the Global Forum on Transparency and Exchange of Information’s role in managing the ongoing operation of the CTS.

On BEPS, we welcomed the release of the first six MAP peer review reports under BEPS Action 14 earlier this week. FTA members have further driven forward work under Action 13 and jointly prepared for the first exchanges of CbC reports in June of next year. It is in this context that we have released two handbooks containing practical guidance on how to implement Country-by-County (CbC) reporting and how to make effective use of the information for high level risk assessment purposes, including detailed
examples of dos and don’ts.

On the tax certainty agenda we are moving forward with an ambitious and comprehensive agenda focused on dispute prevention and dispute resolution, supplementing the ongoing work on MAP and CbC, and including:

 A new international compliance assurance programme - ICAP. We launched ICAP, a pilot program that uses CbC Reports and other information to facilitate multilateral engagements between MNE groups and participating tax administrations, bringing benefits to taxpayers and tax administrations including improved risk assessment based on fully informed and targeted use of CbCR information, an efficient use of resources, a faster and clearer route to multilateral tax certainty and fewer disputes entering into MAP.
 Improved and better co-ordinated risk assessment. The ICAP pilot will be complemented by a new FTA project mapping out jurisdictions’ differing approaches to risk assessment with a view to increasing mutual understanding, closer cooperation and convergence.
 More closely integrated international audit activity. A new project will look at how to facilitate greater use of joint audits across jurisdictions, reducing costs for firms and allowing tax administrations to work jointly on the assessment of tax liabilities in cross-border operations, further reducing situations requiring resolution through MAP.
 Reducing audit adjustment not sustainable in MAP. Further work will be undertaken in improving and promoting the “Global Awareness Training for International Tax Examiners”. 

Improving compliance

The Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) has continued to provide a highly effective mechanism for bringing together tax administrations to respond to new global compliance risks and to collaborate on individual cases. The JITSIC work on the Panama Papers has resulted in a better understanding of evasion and avoidance arrangements, especially the role of intermediaries in these arrangements, improved exchange of information practices and an agreed collaborative approach to any future data leaks.

We have released a report on the Shadow Economy, which identifies the latest trends in shadow economy activity, including the rise of labour market crime, and highlights how tax administrations are responding, including through taking whole of government approaches and the use of new technologies such as online cash registers and data matching. As a result of this report, a new project is being launched to obtain and share information from online intermediaries in the sharing and gig economy on payments which might otherwise go untaxed. This project will include discussions with intermediaries including on data aspects such as the format and periodicity of data collection. Finally, tax debt management remains a priority issue for the FTA, with nearly EUR 800 billion of

Finally, tax debt management remains a priority issue for the FTA, with nearly EUR 800 billion of potentially collectible tax debt, and we have launched a new project to identify  innovative practices, including the use of behavioural insights, and to learn from best in class. Future of tax administration

Future of tax administration

All FTA members are looking at the opportunities that new technologies, analytical tools and data provide for increasing compliance, improving taxpayer service and reducing burdens. This is a fundamental rather than incremental change and the wider economic benefits can be substantial. We have released a new report on the Changing Tax Compliance Environment and Role of Audit which sets out the scale and scope of the changes taking place in the tax environment and the opportunities and challenges that arise. The digital transformation will continue to be a major focus of FTA work going forward.

Significant change is taking place in FTA member tax administrations, driven by the use of new technologies but also other factors, such as cost reductions and the taking on of new responsibilities. It is against this background, that today we are also pleased to release the Tax Administration Series 2017 which identifies how these shifts are occurring in different tax administrations, including through a large number of country examples, and provides invaluable comparative information to inform tax administrations’ strategies. We also commend the exemplary cooperation with the IMF, CIAT and IOTA in the collection of this data which has now, for the first time, created a set of comparative data on tax administrations covering more than 130 jurisdictions from around the world.

In the critical area of capacity building we took important steps in joining-up the work of individual tax administrations, supporting the Tax Inspectors Without Borders (TIWB) Initiative and in working with other regional tax organisations as well as the Platform for Collaboration on Tax (OECD, IMF, WBG, UN). A new platform has been developed by the Canada Revenue Agency, the Knowledge Sharing Platform (KSP), which allows learning tools and material to be disseminated more easily, and provides a one-stop shop to connect tax officials from around the world.

Finally, the Plenary thanked Edward Troup, Commissioner of the United Kingdom’s HM Revenue & Customs, for the leadership and direction he has shown over the last three years which have seen significant changes in the international tax environment. FTA collaboration is stronger and more effective than ever. The Plenary also welcomed the appointment of the new Chair, Hans Christian Holte, Commissioner of the Norwegian Tax Administration and looked forward to continued co-operation on the
collective opportunities and challenges for tax administrations.

October 10, 2017 in BEPS | Permalink | Comments (0)

Monday, October 9, 2017

Country-by-Country Reporting: Handbook on Effective Implementation

Country-by-Country (CbC) Reporting is one of the four minimum standards under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project to which over 100 countries have CbCR committed, covering the tax residence jurisdictions of nearly all large MNE groups. Where CbC Reporting is implemented effectively, and in line with the conditions set out in the BEPS Action 13 Report, it will give tax authorities unprecedented access to information on the global allocation of an MNE group's revenue, profit, tax and other attributes for high level transfer pricing risk assessment and the assessment of other BEPS-related risks.

This handbook is a practical guide to assist countries in implementing CbC Reporting into their domestic law, taking into account:

  • key factors that countries should consider in introducing a domestic legal framework for the filing and use of CbC Reports;
  • issues concerning the implementation and operation of an international framework for the exchange of CbC Reports;
  • operational aspects of CbC Reporting, including mechanisms to identify entities required to file CbC Reports in a country, the handling of CbC Reports and the importance of effective sanctions for non-compliance; and
  • practical issues including the importance of guidance to taxpayers and tax authority staff, engaging with stakeholders and providing training for staff who will deal with CbC Reports.

Download Beps-action-13-on-country-by-country-reporting-appropriate-use-of-information-in-CbC-reports

Lexis’ Practical Guide to U.S. Transfer Pricing fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.  Free download of chapter 2 here

October 9, 2017 in BEPS | Permalink | Comments (0)

Wednesday, October 4, 2017

State aid: Commission finds Luxembourg gave illegal tax benefits to Amazon worth around €250 million

The European Commission has concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million. This is illegal under EU State aid rules because it allowed Amazon to pay substantially less tax than other businesses. Luxembourg must now recover the illegal aid.   Download Amazon State Aid Decision

Commissioner Margrethe Vestager, in charge of competition policy, said "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others."

Following an in-depth investigation launched in October 2014, the Commission has concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification.

The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU's taxable profits.

The Commission's investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the Commission concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the ruling enabled Amazon to avoid taxation on three-quarters of the profits it made from all Amazon sales in the EU.

Amazon's structure in Europe

The Commission decision concerns Luxembourg's tax treatment of two companies in the Amazon group – Amazon EU and Amazon Europe Holding Technologies. Both are Luxembourg-incorporated companies that are fully-owned by the Amazon group and ultimately controlled by the US parent, Amazon.com, Inc.

  • Amazon EU (the "operating company") operates Amazon's retail business throughout Europe. In 2014, it had over 500 employees, who selected the goods for sale on Amazon's websites in Europe, bought them from manufacturers, and managed the online sale and the delivery of products to the customer.Amazon set up their sales operations in Europe in such a way that customers buying products on any of Amazon's websites in Europe were contractually buying products from the operating company in Luxembourg. This way, Amazon recorded all European sales, and the profits stemming from these sales, in Luxembourg.
  • Amazon Europe Holding Technologies (the "holding company") is a limited partnership with no employees, no offices and no business activities. The holding company acts as an intermediary between the operating company and Amazon in the US. It holds certain intellectual property rights for Europe under a so-called "cost-sharing agreement" with Amazon in the US. The holding company itself makes no active use of this intellectual property. It merely grants an exclusive license to this intellectual property to the operating company, which uses it to run Amazon's European retail business.

Under the cost-sharing agreement the holding company makes annual payments to Amazon in the US to contribute to the costs of developing the intellectual property. The appropriate level of these payments has recently been determined by a US tax court.

Under Luxembourg's general tax laws, the operating company is subject to corporate taxation in Luxembourg, whilst the holding company is not because of its legal form, a limited partnership.Profits recorded by the holding company are only taxed at the level of the partners and not at the level of the holding company itself. The holding company's partners were located in the US and have so far deferred their tax liability.

Amazon implemented this structure, endorsed by the tax ruling under investigation, between May 2006 and June 2014. In June 2014, Amazon changed the way it operates in Europe. This new structure is outside the scope of the Commission State aid investigation.

The scope of the Commission investigation

The role of EU State aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings or otherwise. More specifically, transactions between companies in a corporate group must be priced in a way that reflects economic reality. This means that the payments between two companies in the same group should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").

The Commission's State aid investigation concerned a tax ruling issued by Luxembourg to Amazon in 2003 and prolonged in 2011. This ruling endorsed a method to calculate the taxable base of the operating company. Indirectly, it also endorsed a method to calculate annual payments from the operating company to the holding company for the rights to the Amazon intellectual property, which were used only by the operating company.

These payments exceeded, on average, 90% of the operating company's operating profits. They were significantly (1.5 times) higher than what the holding company needed to pay to Amazon in the US under the cost-sharing agreement.

To be clear, the Commission investigation did not question that the holding company owned the intellectual property rights that it licensed to the operating company, nor the regular payments the holding company made to Amazon in the US to develop this intellectual property. It also did not question Luxembourg's general tax system as such.

Commission assessment

The Commission's State aid investigation concluded that the Luxembourg tax ruling endorsed an unjustified method to calculate Amazon's taxable profits in Luxembourg. In particular, the level of the royalty payment from the operating company to the holding company was inflated and did not reflect economic reality.

  • The operating company was the only entity actively taking decisions and carrying out activities related to Amazon's European retail business. As mentioned, its staff selected the goods for sale, bought them from manufacturers, and managed the online sale and the delivery of products to the customer. The operating company also adapted the technology and software behind the Amazon e-commerce platform in Europe, and invested in marketing and gathered customer data. This means that it managed and added value to the intellectual property rights licensed to it.
  • The holding company was an empty shell that simply passed on the intellectual property rights to the operating company for its exclusive use. The holding company was not itself in any way actively involved in the management, development or use of this intellectual property. It did not, and could not, perform any activities, to justify the level of royalty it received.

Under the method endorsed by the tax ruling, the operating company's taxable profits were reduced to a quarter of what they were in reality. Almost three quarters of Amazon's profits were unduly attributed to the holding company, where they remained untaxed. In fact, the ruling enabled Amazon to avoid taxation on three quarters of the profits it made from all Amazon sales in the EU.

On this basis, the Commission concluded that the tax ruling issued by Luxembourg endorsed payments between two companies in the same group, which are not in line with economic reality. As a result, the tax ruling enabled Amazon to pay substantially less tax than other companies. Therefore, the Commission decision found that Luxembourg's tax treatment of Amazon under the tax ruling is illegal under EU State aid rules.

image EN

The infographic is available in high resolution here.

Recovery

As a matter of principle, EU State aid rules require that incompatible State aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

In today's decision, the Commission has set out the methodology to calculate the value of the competitive advantage granted to Amazon, i.e. the difference between what the company paid in taxes and what it would have been liable to pay without the tax ruling. On the basis of available information, this is estimated to be around €250 million, plus interest. The tax authorities of Luxembourg must now determine the precise amount of unpaid tax in Luxembourg, on the basis of the methodology established in the decision.

Background

Since June 2013, the Commission has been investigating the tax ruling practices of Member States. It extended this information inquiry to all Member States in December 2014. In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU State aid rules. In August 2016, the Commission concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. The Commission also has two ongoing in-depth investigations into concerns that tax rulings may give rise to state aid issues in Luxembourg, as regards McDonald's and GDF Suez (now Engie).

This Commission has pursued a far-reaching strategy towards fair taxation and greater transparency and we have recently seen major progress. Following Commission proposals on tax transparency of March 2015, new rules on automatic exchange of information on tax rulings entered into force in January 2017. Member States have also agreed to extend their automatic exchange of information to country-by-country reporting of tax-related financial information of multinationals. A proposal is now on the table to make some of this information public. New EU rules to prevent tax avoidance via non-EU countries were adopted in May 2017 completing the Anti-Tax Avoidance Directive (ATAD) which ensures that binding and robust anti-abuse measures are applied throughout the Single Market.

In terms of ongoing legislative work, the Commission's proposals for a relaunched Common Consolidated Corporate Tax Base in October 2016 would act as a powerful tool against tax avoidance in the EU. In June 2017, the Commission proposed new transparency rules for intermediaries - including tax advisors - who design and promote tax planning schemes for their clients. This legislation will help to bring about a much greater degree of transparency and deter the use of tax rulings as an instrument for tax abuse. Finally, just this September the Commission launched a new EU agenda to ensure that the digital economy is taxed in a fair and growth-friendly way. Our Communication set out the challenges Member States currently face when it comes to acting on this pressing issue and outlines possible solutions to be explored ahead of a Commission proposal in 2018. All of the Commission's work rests on the simple principle that all companies, big and small, must pay tax where they make their profits.  

The non-confidential version of the decisions will be made available under the case number SA.38944 in the state aid register on the Commission's Competition website once any confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of State aid decisions on the internet and in the EU Official Journal.

For detailed State Aid analysis, see Practical Guide to Transfer Pricing. Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.  Free download of chapter 2 here

Previous Amazon case analysis is  

Starbucks State Aid analysis

transfer pricing update is 

 

October 4, 2017 in BEPS | Permalink | Comments (0)

Tuesday, October 3, 2017

Court strikes down Inversion Temp Regs in Chamber of Commerce v IRS

In April 2016, the Internal Revenue Service and the United States Department of the Treasury (the "Treasury Department") (together, the "Agencies") issued a rule identifying stock of foreign acquiring corporations that is to be disregarded in determining an ownership fraction relevant to categorization for federal-tax purposes because the stock is attributable to prior domestic-entity acquisitions. 26 C.F.R. § 1 .7874-8T (the "Rule"). The U.S. Chamber of Commerce and the Texas Association of Business filed a legal challenge to the IRS’s immediately effective Multiple Acquisition Rule, which attempts to prevent certain corporate mergers that are otherwise permitted under the inversion rules under Section 7874 of the Internal Revenue Code. 

The administration asked Congress to give it the authority to eliminate corporate inversions. When Congress would not do so, Treasury and the IRS ignored the clear limits of the tax code to target entirely lawful transactions.  The Chamber argued that Treasury violated the Administrative Procedural Act (APA). The Chamber argued Treasury violated the APA in issuing the Rule because the Rule exceeds Treasury's statutory jurisdiction, Treasury engaged in an arbitrary and capricious rulemaking, and Treasury failed to provide affected parties with notice and an opportunity to
comment on the Rule. 

“Treasury and the IRS ignored the clear limits of a statute, and simply rewrote the law unilaterally. This is not the way government is supposed to Chamber Commerce work in America,” said U.S. Chamber President and CEO Thomas J. Donohue.

The District Court stated that based on the broad authority granted by Congress, the court concludes the Rule does not exceed the statutory jurisdiction of Treasury.

As explained in the complaint, inversions are the natural consequence of America’s misguided policy of imposing high taxes on corporations, and then trying to export those taxes to income earned globally. “Instead of breaking the rules to punish companies engaged in lawful transactions, Washington should just do its job and comprehensively reform the tax code,” Donohue stated. “The real solution is tax reform that lowers rates for all businesses, allowing American companies to compete globally and the United States to attract foreign investment.”

Section 7874 sets a specific numerical threshold governing combination transactions between U.S. and foreign companies:  so long as the shareholders of a foreign company own more than 40 percent of the combined entity’s stock, the transaction will not be treated as an inversion subject to this statutory provision.  In order to circumvent this numerical threshold, the rule, which was made immediately effective, artificially ignores any stock owned by the foreign shareholders that came from prior acquisitions of a U.S. company within the three years before a merger.  As a result, the rule disallows some mergers that clearly satisfy the 40 percent threshold.

“Treasury and the IRS rewrote the Internal Revenue Code and steamrolled over the Administrative Procedure Act, which requires that an agency provide interested parties with notice and an opportunity to comment before a rule becomes effective,” explained Lily Fu Claffee, chief legal officer of the U.S. Chamber. “Treasury and the IRS admitted to skipping over any prior notice or opportunity to comment on their Multiple Acquisition Rule, but offered no justification for dodging their legal obligations in this way. Treasury and the IRS should not act as if they are above the basic rules that govern all federal agencies.”

The District Court stated that the standard of review is highly deferential to the action of Treasury, and a reviewing court "may not use review of an agency's environmental analysis as a guise for second-guessing substantive decisions committed to the discretion of the agency."  The court undertook a review of the full analysis by which Treasury determined the Rule is necessary to achieve the goals of the Internal Revenue Code. The court concludes Treasury did not rely on factors that Congress did not intend for them to consider or fail to consider an important aspect of the issue before them.  Thus, the court concluded Treasury did not engage in an arbitrary and capricious rulemaking.

Treasury asserted that it complied with the APA's notice-and-comment requirements because a temporary regulation may be issued without notice and comment.  The court disagreed stating that the statute specifically refers to permissible effective dates of regulations and publication of notice in the Federal Register as required by the APA but does not mention an exception for temporary rules. 

Treasury countered that the temporary regulation was merely interpretative.  The Court quoted Phillips Petroleum (5th Cir 1994): "Generally speaking.. .'substantive rules,' or 'legislative rules' are those which create law, usually implementary to an existing law; whereas interpretative rules are statements as to what the administrative officer thinks the statute or regulation means."  The Court disagreed with Treasury stating that adjustments to application and treating stock as if it were not stock are not mere interpretations of the statute, but substantive modifications to the application of the statute.  The court concluded the Rule is a substantive or legislative regulation, not an interpretive regulation, and Treasury is not therefore excused from the notice-and-comment procedure required by the APA.

Consequently, the inversion temporary regulations is unlawful and may not be enforced.

Click here to view the final judgment and here to view the order.

October 3, 2017 in BEPS | Permalink | Comments (0)

Saturday, September 30, 2017

OECD releases IT-tools to support exchange of tax information policies

The OECD has released updated and new IT-tools and guidance to support the technical implementation of the exchange of tax information under the Common Reporting Standard OECD CbCR(CRS), on Country-by-Country (CbC) Reporting and in relation to tax rulings (ETR).

In relation to CbC Reporting pursuant to BEPS Action 13, the updated CbC XML Schema and User Guide now allows MNE Groups to indicate cases of stateless entities and stateless income, as well as to specify the commercial name of the MNE Group. Furthermore, both with respect to the CbC and ETR XML Schemas and User Guides, certain clarifications have been made, in particular with respect to the correction mechanisms.

The OECD is further pleased to announce that a dedicated XML Schema and User Guide have been developed to provide structured feedback on received CbC and ETR information. The CbC and ETR Status Message XML Schemas will allow tax administrations to provide structured feedback to the sender on frequent errors encountered, with a view to improving overall data quality and receiving corrected information, where necessary. In the same context, the User Guide for providing CRS-related Status Messages has also been slightly updated to clarify the technical aspects of the structured feedback process.

The different new and updated IT-tools and user guides may be accessed here: 

September 30, 2017 in BEPS | Permalink | Comments (0)

Thursday, September 28, 2017

EU finance ministers agreed to develop new digital taxation rules

The finance and economic affairs ministers of the EU member states discussed updating international tax rules for companies at their informal meeting in Tallinn today, so that these rules could also be applied to taxing enterprises that use digital technology. The ministers agreed to move forward swiftly and to reach a common understanding at the Ecofin Council in December.

“For us, it is important to agree on new international tax rules that also take into account the business models of the digital economy. This would guarantee the equal taxation of all companies regardless of their location or place of activity. I hope that today’s discussion helped us get a step closer to a suitable solution,” said Toomas Tõniste, the Minister for Finance of Estonia, after the meeting.

“Tax problems connected with the digital economy and the need for new solutions have been a subject of discussion for a long time. At the same time, companies have to operate in unequal conditions. Countries are deprived of tax income and to compensate for that, they impose unilateral measures. This, however, harms our common market and the entire European Union,” the minister added. “Thus, the sooner we reach a solution the better. This guarantees the fairer taxation of companies and creates a better business environment.”

According to Minister Tõniste, a common solution that covers the entire European Union is also important because different tax rules in member states can create multiple taxation and lead to a belief that doing business outside of the EU is more lucrative than inside the European Union. “If we can agree on the approach inside the European Union, then we can also affect the global rules in a way that is favourable to us. We all agree that a global solution would be the best solution,” said the minister.

Business models of the digital economy differ substantially from the business models of the traditional economy, and companies often operate virtually in several countries. The international rules for taxing the profit of companies, however, still assume that in order to create a taxable profit, the company has to be physically present. This allows many companies not to pay their taxes because the tax rules are out of date. This is also one of the reasons why this situation cannot simply be solved with measures that stop companies from evading their taxes.

Estonia is of the opinion that when bringing the tax rules up to date, it is important to abandon the requirement that companies have to be physically present in a country or own assets there, and replace this with the concept of a virtual permanent establishment. A precondition for this is a more precise agreement on the virtual taxpayers who have to start paying taxes.

 

 

September 28, 2017 in BEPS | Permalink | Comments (0)

Tuesday, September 26, 2017

OECD releases first 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,  the OECD has released the first analysis of individual country efforts to  improve dispute resolution mechanisms.  The six peer review reports represent the first evaluation of how countries are implementing new minimum standards agreed in the OECD/G20 BEPS Project. The BEPS Project sets out 15 key actions to reform the international tax framework, by ensuring that profits are reported where economic activities are carried out and value is created.

A key pillar of the project focused on improving the mutual agreement procedure (MAP), which resulted in a new minimum standard to ensure that tax treaty related disputes are resolved in a timely, effective and efficient manner (Action 14). This minimum standard is complemented by a set of best practices. In addition to implementing the Action 14 minimum standard, countries committed  to have their compliance with this standard reviewed and monitored by their peers. (For further information about the OECD's work on Action 14, see: www.oecd.org/tax/beps/beps-action-14-peer-review-and-monitoring.htm.)

The first six peer review reports relate to implementation by BelgiumCanada, the NetherlandsSwitzerland, the United Kingdom and the United States. A document addressing the OECDimplementation of best practices is also available on each jurisdiction. The six reports include over 110 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. The six assessed jurisdictions performed well in various MAP areas:

  • All provide for roll-back of bilateral APAs with a view to preventing disputes from arising;
  • MAP is available and access to MAP is granted in the situations required by the minimum standard;
  • The competent authority function is adequately resourced, and takes a pragmatic and principled approach for the resolution of MAP cases; and
  • MAP agreements reached so far have been implemented on time.

The main areas where improvements are necessary concern:

  • Resolution of MAP cases within the pursued average of 24 months is a challenge for some jurisdictions, especially concerning transfer pricing cases;
  • MAP guidance is generally clear and accessible, however, improvements for some jurisdictions are necessary and already under way; and
  • Each of the six jurisdictions was given recommendations to align their tax treaty MAP provisions with the Action 14 minimum standard. For a number of those treaties, such alignment will already be realised via the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.

These first peer review reports represent an important step forward to turn the political commitments made by members of the Inclusive Framework  into measureable, tangible progress. The six jurisdictions concerned are already working to address 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.

Lexis’ Practical Guide to U.S. Transfer Pricing is updated annually to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Free download here

September 26, 2017 in BEPS | Permalink | Comments (0)

Monday, September 25, 2017

EU Commission Proposes Tax System for Digital Sales

Taxation: Commission sets out path towards fair taxation of the Digital Economy

The European Commission is today launching a new EU agenda to ensure that the digital economy is taxed in a fair and growth-friendly way. The Communication adopted by the Commission sets out the challenges Member States currently face when it comes to acting on this pressing issue and outlines possible solutions to be explored.

The aim is to ensure a coherent EU approach to taxing the digital economy that supports the Commission's key priorities of completing the Digital Single Market and ensuring the fair EU Counciland effective taxation of all companies. Today's Communication paves the way for a legislative proposal on EU rules for the taxation of profits in the digital economy, as confirmed by President Juncker in the 2017 State of the Union. Those rules could be set out as early as spring 2018. Today's paper should also feed into international work in this area, notably in the G20 and the OECD.

Andrus Ansip, Vice-President for the Digital Single Market said: “Modern taxation rules are essential to leverage the full potential of the EU's Digital Single Market and to encourage innovation and growth. This means having a modern and sustainable tax framework which provides legal certainty, growth-friendly incentives and a level playing field for all businesses. The EU continues to push for a comprehensive revision of global tax rules to meet the new realities."

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue said: "There is broad agreement that the growing digitalisation of the economy creates huge economic opportunities. At the same time, our tax systems should evolve to capture new business models while being fair, efficient and future-proof. It's also a question of sustainability of our tax revenues as traditional tax sources come under strain. Not least, it's about maintaining the integrity of the Single Market and avoiding fragmentation by finding common solutions to global challenges."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs added: "The goal of this Commission has always been to ensure that companies pay their fair share of tax where they generate profits. Digital firms make vast profits from their millions of users, even if they do not have a physical presence in the EU. We now want to create a level playing field so that all companies active in the EU can compete fairly, irrespective of whether they are operating via the cloud or from brick and mortar premises."

The current tax framework does not fit with modern realities. The tax rules in place today were designed for the traditional economy and cannot capture activities which are increasingly based on intangible assets and data. As a result, the effective tax rate of digital companies in the EU is estimated to be half that of traditional companies – and often much less. At the same time, patchwork unilateral measures by Member States to address the problem threaten to create new obstacles and loopholes in the Single Market.

The first focus should be on pushing for a fundamental reform of international tax rules, which would ensure a better link between how value is created and where it is taxed. Member States should converge on a strong and ambitious EU position, so we can push for meaningful outcomes in the OECD report to the G20 on this issue next spring. The Digital Summit in Tallinn will be a good occasion for Member States to define this position at the highest political level.

In the absence of adequate global progress, the EU should implement its own solutions to taxing the profits of digital economy companies. Today's Communication outlines the Commission's long term strategy, as well as some of the short term solutions that have been discussed at EU and international level so far. The Common Consolidated Corporate Tax Base (CCCTB) in particular offers a good basis to address the key challenges and provide a sustainable, robust and fair framework for taxing all large businesses in the future. As this proposal is currently being discussed by Member States, digital taxation could easily be included in the scope of the final agreed rules. However, short term 'quick fixes' such as a targeted turnover tax and an EU-wide advertising tax will also be assessed (see MEMO).

Next steps

As announced at the informal ECOFIN of September, the Estonian Presidency will continue working on these issues with a view to having clear and ambitious Council conclusions by the end of the year. These conclusions should act as the EU contribution to international discussions on digital taxation, and lay the basis for future work in the Single Market.

In the meantime, the Commission will continue to analyse the policy options and consult with relevant stakeholders and industry representatives on this important and pressing issue.

The Commission looks forward to the OECD's report to the G20 in spring 2018, which should set out appropriate and meaningful solutions to taxing the digital economy at the international level and which can be integrated into the upcoming Commission proposal for binding rules in the EU's Single Market. If this is not the case, the Commission will in any case be ready to present an original legislative proposal to ensure a fair, effective and competitive tax framework for the Digital Single Market.

For More Information:

Q&A (MEMO/17/3341)

DG TAXUD webpage on digital taxation

September 25, 2017 in BEPS | Permalink | Comments (0)

Friday, September 22, 2017

EU Proposes Tax on Digital Sales in State of Buyer

The Digital Single Market (DSM) is one of the 10 political priorities of the European Commission. The DSM strategy1 aims to open up digital opportunities for people and businesses EU Commissionin a market of over 500 million EU consumers. Completing the Digital Single Market could contribute to EUR 415 billion per year to Europe's economy, create jobs and transform our public services. In the 18 months following the adoption of the DSM Strategy, the European Commission delivered the announced proposals. In the mid-term review of the strategy 2 it has updated its analysis and focused on the next series of challenges. Digital technologies are transforming our world and having an important impact on taxation systems. They help improving their management, offering solutions to reduce administrative burdens, facilitate collaboration between tax authorities, and address tax evasion. However, they transform business models, with intangibles playing an increasingly important role, putting pressure on Europe's taxation system.

In the field of taxation, policy makers are struggling to find solutions which would ensure fair and effective taxation as the digital transformation of the economy accelerates. There are weaknesses in the international tax rules as they were originally designed for "brick and mortar" businesses and have now become outdated. The current tax rules no longer fit the modern context where businesses rely heavily on hard-to-value intangible assets, data and automation, which facilitate online trading across borders with no physical presence. These issues are not confined to the digital economy and potentially impact all businesses. As a result, some businesses are present in some countries where they offer services to consumers and conclude contracts with them, taking full advantage of the infrastructure and rule of law institutions available while they are not considered present for tax purposes. This free rider position tilts the playing field in their favour compared to established businesses.

The underlying principle for corporation tax is that profits should be taxed where the value is created. However, in a digitalised world, it is not always very clear what that value is, how to measure it, or where it is created.
The two main policy challenges that need to be addressed can be summarised as follows:

  • Where to tax? (nexus) – how to establish and protect taxing rights in a country where businesses can provide services digitally with little or no physical presence despite having a commercial presence; and
  • What to tax? (value creation) – how to attribute profit in new digitalised business models driven by intangible assets, data and knowledge.

These challenges need to be looked at together to find a meaningful solution for determining where economic activities are carried out and value is created for tax purposes. The issue of "Where to tax?" – how to establish taxing rights in a country where a business only has a digital presence and no physical presence – can be illustrated by the following theoretical example.

Some alternative options for shorter-term solutions
 Equalisation tax on turnover of digitalised companies - A tax on all untaxed or insufficiently taxed income generated from all internet-based business activities, including business-to-business and business-to-consumer, creditable against the corporate income tax or as a separate tax.
 Withholding tax on digital transactions - A standalone gross-basis final withholding tax on certain payments made to non-resident providers of goods and services ordered online.
 Levy on revenues generated from the provision of digital services or advertising activity - A separate levy could be applied to all transactions concluded remotely with in-country customers where a non-resident entity has a significant economic presence.

Download EU Commission Report on the Tax Proposals for the Digital Economy

September 22, 2017 in BEPS | Permalink | Comments (0)

Friday, September 8, 2017

OECD releases further guidance on Country-by-Country reporting (BEPS Action 13)

The OECD's Inclusive Framework on BEPS has released two sets of guidance to give greater certainty to tax administrations and OECD MNE Groups alike on the implementation and operation of Country-by-Country (CbC) Reporting (BEPS Action 13).

Existing guidance on the implementation of CbC Reporting has been updated and now addresses the following issues: 1) the definition of revenues; 2) the treatment of MNE groups with a short accounting period; and 3) the treatment of the amount of income tax accrued and income tax paid. The complete set of interpretative guidance related to CbC Reporting issued so far is presented in the document released today. This will continue to be updated with any further guidance that may be agreed.

Guidance has also been released on the appropriate use of the information contained in CbC Reports. This includes guidance on the meaning of "appropriate use", the consequences of non-compliance with the appropriate use condition and approaches that may be used by tax administrations to ensure the appropriate use of CbCR information.

On June 8, 2015, the OECD published the Country-by-Country Reporting Implementation Package (CbC Implementation Package). The CbC Implementation Package establishes four key aspects:

  1. the timing of preparation and filing of the CbC Report,
  2. the scope of MNEs subject to CbC Reporting,
  3. the conditions underpinning the obtaining and use of the CbC Report, and
  4. the framework for government-to-government mechanisms to exchange CbC Reports.


In accordance with the February 2015 Guidance, the Country-by-Country Reporting Implementation Package consists of: (1) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence including backup filing requirements and (2) three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC Reports, based on the Multilateral Convention on Administrative Assistance in Tax Matters; bilateral tax conventions; and Tax Information Exchange Agreements (TIEAs).

The OECD has drawn from the Multilateral Convention on Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement for the implementation of the Common Reporting Standard (CRS) (relevant for exchange of financial information concerning individuals) and created the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the “CbC MCAA”). The CbC MCAA mechanism for authorization between countries may be either the exchange of information article of the double tax treaties or of Tax Information Exchange Agreements. As of June 22, 2017, the CbCR MCAA has attracted 64 countries signatories.  The U.S. is not a signatory.  The U.S. will instead exchange country-by-country reports via its existing tax treaty network. As of August 20, 2017, the countries that the U.S. will undertake CbCR with are: Australia, Belgium, Brazil, Canada, Denmark, Estonia, Guernsey, Iceland, Ireland, Ilse of Man, Jamaica, Latvia, Malta, Netherlands, New Zealand, Norway, Republic of Korea, Slovakia, and South Africa.

The CbC MCAA establishes protocols and procedures for Competent Authorities of jurisdictions to automatically exchange CbC Reports prepared by the reporting entity of an MNE Group and filed on an annual basis with the tax authorities of the jurisdiction of tax residence of that entity and with the tax authorities of all jurisdictions in which the MNE Group operates. The OECD reported that it will develop an XML Schema and a related User Guide for the electronic exchange of CbC Reports, following the path established by the CRS.

The OECD BEPS country-by-country reporting initiative is receiving, in particular among developing countries, wide spread interest and adoption for 2016 by many countries. While the IRS currently relies on Forms 5471 and 5472, and the Schedule UTP where applicable, from fiscal year 2016, adhering to the OECD’s schedule, the IRS will also require country-by-country reporting. The Treasury Department’s 2015–16 Priority Guidance Plan highlighted that Treasury examined regulations under Sections 6011 and 6038 to incorporate country-by-country reporting of income, earnings, taxes paid, and certain economic activity for transfer pricing risk assessment. Senator Orrin Hatch has raised the issue as to whether Congress has given Treasury the statutory authority to initiate this reporting requirement.

On December 23, 2015, the U.S. Treasury issued proposed regulation REG-109822-15. On June 29, 2016, consistent with the proposed regulations and the OECD’s Action 13 Final Report, the Treasury released the final regulations requiring that annual country by country reporting by certain U.S. persons that are the ultimate parent entity of a multinational enterprise group. The final regulations (TD 9773) affect a U.S. person that is the ultimate parent entity of a multinational enterprise group with annual revenue for the preceding annual accounting period of at least $850 million.

The regulations are effective from June 30, 2016 although the regulations allow a U.S. person to voluntary file a CbCR that includes the time period from January 1, 2016 in order to avoid a CbCR compliance reporting gap because of foreign tax administrations’ adoption of the OECD applicable date. The final regulations amend the proposed regulations to reflect the official number of the form, Form 8975, Country-by-Country Report, (Form 8975 or CbCR).

On January 11, 2017, Treasury published the draft Form 8975 and its accompanying Schedule A for financial information, and a final version in June 2017.  The 2017 final instructions were also released June of 2017. The IRS has established a CbCR Guidance website.

Some countries have adopted country-by-country (CbC) reporting requirements for annual accounting periods beginning on or after January 1, 2016, that would require a constituent entity resident in the jurisdiction to report CbC information if the constituent entity is part of an MNE group with an ultimate parent entity resident in a jurisdiction that does not have a CbC reporting requirement for the same annual accounting period (local CbC filing). Consequently, constituent entities of a U.S. MNE group may be subject to local CbC filing for early reporting periods unless the ultimate parent entity files a Form 8975 or reports CbC information to another jurisdiction that accepts surrogate filing for such early reporting period.  Rev. Proc. 2017–23 describes the process for filing Form 8975, Country-by-Country Report, and accompanying Schedules A, Tax Jurisdiction and Constituent Entity Information (collectively, Form 8975), by ultimate parent entities of U.S. multinational enterprise (MNE) groups for reporting periods beginning on or after January 1, 2016.

Beginning on September 1, 2017, Form 8975 may be filed for an early reporting period with the income tax return or other return as provided in the Instructions to Form 8975 for the taxable year of the ultimate parent entity of the U.S. MNE group with or within which the early reporting period ends. An ultimate parent entity that files its return electronically must file the Form 8975 through the IRS Modernized e-File system in Extensible Markup Language (XML) format, not as a binary attachment (such as a PDF file). As of April 17, 2017, the IRS provided specific electronic filing information and XMS markup language files for Form 8975 to the software industry so that developers are able to make Form 8975 available in their software ahead of the September 1, 2017 implementation date. For filers of Form 8975 that are not eligible to use Modernized e-File to file their income tax return, a paper version of Form 8975 is available.

 

September 8, 2017 in BEPS | Permalink | Comments (0)

Tuesday, August 1, 2017

The Platform for Collaboration on Tax invites comments on a draft toolkit on the taxation of offshore indirect transfers of assets

The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – is seeking public feedback on a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets, a practice by which some multinational corporations try to minimise their tax liability.   Download Discussion-draft-toolkit-taxation-of-offshore-indirect-transfers

The tax treatment of 'offshore indirect transfers' (OITs) — the sale of an entity located in one country that owns an "immovable" asset located in another country, by a non-resident of the country where the asset is located — has emerged as a significant concern in many developing countries. It has become a relatively common practice for some multinational corporations trying to minimise their tax burden, and is an increasingly critical tax issue in a globalised world. But there is no unifying principle on how to treat these transactions, and the issue was not addressed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. This draft toolkit, "The Taxation of Offshore Indirect Transfers – A Toolkit," examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organisations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.

The Platform partners now seek comments by 25 September 2017 from all interested stakeholders on this draft. Comments should be sent by e-mail to taxcollaborationplatform@worldbank.org, a common comment box for all the Platform organisations. Spanish and French language versions of the toolkit are forthcoming and will also be posted for comment. The Platform aims to release the final toolkit by the end of 2017.

Questions to consider

  1. Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
  2. Does it lay out a clear principle for taxing offshore indirect transfers of assets?
  3. Is the definition of an offshore indirect transfer of assets satisfactory?
  4. Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
  5. Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
  6. Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
  7. Are there other implementation approaches that should be considered?
  8. Is the draft toolkit's preference for the 'deemed disposal' method appropriate?
  9. Are the complexities in the taxation of these international transactions adequately represented? 

Please do not restrict yourself to these questions; any other views you have on addressing the taxation of offshore indirect transfers of assets would be welcome. Comments and inputs on the draft will be published, and will be taken into consideration in finalising the toolkit.

Please note that 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.

Media queries should be directed to:

IMF: media@imf.org
OECD: Pascal Saint-Amans, Pascal.Saint-Amans@oecd.org
UN: Alexander Trepelkov, trepelkov@un.org
World Bank Group: Julia Oliver, joliver@worldbankgroup.org

August 1, 2017 in BEPS | Permalink | Comments (0)

Monday, July 31, 2017

Will The BRICS Lead the Way In BEPS, CbCR, and CRS Now?

Communiqué of BRICS Heads of Tax Authorities Meeting issued in Hangzhou on 27 July 2017 

We, the Heads of Tax and Revenue of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa held a meeting in Hangzhou on 27 July 2017 to discuss the potential areas of cooperation and exchange opinions and views based on our existing commitment to openness, solidarity, equality, mutual understanding, inclusiveness and mutually beneficial cooperation, as stated in the Goa Declaration issued on 16 October 2016 and echoed in the theme of the 2017 Xiamen Summit “BRICS: Stronger Partnership for a Brighter Future” so as to earnestly implement the leaders’ consensus and strengthen our partnership. We will continue our support to all international initiatives towards reaching a modern, globally fair and universally transparent tax system. In this regard we reiterate our commitment to the actions taken to promote interconnected growth and to ensure the fairness of the international tax system, particularly towards shaping and implementing the G20 tax agenda, multilateral tax cooperation and capacity building of developing countries. In accordance with the above, we conducted the meeting with the primary objective of promoting international tax cooperation and exchanging relevant knowledge and experience in these areas.  Download BRICS MOU for CbCR and CRS

Implementation of G20 Tax Agenda

We remain concerned about the world’s economic slow-down and cross-border tax evasion and avoidance that undermine resource mobilisation and the fairness of the tax system, and reaffirm our determination to work together to address and resolve these concerns and to curtail aggressive tax avoidance. We acknowledge our common understanding that profits should be taxed in those jurisdictions where the activities generating those profits are performed and where value is created. In this regard, we agree on continuing to share experiences on the measures we take to address the challenges in implementing the outcomes of the G20 tax reform. We remain committed to the facilitation of economic growth, as well as the timely, consistent and widespread implementation of the BEPS Project outcomes and call upon all relevant jurisdictions to join the Inclusive Framework on BEPS on an equal footing. We support monitoring the progress of BEPS implementation, with due regard to the four minimum standards. We acknowledge the first signing round of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS that took place on 7 June 2017. We confirm that as BRICS countries best represent emerging and developing economies, we will contribute actively to the consistent implementation of the G20 tax agenda through BRICS coordination to enhance tax certainty.

Multilateral Tax Cooperation

We recognize the significance of strengthening multilateral tax cooperation for BRICS countries in order to improve tax compliance and protect our tax base. In this respect, we signed the Memorandum of Cooperation between the BRICS Tax Authorities. We believe that BRICS countries should continue to proactively support and facilitate multilevel cooperation, including policy coordination, tax administration cooperation, the harmonization of interaction between tax authorities and taxpayers as well as dispute resolution procedures. We will continue to support multilateral tax cooperation, to develop effective communication, to further enhance position coordination as well as to identify holistic and consistent approaches to overcome challenges, achieve goals and facilitate consensus.

We recognize the key role of the exchange of information between competent authorities in preventing cross-border tax evasion and in designing a fairer and more transparent international tax system. In this regard we reiterate our endorsement for the global Common Reporting Standard for the Automatic Exchange of Information on a reciprocal basis. We commit without delay to implementing the Common Reporting Standard and to start exchanging information at the latest by September 2018. We call upon those jurisdictions that have not yet signed and ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to do so.

Capacity Building

We are convinced that building and developing a globally fair and modern tax system calls for the involvement of as many jurisdictions as possible. The key role of taxation in sustainable economic development has been attracting extensive attention globally. Developing countries continue to face serious challenges in their tax administration capacity. In this regard, we have reached basic agreement on how to implement the consensus reached at the G20 Hangzhou and Hamburg Summits on capacity building in the tax area and have drafted cooperation programmes for capacity building and experience sharing between BRICS countries and for other developing countries. We welcome the Inclusive Framework encouraging deeper engagement of developing countries in international tax cooperation. We should make profound efforts to implement the G20 tax reform outcomes and to respond to the various obstacles against international tax cooperation in spite of economic difficulties. We commit to continuously promote ongoing exchange and cooperation so as to jointly enhance our own tax capacity while at the same time providing effective and sustainable technical assistance to other developing countries. In this regard, we will contribute by hosting tax training programmes for BRICS countries and other developing countries at the training centers in BRICS countries. The common understanding outlined above has been summarized in the Memorandum of Cooperation between the BRICS Tax Authorities signed today

 

Economic Comment: The BRICS countries of Brazil, Russia, India, China and South Africa contain 42 percent of the global populace, representing a 23 percent share of the global economy and more than half of global growth.

 

 

July 31, 2017 in BEPS | Permalink | Comments (0)

Thursday, July 27, 2017

OECD releases further guidance for tax administrations and MNE Groups on Country-by-Country reporting (BEPS Action 13)

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 additional guidance addresses two specific issues: how to treat an entity owned and/or operated by two or more unrelated MNE Groups, and whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the CbC report.

The complete set of guidance related to CbC reporting issued so far is presented in the document released today. This will continue to be updated with any further guidance that may be agreed.

The BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.

To facilitate the implementation of the CbC reporting standard, the BEPS Action 13 report includes a CbC Reporting Implementation Package which consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC report in its jurisdiction of residence including backup filing requirements and (ii) three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC reports, respectively based on the:

  1. Multilateral Convention on Administrative Assistance in Tax Matters;
  2. Bilateral tax conventions; and
  3. Tax Information Exchange Agreements (TIEAs).

As jurisdictions have moved into the implementation stage, some questions of interpretation have arisen. In the interests of consistent implementation and certainty for both tax administrations and taxpayers, the Inclusive Framework on BEPS has issued guidance to address certain key questions. This guidance is periodically updated.

July 27, 2017 in BEPS, OECD | Permalink | Comments (0)

Tuesday, July 18, 2017

Mauritius signs the multilateral BEPS Convention to tackle tax avoidance by multinational enterprises

Mahess Rawoteea of the Ministry of Finance and Economic Development of Mauritius, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) in the presence of Douglas Frantz, OECD Deputy Secretary-General.

Based on expressed reservations at this point in time, 23 tax treaties would be impacted by this signing. We note that Mauritius issued a statement today, reaffirming its commitment to OECD implement the minimum standards developed in the course of the OECD/G20 BEPS Project into its entire tax treaty network by the end of 2018. Mauritius has committed to modify its remaining tax treaties through bilateral negotiations. 

The  MLI is a legal instrument designed to prevent base erosion and profit shifting (BEPS) by multinational enterprises. BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. The MLI allows jurisdictions to transpose results from the OECD/G20 BEPS Project, including minimum standards to implement in tax treaties to prevent treaty abuse and “treaty shopping”, into their existing networks of bilateral tax treaties in a quick and efficient manner. It was developed through inclusive negotiations involving more than 100 countries and jurisdictions, under a mandate delivered by G20 Finance Ministers and Central Bank Governors at their February 2015 meeting.

The OECD is the depositary of the MLI and is supporting governments in the process of signature, ratification and implementation. The 69 jurisdictions participating in the MLI and the position of each Party and Signatory under the Convention are available on the OECD website.

The text of the MLI, the explanatory statement and background information are available at: oe.cd/mli.

July 18, 2017 in BEPS, OECD | Permalink | Comments (0)

Monday, July 17, 2017

Public comments published on the BEPS discussion draft on the Implementation Guidance on Hard-to-Value Intangibles

On 23 May 2017, interested parties were invited to provide comments on a discussion draft that provides guidance on the implementation of the approach to pricing transfers of hard-to-value intangibles described in Chapter VI of the Transfer Pricing Guidelines. The OECD is grateful to the commentators for their input and now publishes the public comments received.

Download Public-comments-received-on-the-Implementation-Guidance-on-Hard-to-Value-Intangibles-2017

July 17, 2017 in BEPS, OECD | Permalink | Comments (0)

Saturday, July 15, 2017

Barbados joins the OECD Inclusive Framework on BEPS

Barbados has become the 101st jurisdiction to join the Inclusive Framework on BEPS ("IF"). The IF was established in January 2016, after the G20 Leaders urged the timely OECDimplementation of the BEPS package released in October 2015 and called on the OECD to develop a more inclusive framework with the involvement of interested non-G20 countries and jurisdictions, including developing economies. The first progress report produced by the Inclusive Framework will be published tomorrow.

By joining the Inclusive Framework, Barbados will work on an equal footing with all other Inclusive Framework members on the implementation of the BEPS package and on developing further standards to address the remaining BEPS issues. The full list of members of the IF can be found at: www.oecd.org/tax/beps/inclusive-framework-on-beps-composition.pdf

Barbados has a long experience in working on international tax matters having joined the Global Forum on Transparency and Exchange of Information for Tax Purposes in September 2009 and having received a "Largely Compliant" rating in 2016, as well as having ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in 2016, which now has includes over 110 countries and jurisdictions, and having signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA), to enable it to fulfil its commitment to implementing the automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) in time to commence exchanges in 2018.

July 15, 2017 in BEPS, OECD | Permalink | Comments (0)

Thursday, July 13, 2017

French Court Finds Google Does Not Have a French Permanent Establishment. Spares $1.2 Billion Tax Bill.

La société irlandaise Google Ireland Limited (GIL), filiale du groupe américain Google Inc., commercialise, en France notamment, un service payant d’insertion d’annonces publicitaires en ligne, « AdWords », corrélé au moteur de recherche Google.

La société française Google France (GF), également contrôlée par Google Inc., fournit, aux termes d’un contrat conclu avec GIL, assistance commerciale et conseil à la clientèle française de GIL, constituée d’annonceurs ayant souscrit à son service « AdWords ».

La société GIL contestait les redressements fiscaux dont elle avait fait l’objet en matière d’impôt sur les sociétés, retenue à la source, TVA, cotisation minimale de taxe professionnelle et cotisation sur la valeur ajoutée des entreprises, à raison des prestations de publicité qu’elle facture à ses clients français.

Le tribunal administratif a donné raison à la société GIL en prononçant la décharge des impositions contestées.

S’agissant de l’impôt sur les sociétés et de la retenue à la source, l’administration fiscale s’était fondée sur l’alinéa 9-c de l’article 2 de la convention fiscale franco-irlandaise qui prévoit l’imposition en cas de présence d’un établissement stable en France. Le tribunal a jugé que GIL ne disposait pas en France, en la personne morale de GF, d’un tel établissement stable. En effet, l’existence d’un tel établissement stable est subordonnée à deux conditions cumulatives : la dépendance de GF vis-à-vis de GIL et le pouvoir de GF d’engager juridiquement GIL. Or,  le tribunal a estimé que GF ne pouvait engager juridiquement GIL car les salariés de GF ne pouvaient procéder eux-mêmes à la mise en ligne des annonces publicitaires commandées par les clients français, toute commande devant en dernier ressort faire l’objet d’une validation de GIL.

S’agissant de la TVA, la jurisprudence communautaire soumet l’imposition à l’existence d’une structure apte, du point de vue de l'équipement humain et technique, à réaliser des prestations de manière autonome. Le tribunal a jugé que tel n’était pas le cas de GF, qui ne disposait ni des moyens humains (le personnel de GF n’a pas le pouvoir de mettre en ligne les annonces publicitaires commandées par les clients français), ni des moyens techniques (absence, notamment, de serveurs en France) la rendant à même de réaliser les prestations de publicité en cause.

S’agissant de la cotisation minimale de taxe professionnelle et de la cotisation sur la valeur ajoutée des entreprises, le tribunal a jugé que GIL ne disposait en France d’aucune immobilisation corporelle placée sous son contrôle, utilisable matériellement pour la réalisation des prestations de publicité litigieuses. Il a, en effet, estimé que les locaux de GF étaient utilisés pour les besoins de sa propre activité d’assistance et de conseil et que son matériel informatique ne permettait pas à lui seul la réalisation des prestations publicitaires de GIL en France.

French Revenue Official Statement:  Download French Revenue Authority statement

see Google, France Tax Raid, and Texas Hold'em

Court webpage

      > Lire le jugement n°1505113/1-1  du 12 juillet 2017 

      > Lire le jugement n°1505126/1-1  du 12 juillet 2017

     > Lire le jugement n°1505147/1-1 du 12 juillet 2017                                                    

      > Lire le jugement n°1505165/1-1  du 12 juillet 2017

      > Lire le jugement n°1505178/1-1  du 12 juillet 2017

  1. Download 1505113 RS
  2. Download 1505126 CVAE
  3. Download 1505147 CMTP
  4. Download 1505165 TVA
  5. Download 1505178 IS

ZDNET analysis (best of the media)

Bloomberg analysis

Guardian analysis

 

 

July 13, 2017 in BEPS, Tax Compliance | Permalink | Comments (0)

Wednesday, July 12, 2017

OECD contends strong progress seen on international tax transparency

Tax evasion continues to challenge governments in developing and developed countries alike, depriving them of resources that would otherwise be available to support sustainable OECDdevelopment through investments in infrastructure, health and other common goods. While globalisation has brought many opportunities and advances, its dark side has included the greater ease with which individuals can shift income and assets offshore and out of sight of tax authorities.

The OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes has been working to enhance global tax transparency, end banking secrecy and protect public finances by curtailing tax evasion since 2008. It has developed a series of international tax transparency standards and constantly monitors and reviews implementation and adhesion by its 142 members. It is part of the international efforts on tax transparency that also include the OECD/G20 BEPS Initiative.

In July 2016, G20 countries called on the Global Forum to devise objective criteria to identify jurisdictions that have not made sufficient progress toward a satisfactory level of implementation of the agreed international standards. These include those on Exchange of Information on Request (EOIR) and Automatic Exchange of Information (AEOI).

A list of non-cooperative jurisdictions was to be prepared for the G20 Leaders Summit in Hamburg in July 2017, with jurisdictions needing to meet at least two of the three benchmarks to avoid inclusion:

i.         at least a “Largely Compliant” rating with respect to the Exchange Of Information on Request standard;

ii.        a commitment to implement the Automatic Exchange Of Information standard, with first exchanges in 2018 (with respect to the year 2017) at the latest; and

iii.       Participation in the Multilateral Convention on Mutual Administrative Assistance on Tax Matters or a sufficiently broad exchange network permitting both EOIR and AEOI. 

In addition, an overriding criterion applies in the case where a jurisdiction is determined by the Global Forum peer review process to be “non-compliant”, or is blocked from moving past Phase 1 of the EOI standard, or where it was previously blocked from moving past Phase 1 and has not yet received an overall rating under the Phase 2 process.

The Global Forum established a Fast-Track review process to evaluate continuing efforts by some jurisdictions to meet transparency standards in the run-up to the G20 Summit.  The latest results of the Fast Track review show that progress has now been made by most jurisdictions in meeting the international tax transparency standards.

Fifteen jurisdictions which previously had a less than satisfactory rating on their peer reviews against the EOIR standard, were evaluated to assess whether recent progress would upgrade their rating if they were to be reviewed again.

Following the evaluation, the Global Forum assigned the following provisional ratings:

Largely Compliant - Andorra, Antigua and Barbuda, Costa Rica, Dominica, the Dominican Republic, Guatemala, the Federated States of Micronesia, Lebanon, Nauru, Panama, Samoa, the United Arab Emirates and Vanuatu.

Partially Compliant -  Marshall Islands.

Trinidad and Tobago, which previously had a rating of Non-Compliant, was unable to demonstrate progress to warrant any upgrade to its rating.   

Applying the objective criteria, and taking into account the fast track reviews, Trinidad and Tobago has been identified as the only jurisdiction which has not yet made sufficient progress towards satisfactory implementation of the tax transparency standards. Discussions are continuing with Trinidad and Tobago, and progress is anticipated soon.

The Global Forum’s fast track process was a rigorous process and informed by peer input but does not substitute a full peer review. In all cases a full review will be carried out and a peer evaluation done against the revised international standard for exchange of information on request, which now includes the requirement of beneficial ownership.

The provisional ratings reflect the strong progress made by the jurisdictions in implementing the EOIR Standard. A number of critical changes have been introduced by the reviewed jurisdictions, including the elimination of strict bank secrecy and bearer shares, improved access to accounting records and a more rigorous oversight and enforcement of obligations to maintain information. Further progress has also been achieved on expanding the breadth of the exchange networks including signature of the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.

These fast track results mark the end of the first round of EOIR peer reviews, and will be delivered to the G20 Leaders Summit on 7-8 July 2017 in Hamburg, Germany. A second round of peer reviews is now underway, with the first outcomes to be released later this year. Jurisdictions which benefited from fast track will be reviewed early in the second round review process.

A Background Note on continuing progress on tax transparency is available at: http://www.oecd.org/tax/transparency/brief-and-FAQ-on-progress-on-tax-transparency.pdf

July 12, 2017 in BEPS, OECD | Permalink | Comments (0)