International Financial Law Prof Blog

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

Monday, March 13, 2017

Draft Form 8975, Country-by-Country Report, and Schedules A, Tax Jurisdiction and Entity Financial Information for 2017 Filing

Some jurisdictions have adopted country-by-country (CbC) reporting requirements for annual accounting periods beginning on or after January 1, 2016, that would require a Irs_logoconstituent 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 (including pursuant to parent surrogate filing) 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. The preamble to the CbC reporting regulations indicated that the Treasury Department and the IRS would provide a procedure for ultimate parent entities of U.S. MNE groups to file Form 8975 for early reporting periods.

Thus, 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.

draft CbCR form 8975 here

draft Schedule A CbCR financial information 

draft instructions to complete Form 8975 and its Schedule A

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). The IRS intends to provide specific electronic filing information on Form 8975 to the software industry in early 2017 so that developers will be 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 will be made available in advance of the September 1, 2017, implementation date.

Professor William Byrnes' Practical Guide to U.S. Transfer Pricing (LexisNexis) is a best-selling 3,000 page treatise 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.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.  Free download of chapter 2 here

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

Friday, February 10, 2017

OECD invites taxpayer input on peer reviews of Dispute Resolution (BEPS Action 14)

OECD_globe_10cm_HD_4cThe Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan was launched in December 2016. The OECD is now gathering input
for the Stage 1 peer reviews of Austria, France, Germany, Italy, Liechtenstein, Luxembourg and Sweden, and invites taxpayers to submit input on specific issues relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements for each of these jurisdictions using the taxpayer input questionnaire. As taxpayers are the main users of the MAP this input is key for the review process and we encourage taxpayers to complete the questionnaire and return it tofta.map@oecd.org (in Word format) by 27 February 2017 at the latest.

» Read the press release
» 
BEPS Action 14 peer review and monitoring process

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

Thursday, February 9, 2017

OECD releases peer review documents for assessment of BEPS minimum standards (Actions 5 and 13)

OECD releases peer review documents for assessment of BEPS minimum standards (Actions 5 and 13)

Today the OECD released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of thepeer review of Action 13 Country-by-Country Reporting and for the peer review of the Action 5 transparency framework.

The Action 13 standard on Country-by-Country Reporting and the Action 5 standard for the compulsory spontaneous exchange of information on tax rulings (the "transparency framework") are two of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews.

The documents released today form the basis on which the peer review processes will be undertaken. The compilations include the Terms of Reference which sets out the criteria for assessing the implementation of the minimum standard, and the Methodology which sets out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.

More information on the peer review and monitoring process:

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

Thursday, January 26, 2017

The Platform for Collaboration on Tax invites comments on a draft toolkit designed to help developing countries address the lack of comparables for transfer pricing analyses

Responding to a request by the Development Working Group of the G20, the Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – has OECD developed a draft toolkit designed to assist developing countries in an important area of international tax policy: transfer pricing. The Platform is now seeking public feedback on that toolkit, which specifically addresses the ways developing countries can overcome a lack of data on "comparables," or the market prices for goods and services transferred between members of multinational corporations.

The toolkit is part of a series of reports by the Platform that are designed to help countries that may have limitations in their capacity to design or administer strong tax systems. Previous reports have included discussions of tax incentives and external support for building tax capacity in developing countries. Helping developing countries build strong and credible transfer pricing regimes is an important part of the Platform's effort to increase the capacity of developing countries to apply the principles of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, an initiative that assists countries in protecting their tax bases from aggressive or inappropriate tax planning by multinational corporations.

Transfer pricing – the value assigned to transactions between subsidiaries of multinational corporations – is an increasingly critical issue in a globalised world. This draft toolkit (A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses) examines how tax administrations can evaluate the correctness of the transfer prices set by multinationals when there is insufficient information available to governments on market-based transactions that are comparable to those reported by the multinational corporation ("comparables"). The toolkit offers advice on making the best use of data that exists and options for monitoring the behaviour of multinational corporations in situations in which no data is available.

The discussion draft first seeks to put the search for potential comparables in context, emphasising the importance of accurately defining the transaction to ensure the subsequent search for comparables is as efficient and effective as possible. Next, sources of potential comparables data are considered, and practical tools such as step-by-step screening templates are suggested. To address situations where there is a systemic lack of comparables data, the draft considers potential policy options such as the development of safe harbours. The toolkit will also be available in French and Spanish.

In addition, since the pricing of transactions in the extractive industries is an issue of particular relevance to many low-income countries, the draft toolkit also addresses the information gaps on prices of minerals sold in an intermediate form. The supplementary material on minerals pricing (Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form) provides a systematic process that could be used by tax administrations to map the transformation chain for a particular mineral, identify key traded products and establish common industry pricing practices. Detailed case studies demonstrating the process are then provided for copper, gold, thermal coal and iron ore. The supplementary material is also available in French (Combler le manque d’informations sur les prix des minéraux vendus sous une forme intermédiaire) and will shortly be available in Spanish.

The Platform partners now seek comments by 21 February from interested stakeholders on the draft toolkit, including the supplementary material on minerals pricing, with the aim of finalising it in the coming months.

Questions to consider

  1. Does this toolkit effectively help address the challenges identified by developing countries in finding the data needed to carry out a transfer pricing analysis as part of a tax audit?
  2. How can better use of administrative information, in a way that maintains taxpayer confidentiality, be effectively facilitated at a country and regional level?
  3. How could the reliability of potential comparables from other geographic markets be tested?
  4. Are there best practices or other reliable approaches for dealing with a lack of comparables not addressed in the discussion draft?
  5. What other adjustments for geographic market differences could be made, and in what circumstances? How could the reliability of such adjustments be empirically tested?
  6. Do the mineral pricing case studies accurately reflect market trading terms? Are there other adjustments that would be routinely made when these mineral products are sold?

Please do not restrict yourself to these questions; any other views you have on the addressing the lack of comparables for transfer pricing analyses and on information gaps on prices of minerals sold in an intermediate form would be welcome.

Comments and input on the draft will be taken into consideration in finalising the toolkit. Comments should be sent by e-mail no later than 21 February 2017 to GlobalTaxPlatform@worldbank.org, a common comment box for all the Platform organisations.

TP book coverLexis’ 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.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.  Free download of chapter 2 here

January 26, 2017 in BEPS, OECD | Permalink | Comments (0)

Wednesday, January 18, 2017

Kazakhstan, Côte d’Ivoire and Bermuda join the Inclusive Framework on BEPS

Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June-1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. Logooecd_enThe Inclusive Framework on BEPS welcomed Kazakhstan, Côte d’Ivoire and Bermuda bringing to 94 the total number of countries and jurisdictions participating on an equal footing in the project.

January 18, 2017 in BEPS | Permalink | Comments (0)

Thursday, January 12, 2017

OECD Updates BEPS Other Financial Payments, Action 4 - 2016 and tax treaty provisions of BEPS Action 6 and entitlement of non-CIV funds

 
The 2015 Report on BEPS Action 4 established a common approach which directly links an entity’s net interest deductions to its level of economic activity, based on taxable EBITDA. OECD_globe_10cm_HD_4cFurther work on two aspects of the common approach was completed in 2016 and this is included in this update.

Comments are invited on draft examples included in a discussion draft on the follow-up work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds.

Paragraph 14 of the final version of the BEPS report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions included in the Report on Action 6 address adequately the treaty entitlement of these funds.

As part of the follow-up work on this issue, on 24 March 2016 the OECD published a consultation document on the treaty entitlement of non-CIV funds which included a number of specific questions related to concerns, identified in the comments received on previous discussion drafts related to the Report on Action 6, as to how the new provisions included in that Report could affect the treaty entitlement of non-CIV funds as well as possible ways of addressing these concerns. The comments received in response to that consultation document were published on the OECD website on 22 April 2016.

This discussion draft has been prepared to provide stakeholders with information on the subsequent developments in the work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds, including the conclusions reached at the May 2016 meeting of Working Party 1* and the subsequent work on the development of examples related to the application of the principal purposes test (PPT) rule included in the Report on Action 6 with respect to some common transactions involving non-CIV funds. The discussion draft invites comments on three draft examples under consideration by the Working Party for inclusion in the Commentary on the PPT rule.

The Committee invites interested parties to send their comments on these three examples. The draft examples and the comments received will be discussed by Working Party 1 at its February 2016 meeting.

Comments should be sent by 3 February 2017 at the latest by e-mail to taxtreaties@oecd.org in Word format (in order to facilitate their distribution to government officials). They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.

Please note that all the comments on the examples 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.

The draft examples included in this discussion draft do not, at this stage, represent the consensus views of the CFA or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment.

* Working Party No. 1 on Tax Conventions and Related Questions is the subsidiary body of the OECD’s Committee on Fiscal Affairs responsible for the tax treaty-related work, including the follow-up work on BEPS Action 6.

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

Wednesday, December 28, 2016

Peru joins the Inclusive Framework on BEPS

Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June-1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. The Inclusive Framework on BEPS recently welcomed Peru bringing to 91 the total number of countries and jurisdictions participating on an equal footing in the Project.
 
» Download the full list of all countries and jurisdictions participating in the Inclusive Framework on BEPS.

December 28, 2016 in BEPS, OECD | Permalink | Comments (0)

Monday, December 19, 2016

OECD holds regional meeting of the Inclusive Framework on BEPS for the Eastern Europe and Central Asia region

 This regional meeting followed the inaugural meeting of the Inclusive Framework on BEPS which took place in Kyoto, Japan, on 30 June-1 July 2016.  The main objective of this event OECDwas to discuss and seek input on the latest developments in the Inclusive Framework and in the Committee on Fiscal Affairs' (CFA) Working Parties. The meeting also provided an opportunity to:

1) Discuss the implementation of the BEPS Project measures, in particular regarding the peer review process proposed for the minimum standards ; 2) Seek input from participants on toolkits being developed to address specific issues previously identified by the non-OECD/G20 and

2) Seek input from participants on toolkits being developed to address specific issues previously identified by the non-OECD/G20 and low income countries as priority issues; 

3) Prepare the delegates for the next meetings of the Inclusive Framework, including the working party meetings; 

4) Understand country priorities and specific needs in terms of capacity building. Dainoras Bradauskas, Director General of the State Tax Inspectorate of Lithuania, welcomed the participants to the event that gathered 62 participants from 14 countries (Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Latvia, Lithuania, Montenegro, Poland, Romania, Slovakia, Slovenia, Turkey and Ukraine). Business representatives from international firms such as Ernst and Young, KPMG, PricewatherhouseCoopers and from Lithuanian corporations and associations such as Cobalt, Lithuania Tax Consultants Association, Rödl & Partner, Sorainen and Valiunas

Business representatives from international firms such as Ernst and Young, KPMG, PricewatherhouseCoopers and from Lithuanian corporations and associations such as Cobalt, Lithuania Tax Consultants Association, Rödl & Partner, Sorainen and Valiunas Ellex also participated during the first morning of the meeting, and actively contributed to the discussion, including through a specific session dedicated to them. In their opening remarks, Ms. Daiva Brasiunaite, Director of Tax Policy Department at the Ministry of Finance of Lithuania, and Miguel Silva Pinto, Executive Secretary of IOTA expressed their appreciation for the interest shown by many countries in the region participating in the meeting, as well as for the important work carried out by the OECD to achieve greater inclusiveness. They highlighted the unprecedented number of countries that joined the Inclusive Framework on BEPS as well as the overall efforts towards transparency, with an increasing volume of exchanges of information among tax administrations, together with an enhanced co-operation among countries.

The agenda focussed on the following topics: 

 The organisation of the Inclusive Framework and the implementation of the measures developed under the BEPS Project; 

 A specific session dedicated to the views of the business community;

 The latest developments within the Forum on Harmful Tax Practices and the Working Party 11 on aggressive tax planning;

 The discussions within the Working Party 6 linked to transfer pricing and the follow-up work underway on the remaining BEPS related standard setting; 

 The work of the Working Party 1 on tax conventions and on the finalisation of the multilateral instrument to implement tax treaty related BEPS measures.

 The country priorities for implementation of BEPS measures and specific needs of the Eastern European and Central Asian countries in terms of capacity building, including the use of the Platform for Collaboration Tax

 The work related to the toolkits to support non-OECD/G20 

Key messages

  • Participating countries recognised that joining the Inclusive Framework on BEPS provides opportunities for implementing sound and consistent domestic and treaty tax legislation, improving tax administration procedures and sharing experiences and best practices with other countries at policy and administration level. 
  • Countries expressed the importance of implementing the BEPS measures consistently and some participants reported their active involvement in the Inclusive Framework and in other OECD initiatives. Several countries also indicated that they are engaged through their EU membership in several initiatives, including in the context of the EU Anti-Tax Avoidance Directive and other measures in seeking a co-ordinated approach to tackle the emerging BEPS issues. 
  • Participants reiterated in several instances the need for flexibility offered in the peer review of the implementation of the BEPS minimum standards, and welcomed the level of optionality offered in the multilateral instrument. They also noted that this instrument would be an efficient tool to implement the BEPS treaty-related measures and reiterated the need to closely follow this work stream. Participants stressed the importance of Country-by-Country reporting, and shared the reforms already underway to implement transfer pricing documentation requirements. They also recognized that the implementation of the BEPS measures will allow them to address current areas of concerns, in particular aggressive tax planning, treaty abuse, avoidance of the permanent establishment status and transfer pricing.  A number of participating countries indicated that the main difficulties in implementing BEPS relate to limitations
  • Participants stressed the importance of Country-by-Country reporting, and shared the reforms already underway to implement transfer pricing documentation requirements. They also recognized that the implementation of the BEPS measures will allow them to address current areas of concerns, in particular aggressive tax planning, treaty abuse, avoidance of the permanent establishment status and transfer pricing.
  • A number of participating countries indicated that the main difficulties in implementing BEPS relate to limitations in personnel and IT resources. They also noted that changes in the legal and administrative systems are a challenge for the swift implementation of the BEPS measures.On capacity building, country delegates highlighted the need for support in the implementation as well as for extended deadlines to comply with the minimum standards. They also stressed the importance of training programmes, in particular on transfer pricing and aggressive tax planning issues. They expressed the need for more training in these areas, including for EU members since they need a lot of human resources to monitor OECD and EU developments.
  • They also welcomed the OECD Tax Inspectors Without Borders initiative in partnership with UNDP as well as opportunities to participate in the technical events under the work programme of IOTA.  Countries also indicated the need to employ their limited capacity to more fundamental areas of priority, such as tackling the shadow economy. They also mentioned the importance of exchange of information, notably in the area of detection of hybrid mismatch arrangements.
  • On capacity building, country delegates highlighted the need for support in the implementation as well as for extended deadlines to comply with the minimum standards. They also stressed the importance of training programmes, in particular on transfer pricing and aggressive tax planning issues. They expressed the need for more training in these areas, including for EU members since they need a lot of human resources to monitor OECD and EU developments.
  • They also welcomed the OECD Tax Inspectors Without Borders initiative in partnership with UNDP as well as opportunities to participate in the technical events under the work programme of IOTA.  Countries also indicated the need to employ their limited capacity to more fundamental areas of priority, such as tackling the shadow economy. They also mentioned the importance of exchange of information, notably in the area of detection of hybrid mismatch arrangements and on CbC reporting, and noted the benefits of participating in the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC).Participants appreciated the partnership between the OECD and IOTA, noting the significant number of IOTA members that are participating in the Inclusive Framework. They also highlighted the importance of the involvement of regional tax organizations, and of IOTA in particular, in the Inclusive Framework, also considering its Observer status in the Ad Hoc Group on the multilateral instrument to implement tax treaty related BEPS measures. IOTA also announced the planned launch, in 2017, of a forum on the implementation of BEPS to discuss strategies and practical application of working methods and tools developed to effectively tackle BEPS.  The business representatives raised the need for mutual understanding between corporations and tax administrations, and expressed concerns in relation to the appropriate use of the Country-by-Country reports. They noted that the BEPS project targeted multinational business and also expressed concerns
  • Participants appreciated the partnership between the OECD and IOTA, noting the significant number of IOTA members that are participating in the Inclusive Framework. They also highlighted the importance of the involvement of regional tax organizations, and of IOTA in particular, in the Inclusive Framework, also considering its Observer status in the Ad Hoc Group on the multilateral instrument to implement tax treaty related BEPS measures. IOTA also announced the planned launch, in 2017, of a forum on the implementation of BEPS to discuss strategies and practical application of working methods and tools developed to effectively tackle BEPS. The business representatives raised the need for mutual understanding between corporations and tax administrations, and expressed concerns in relation to the appropriate use of the Country-by-Country reports. They noted that the BEPS project targeted multinational business and also expressed concerns
  • The business representatives raised the need for mutual understanding between corporations and tax administrations, and expressed concerns in relation to the appropriate use of the Country-by-Country reports. They noted that the BEPS project targeted multinational business and also expressed concerns on the possible retroactive application of the BEPS measures by tax administrations. The business community welcomed the new OECD tax initiative on tax certainty under the mandate of the G20, since predictability is key for them.
  • Countries expressed the importance of implementing the BEPS measures consistently and some participants reported their active involvement in the Inclusive Framework and in other OECD initiatives. Several countries also indicated that they are engaged through their EU membership in several initiatives, including in the context of the EU Anti-Tax Avoidance Directive and other measures in seeking a co-ordinated approach to tackle the emerging BEPS issues.
  • Participants reiterated in several instances the need for flexibility offered in the peer review of the implementation of the BEPS minimum standards, and welcomed the level of optionality offered in the multilateral instrument. They also noted that this instrument would be an efficient tool to implement the BEPS treaty-related measures and reiterated the need to closely follow this work stream. 
  • A number of participating countries indicated that the main difficulties in implementing BEPS relate to limitations in personnel and IT resources. 

December 19, 2016 in BEPS, OECD | Permalink | Comments (0)

Friday, December 16, 2016

Macau, Mauritius and Ukraine join the Inclusive Framework on BEPS

Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June-1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. The Inclusive Framework on BEPS welcomed Macau (China), Mauritius and Ukraine bringing to 90 the total number of countries and jurisdictions participating on an equal footing in the Project.

December 16, 2016 in BEPS | Permalink | Comments (0)

Friday, December 9, 2016

OECD and CREDAF hold regional meeting of the Inclusive Framework on BEPS for francophone countries

56 delegates from 13 countries gathered in Tunis for the first regional meeting of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) after its launch in Kyoto on 30 June-1 July 2016. This meeting belongs to a new series of events that offer participants from different regions in the world the opportunity to feed their views and provide their input into the Inclusive Framework on BEPS.

This meeting allowed participants to discuss the latest developments on the implementation work on BEPS, in light of the debates taking place in the Committee on Fiscal Affairs' OECDWorking Parties. Participants were also updated on the progress of the work on the toolkits aimed at addressing the specific needs of developing countries in implementing the BEPS measures. These discussions provided the ideal forum to obtain input into the work and on the priorities of the participating countries and their needs in relation to capacity building and training.

December 9, 2016 in BEPS | Permalink | Comments (0)

Thursday, December 8, 2016

Framework on BEPS for the Asia-Pacific region

50 delegates from 16 countries, 4 international organisations, business and civil society gathered in Manila for the first regional meeting of the Inclusive Framework on Base Erosion and Profit shifting (BEPS) in the Asia-Pacific region after the launch of the Inclusive Framework in Kyoto on 30 June-1st July 2016. This meeting is one in a new series of events that offer participants from different regions in the world the opportunity to feed in their views and provide their input into the Inclusive Framework on BEPS.

Participants discussed the latest developments on the implementation work on BEPS in light of the work taking place in the Committee on Fiscal Affairs' Working Parties. Participants were also updated on the progress of the work on the toolkits aimed at addressing the specific needs of developing countries in implementing the BEPS and BEPS-related measures. These discussions provided a forum for setting out the priorities of needs of Asian-Pacific countries in relation to capacity building and training.

The event was hosted by the Asian Development Bank (ADB) and organised by the OECD in partnership with the Korea Policy Centre (KTC). Participants included senior officials from Ministries of Finance and Tax Administrations from Bhutan, Brunei Darussalam, Cambodia, Fiji, Indonesia, Japan, Korea, Malaysia, Maldives, Myanmar, People's Republic of China, Philippines, Singapore, Sri Lanka, Thailand and Vietnam, as well as business representatives (BIAC/Unilever), from civil society (Asian People's Movement on Debt and Development) and IMF.

The meeting was co-chaired by Mr. John Hutagaol, Director of International Taxation in the Ministry of Finance of the Republic of Indonesia, and Mr. Kwangouck Byun, Director of Tax Treaty Division in the Korean Ministry of Strategy and Finance.

First regional meeting of the Inclusive Framework on Base Erosion and Profit shifting (BEPS) in the Asia-Pacific region

December 8, 2016 in BEPS | Permalink | Comments (0)

Tuesday, December 6, 2016

OECD releases mutual agreement procedure (MAP) statistics for 2015

The OECD’s work to advance tax certainty specifically includes work to improve the timeliness of processing and completing mutual agreement procedure (MAP) cases under tax OECDtreaties and to enhance the transparency of the MAP process. As part of this work, the OECD makes available to the public, via its website, annual statistics on the MAP caseloads of all its member countries and of non-OECD economies that agree to provide such statistics. MAP statistics are now available for the 2015 reporting period. 

Improving the effectiveness of dispute resolution mechanisms is an integral component of the work on BEPS and is the aim of Action 14 of the BEPS Action Plan (read the Final 2015 Report on Action 14 of the BEPS Action Plan). One of the principal outcomes of the work on Action 14 is the commitment by OECD and G20 countries to a minimum standard with respect to the resolution of treaty-related disputes. As part of the Action 14 minimum standard, members of the Inclusive Framework on BEPS will report MAP statistics pursuant to an agreed reporting framework ; such reporting will provide a tangible measure of the effects of the implementation of part of the minimum standard. The MAP statistics made available for 2016 and following years will accordingly contain additional information and will include reports from a significant group of non-OECD economies, most of which do not currently report MAP statistics to the OECD.

The MAP statistics now made available correspond to the 2015 reporting period (MAP statistics were provided earlier for reporting periods 2006 through 2014). Considered in the aggregate, MAP inventories in OECD member countries at the end of these reporting periods show a continuous increase from 2006 to 2015, with a slight decrease in 2010. For those countries that reported them, the average cycle times for cases completed, closed or withdrawn decreased in 2015 (20.47 months) as compared to 2014 (23.79 months). The separation of reported MAP cases into cases with other OECD member countries and cases with non-OECD economies continues to show, in general, that more than 90% of OECD member countries’ MAP inventories are cases with other OECD member countries.

For purposes of the 2015 MAP statistics now made available, the reporting framework and the definitions of terms used in reporting – as well as the other results of the proposals in the 2004 Committee on Fiscal Affairs (CFA) report on improving the resolution of cross-border tax disputes – are described in detail in the CFA’s 2007 report Improving the Resolution of Tax Treaty Disputes.


The statistics for each reporting period (generally a calendar year) include:

  • opening inventory of MAP cases on the first day of the reporting period;
  • number of MAP cases initiated during the reporting period;
  • number of MAP cases completed during the reporting period;
  • ending inventory of MAP cases on the last day of the reporting period;
  • cases closed or withdrawn with double taxation during the reporting period; and
  • average cycle time for cases completed, closed or withdrawn during the reporting period.

The data for each reporting period are separated based on the year the relevant MAP cases were initiated. In addition, since 2008, the statistics have been divided into MAP cases with OECD member countries and cases with Partner economies for countries that have provided that information. More information on the MAP reporting framework, including the definitions of terms used in reporting, can be found in the 2007 Report “Improving the Resolution of Tax Treaty Disputes”.

Readers should note that 2015 is the last reporting period for which statistics will be provided in this format. For 2016 and subsequent years, members of the Inclusive Framework on BEPS will use a substantially revised reporting framework which has been developed for use in monitoring the implementation of the BEPS Action 14 minimum standard.  

The tables below show the number of new MAP cases initiated in 2006 through 2015 and the inventory of open MAP cases at the end of each reporting period for OECD member countries and for certain Partner economies that have provided statistics. For detailed country-by-country statistics, please click on the country name for a link to the statistics for that country.

Number of New MAP Cases Initiated by Reporting Period

OECD member countries

   

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Australia

9

13

8

19

21

10

10

8

10 14

Austria

29

26

36

30

38

35

61

41

49 43

Belgium

31

30

71

213

120

120

151

124

205

428

Canada

76

70

85

103

101

94

87

127

127 130

Chile

0

0

0

0

0

0

0

0

0 0

Czech Republic

5

10

5

6

8

12

13

7

12 11

Denmark

15

18

21

22

20

24

24

22

43 52

Estonia

--

--

--

--

--

0

0

0

1 2

Finland

1

11

8

5

11

13

14

56

49 20

France

104

100

154

169

135

173

181

216

201 173

Germany

212

186

177

177

150

306

277

267

374 363

Greece

1

2

--

--

--

5

3

3*

4 6

Hungary

4

3

1

2

1

0

1

2

4 4

Iceland

1

0

0

0

0

1

2

1

4 1

Ireland

3

3

2

6

7

6

12

12

5 13

Israel

--

--

--

--

4

9

5

3

3 2

Italy

14

20

14

31

22

41

45

52

89 80

Japan

37

49

40

44

34

22

31

36

45 38

Korea

8

9

13

25

13

24

22

23

33 42
Latvia_small

Latvia

-- -- -- -- -- -- -- 0 0* 3

Luxembourg

22

31

31

25

35

75

39

45

116 212

Mexico

14

11

5

10

4

5

17

12

4 3

Netherlands

80

57

--

64

51

34

83

75

87 128

New Zealand

4

5

2

6

4

4

3

14

28 7

Norway

15

21

30

21

16

7

10

26

18 33

Poland

11

7

19

14

7

9

5

19

18 6

Portugal

10

7

5

14

17

15

17

6

11 11

Slovak Republic

0

--

1

1

3

4

1

2

2 3

Slovenia

--

--

3

0

2

2

3

6

11 5

Spain

18

67

24

24

24

18

36

25

33 30

Sweden

72

61

104

64

104

111

100

65

91 92

Switzerland

--

45

99

119

65

112

120

131

109 148

Turkey

0

2

1

3

4

0

0

2

2 2

United Kingdom

--

55

44

56

68

54

69

79

117 115

United States

240

257

308

326

252

279

236

403

354 289

TOTAL

1036

1176

1311

1599

1341

1624

1678

1910

2259 2509

* Where a country did not report the number of new MAP cases initiated in the reporting period, this chart uses the number of new MAP cases reported for the preceding reporting period. These numbers are indicated with an asterisk.

Latvia reported MAP statistics to the OECD for the first time for the 2013 reporting period. 

Partner economies

   

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Argentina

--

--

0

1

0

--

--

-- -- 1

China

--

--

--

--

--

--

--

23 29 25

Costa Rica

--

--

--

--

--

--

--

-- 1 0
Lithuania_small

Lithuania††

--

--

--

--

--

--

--

-- -- 0

South Africa

--

--

4

1

5

5

3

2 4 13

TOTAL

--

--

4

2

5

5

3

25

34 39

China reported MAP statistics to the OECD for the first time for the 2013 reporting period.

Costa Rica reported MAP statistics to the OECD for the first time for the 2014 reporting period.

††Lithuania reported MAP statistics to the OECD for the first time for the 2015 reporting period. 

December 6, 2016 in BEPS, OECD | Permalink | Comments (0)

Monday, December 5, 2016

OECD releases further BEPS guidance on Country-by-Country reporting and country-specific information on implementation

The Inclusive Framework on BEPS has released two new documents to support the global implementation of Country-by-Country (CbC) reporting (BEPS Action 13): OECD

  • Key details of jurisdictions' domestic legal frameworks for CbC reporting; and
  • Additional interpretive guidance on the CbC reporting standard.

These documents provide essential information that will give certainty to tax administrations and MNE Groups alike on implementation of CbC reporting.

The details on jurisdictions' legal frameworks for CbC reporting include the status of the legislation, first reporting periods, availability of surrogate filing and voluntary filing, and whether local filing can be required. This will be updated as Inclusive Framework members continue to finalise their legal frameworks. Information will also be published in the coming months as to the Qualifying Competent Authority Agreements (QCAA) being put in place to facilitate the international exchange of CbC reports between tax administrations.

The additional guidance relates to the case where a notification to the tax administration may be required to identify the reporting entity within a MNE Group (as provided in Article 3 of the Model Legislation in the Action 13 Report). The guidance confirms that if such notifications are required, jurisdictions have flexibility as to the due date for such notifications. This may be particularly relevant during the transition period where jurisdictions are still completing their implementation of CbC reporting, as MNE Groups may not yet have the necessary information to submit their notifications. The guidance also confirms that jurisdictions may wish to consider other transitional relief for MNE Groups with respect to these notifications, which would also be consistent with the minimum standard.

Additional guidance will be published as necessary to support the swift, consistent and global implementation of CbC reporting.

December 5, 2016 in BEPS, OECD | Permalink | Comments (0)

100 jurisdictions have concluded negotiations on a multilateral instrument that will swiftly implement a series of tax treaty measures

Countries adopt multilateral convention  to close tax treaty loopholes and improve functioning of international tax system

More than 100 jurisdictions have concluded  negotiations on a multilateral instrument that will swiftly implement a series of  tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.
 
The new instrument will transpose results from the OECD/G20 Base Erosion and Profit Shifting Project (BEPS) into more than 2 000 tax treaties worldwide. A signing ceremony will be held in June 2017 in Paris.

December 5, 2016 in BEPS | Permalink | Comments (0)

Friday, November 11, 2016

OECD releases schedule for Action 14 MAP peer reviews and invites taxpayer input

The OECD released the key documents that will form the basis of the Mutual Agreement Procedure (MAP) peer review and OECDmonitoring process under Action 14 of the BEPS Action Plan. In accordance with the Assessment Methodology, the reviews will be conducted in batches, with the first batch commencing in December 2016.

The first schedule of reviews is now available. This schedule also identifies the developing countries for which the review has been deferred. The schedule will be updated periodically to include the remaining Inclusive Framework members.

In preparation for the first batch of reviews and in recognition that taxpayers are the main users of the MAP, the FTA MAP Forum invites taxpayers to provide input on specific areas relating to access to MAP, clarity and availability of MAP guidance and the timely implementation of MAP agreements in relation to the first batch of reviews, which comprises the reviews of Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States.

Taxpayers should submit their inputs using this questionnaire for each of the jurisdictions named above. The completed questionnaire should be sent in Word format to fta.map@oecd.org at the latest by 28 November 2016.

For more information on the BEPS Action 14 peer review and monitoring process, see: www.oecd.org/tax/beps/beps-action-14-peer-review-and-monitoring.htm

November 11, 2016 in BEPS, OECD | Permalink | Comments (0)

Monday, October 24, 2016

G20/OECD BEPS Project advances tax certainty agenda with the launch of global review of MAP programmes

The OECD released key documents, approved by the Inclusive Framework on BEPS, that will form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan.

The Action Plan on Base Erosion and Profit Shifting identified 15 actions to address BEPS in a comprehensive manner. Recognising that the actions to counter BEPS must be OECDcomplemented with actions that ensure certainty and predictability for business, Action 14 calls for effective dispute resolution mechanisms to resolve tax treaty-related disputes. The BEPS package endorsed by the G20 Finance Ministers in October 2015 contains the report on Action 14 (Making Dispute Resolution Mechanisms More Effective), which outlines the minimum standards and best practices for resolving treaty-related disputes under the Mutual Agreement Procedure (MAP).

The documents released today form the basis on which this process will be moving forward. The compilation includes the Terms of Reference which translate the minimum standard approved in the final Action 14 report into a basis for peer review; the Assessment Methodology for the peer review and monitoring process and the MAP statistics reporting framework which reflects the collaborative approach competent authorities will take to resolve MAP cases and will ensure greater transparency on statistical information relating to the inventory, types and outcome of MAP cases through common reporting of MAP cases going forward andGuidance on information and documentation to be submitted with a MAP request.

Through rigorous peer reviews and continual collection of data, the Action 14 BEPS deliverables seek to eliminate taxation not in accordance with treaty provisions and help resolve any tax-treaty related disputes in a timely and efficient manner. The involvement of the Inclusive Framework throughout the peer review process ensures that the effort to streamline MAP incorporates the experience of both developing and developed countries. The peer review and monitoring process will be conducted by the FTA MAP Forum, with all members participating on an equal footing.

The review will take place on the basis of the existing treaties and there is no requirement for jurisdictions to negotiate any new treaties. Furthermore, the methodology released today contains the possibility for developing countries to defer the peer review, recognising their capacity constraints and often relatively small MAP pipeline.

Consistent with its efforts to enhance transparency, the OECD will also publish updated MAP profiles of all members of the Inclusive Framework, which contain information about each member's Competent Authorities' contact details, domestic guidelines for MAP and other useful information for both tax authorities and taxpayers. The actual peer reviews will be conducted in batches, with the first batch commencing in December 2016. We will be seeking taxpayer input before the launch of these reviews and a questionnaire for taxpayer input seeking such input will be published shortly, together with a schedule for review.

October 24, 2016 in BEPS | Permalink | Comments (0)

Friday, October 21, 2016

Several new jurisdictions sign transfer pricing automatic sharing of corporate country-by-country reports and CRS financial information about individuals

As part of continuing efforts to boost transparency by multinational enterprises (MNEs), Brazil, Guernsey, Jersey, the Isle of Man and Latvia signed today the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country reports, bringing the total number of signatories to 49.  This marks a further milestone towards the implementation of the OECD/G20 BEPS Project and a significant increase in cross-border cooperation on tax matters.

The MCAA will enable consistent and swift implementation of new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan. It will ensure that tax administrations obtain a complete understanding of the way MNEs structure their operations through the annual automatic exchange of country-by-country reports, while also ensuring that the confidentiality of such information is safeguarded.

Country-by-country reporting will require MNEs to provide aggregate information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.

 

From left/right: Senator Ian Gorst, Jersey, Secretary-General Angel Gurría, OECD, Deputy Lyndon Trott, Guernsey and Howard Quayle MHK, Isle of Man.

Photo:OECD/Marco Illuminati

On the occasion of the signing in Paris, OECD Secretary-General Angel Gurría discussed the international tax agenda with Deputy Lyndon Trott, of Guernsey, Howard Quayle MHK, of Isle of Man, and Senator Ian Gorst, of Jersey. “I congratulate Brazil, Guernsey, Jersey the Isle of Man and Latvia on their efforts toward implementing the BEPS package, and on their important role in advancing greater international tax cooperation and transparency,” Mr Gurría said.

The OECD/G20 BEPS Project set out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from MNEs.

G20 Leaders endorsed a wide-ranging BEPS package in November 2015 that marks an historic opportunity for improving the effectiveness of the international tax system. The package was the result of more than two years of discussion involving all OECD and G20 countries, as well as more than a dozen developing countries. Following endorsement of the BEPS measures, the focus has shifted to designing and putting in place an inclusive framework for monitoring BEPS and supporting implementation of the measures, where currently 85 jurisdictions participate on an equal footing.

For more information about the MCAA Country-By-Country Reporting, see: www.oecd.org/tax/automatic-exchange/about-automatic-exchange/country-by-country-reporting.htm

Brazil joins the CRS MCAA

In addition to signing the Country by Country MCAA, Brazil today also signed the CRS Multilateral Competent Authority Agreement‎ (CRS MCAA), re-confirming 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. Brazil is the 85th jurisdiction to sign the CRS MCAA.

The Convention on Mutual Administrative Assistance in Tax Matters (the "Convention"), by virtue of its Article 6, is the legal basis for both Multilateral Competent Authority Agreements. 104 countries and jurisdictions currently participate in the Convention.

October 21, 2016 in BEPS, GATCA, OECD | Permalink | Comments (0)

Wednesday, October 19, 2016

OECD launches business survey on tax certainty to support G20 tax agenda

The OECD received a strong endorsement from both the G20 Leaders and Finance Ministers to work on solutions to support certainty in the tax system with the aim to promote OECDinvestment, trade and balanced growth.

As part of a wider project, the OECD launches a Business Survey to invite businesses and other stakeholders to contribute their views on tax certainty.

The survey is an open and wide-spread consultation which supports the G20 future tax policy work. At the Hangzhou Summit in September 2016, the G20 Leaders emphasised the benefits of tax certainty in promoting investment, trade and balanced growth. Together with the IMF, the OECD was asked to continue working to enhance tax certainty.

Senior tax specialists are cordially invited to participate in the survey and contribute their experience and views to support the development of practical and concrete policy options aimed at fostering certainty in the tax system.

The survey will run from 18 October to 16 December 2016, and will also be an opportunity to identify specific tax policy issues for the future G20 tax agenda and to shape practical and concrete solutions for a more certain and predictable tax system.

This survey is strictly confidential and anonymous; no individual or organisation-specific information will be disclosed. Results will only be made available in aggregated format and presented to the G20 in 2017.

“This survey provides a unique opportunity for businesses to share their views and experiences related to tax certainty. Tax administrations and policy makers as well as civil society organisations will of course have later on a chance to comment on the findings”, said Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration.

» The Business Survey on Taxation is accessible at: http://bit.ly/oecd-tax-business-survey

» A Q&A session via webinar will be delivered on Tuesday 25 October at 15:00 (CEST). To register please go to http://bit.ly/oecd-business-survey-webinar

October 19, 2016 in BEPS, OECD, Tax Compliance | Permalink | Comments (0)

Monday, September 5, 2016

EU Commission Ante's Up Texas Hold'em Bet $13 billion, Against Apple

The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid.

With just a 20 or so million Euro tax adjustment spread out over a 10 year period of time, on a precarious argument about a very grey area of arm's length pricing against Starbucks, ... that could be about the Commission seeking to obtain the power of the U.S. Supreme Court to review all national decisions of its member states (Marbury v Madison).  And I thought of Texas Hold’em. 

But a 13 billion tax retroactive clawback on Apple?  That's the EU pushing all its chips into the center of the table and calling?  Will the US push all its chips or will the US fold?  If a Texas was playing, then Treasury would push IRC Section 891 into the center of the table with an attached executive order taking effect the day Apple transfers the $13 billion.  IRC Section 891's executive order would only apply to the countries that have executed the clawbacks - right now Netherlands, Luxembourg and Ireland.  If these three countries have a problem with IRC Section 891, let them take it to the EU Commission.

Let me explain....

On January 15, 2016, in a joint (bi-partisan) letter of Senate Finance Committee Republicans and Democrats to US Treasury, one that will certainly be of interest to our friends at Wolters Kluwer (a Netherlands parent multinational enterprise), the Senate Finance Committee members encouraged Treasury to use a tit-for-tat strategy against the EU Commission.  The letter stated that if the EU Commission imposes retroactive state aid penalties that impact US MNEs, then the US should respond with IRC Section 891 that allows the USA to double the tax rates on companies and individuals based within European countries whose governments impose a retroactive “re-capture” of that state aid from US owned MNEs.  IRC Section 891 states:

Whenever the President finds that, under the laws of any foreign country, citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes, the President shall so proclaim and the rates of tax … shall … be doubled in the case of each citizen and corporation of such foreign country…. In no case shall this section operate to increase the taxes imposed by such sections (computed without regard to this section) to an amount in excess of 80 percent of the taxable income of the taxpayer …

IRC Section 891 allows up to nearly an 80 percent federal individual tax rate and 70 percent corporate one to be applied to members of MNE groups of countries.  

Netherlands, Belgium, Luxembourg, and Ireland will need to tread cautiously through this mine-field between their supra-national obligations to the EU Commission (that many pundits say is being pushed by a small, influential group of EU states led by France) and the wrath of US Treasury which is being pushed by an influential group of Republican and Democratic Senators (imagine the response by a “President Trump” to the EU Commission trying to soak up past earnings of US companies).

"The U.S. Treasury Department continues to consider potential responses should the Commission continue its present course." stated the US Department of Treasury in its Aug 24, 2016 White Paper available at https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/White-Paper-State-Aid.pdf  Is this just another of the administration's red lines like in Syria?  Or has Treasury grown a backbone and going to back up its "don't cross this line" staements.

My blog colleagues will likely retort that US double tax agreement obligations will protect such EU companies and citizens from such discriminatory treatment.  Most U.S. tax treaties provide that the treaty country cannot discriminate by imposing more burdensome taxes on the other countries citizens who are residents of the treaty country than it imposes on its own citizens in the same circumstances.  By example, the US – Netherlands Double Tax Agreement reads in pertinent part –

ARTICLE 28 Non-discrimination

1. Nationals of one of the States shall not be subjected in the other State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

Perhaps, after extensive refund litigation, non-resident source based income may indeed be protected by a Court from an imposition of a doubling of the applicable tax rates.  Why refund litigation?  The US withholding agent will look to the Presidential Order pursuant to IRC Section 891 and simply double-up the withholding rate on Form 1042-S and withhold accordingly.  As a matter of practice, no matter of argument and attorney’s opinion will convince that withholding agent to ignore a Presidential Order.  My banking colleagues in the world of sorting out (incorrect) imposition of Chapter 4 [FATCA] know that I am correct in this regard.   If the income in question is exempt from withholding or the normal (generally 30 percent) withholding rate has been eliminated by a treaty article, then a doubling of ‘nil’ remains ‘nil’.  But for other income whereby a withholding rate applies, typically the case for dividends income, then Section 891 may sting but for any foreign tax credit applicable back home.  Yet, likely, a refund will eventually be forthcoming, after litigation.

But will a U.S. court stretch the same non-discrimination protection of a double tax agreement to the underlying US subsidiaries of these EU MNEs who are filing Form 1120?  Technically, yes.  But what about the “Last-in-Time doctrine?  When the effect of two U.S. statutes create a conflict of application, then the Last-in-Time doctrine is applied by a US court to suppress the legal effect of the former statute with that of a most recent statute.  The US Supreme Court ruled that a treaty, for US rule-of-law purposes, is just another statute.  In Whitney v Roberson, 124 US 190 (1888) the Court stated, in relevant parts:

By the Constitution a treaty is placed on the same footing, and made of like obligation, with an act of legislation. Both are declared by that instrument to be the supreme law of the land, and no superior efficacy is given to either over the other. When the two relate to the same subject, the courts will always endeavor to construe them so as to give effect to both, if that can be done without violating the language of either; but if the two are inconsistent, the one last in date will control the other, provided always the stipulation of the treaty on the subject is self-executing. If the country with which the treaty is made is dissatisfied with the action of the legislative department, it may present its complaint to the executive head of the government, and take such other measures as it may deem essential for the protection of its interests. The courts can afford no redress. Whether the complaining nation has just cause of complaint, or our country was justified in its legislation, are not matters for judicial cognizance.

The US courts have been generally criticized by foreign and domestic academics for application of the “Last-in-Time” doctrine, but in the US the doctrine has proponents besides being the ‘law of the land’. 

The current IRC Section 891 dates to the enactment of the 1986 Internal Revenue Code, albeit the section has been carried over from original enactment in 1938 and not yet actually employed by a US President.  Thus, from a Last-in-Time perspective, the Netherlands DTA prevails over this IRC Section.  And a presidential order, which is not enacted by Congress, does not rise to the level of a statute for application of Last-in-Time.  

But application of IRC Section 891 in these circumstances has popular, bipartisan support.  Thus, is it possible, however unlikely in a presidential election year, that in a show of bipartisanship, Congress unites to enact such a Presidential order in a statutory form.  Then that 2016 statute, by Last-in-Time doctrine, will prevail over the Netherland 1992 treaty.

Is such bi-partisanship likely?  Robert Stack, US Treasury official responsible for International Tax Affairs, stated to the Senate Finance Committee on December 1, 2015 that the US Treasury is concerned that the EU Commission appears to be disproportionately targeting U.S. companies. Moreover, US Treasury is of the opinion that these actions potentially undermine U.S. rights under our tax treaties, and lead to discriminatory treatment.  Thus, could argue US Treasury in a tit-for-tat brief to a Court, ‘what’s good for the goose is good for the gander’ and ‘they discriminated first’.  Not perhaps winning legal arguments, but sometimes the court of public opinion is just as important.

U.S. Treasury stated that it is concerned that the EU Commission is reaching out to tax income that no member state had the right to tax under internationally accepted standards. Rather, from all appearances to the eyes of the US Treasury, the EU Commission is seeking to tax the income of U.S. multinational enterprises that, under current U.S. tax rules, is deferred until such time as the amounts are repatriated to the United States. Robert Stack stated “The mere fact that the U.S. system has left these amounts untaxed until repatriated does not provide under international tax standards a right for another jurisdiction to tax those amounts.”

After all, Senator Orrin Hatch (Utah), Chairperson of the Senate Finance Commt, stated in December 2015 that the EU Commissions “state aid” remedies and recent activities in the Eurozone look like attempts to impose retroactive taxation on a number of U.S.-based multinational companies.  And about BEPS he stated: “At the same time, while international efforts to align tax systems are worth exploring, we shouldn’t be negotiating agreements that undermine our own interests for the sake of some supposedly higher or nobler cause. The interests of the United States – our own economy, our own workers, and our own job creators – should be our sole focus.”

If the EU Commission is playing a poker hand that depends on the US Treasury and Congress folding, then just like with FATCA, I’d bet on the US winning this hand.

My fortune telling?  This card game has three players at the table: the EU Commission, the US Treasury, and the EU Member States. After upping-the-bets by the EU Commission and US Treasury/Congress, meetings will occur between the leaders at the G7.  The EU will back-track through a Commission decision to the member governments that mitigates the retroactive application of State Aid imposed collections, in exchange for the member governments dropping their appeals.  The EU will demand that if it fold, its members fold.  The EU Commission will have achieved victory because its Marbury v Madison objective of establishing itself as the supreme authority regarding each member’s fiscal system and implementation thereof will now have its precedent.  And the EU Commission will promote itself the hero for having avoided the cost of a tit-for-tat trade war with the US its members can hardly afford, that the members would have brought on themselves by tax competitive behavior.  A well-played hand by the EU Commission.

But will the EU members fold (drop the appeal)?  Only one country has the steady demeanor to play out this hand – the Netherlands.  The Dutch are known for their calm pragmatism, but also for their stubborn resolve.  I look forward to watching this high stakes poker game play out. 

In Texas we play Texas Hold ’em poker with the cards face up, not face down.  Because more information is available, we bet aggressive on a good hand but fold quickly on a bad hand.  If America lets the EU Commission this hand, not only does it shift the burden of the EU welfare states and national debts unto the the American taxpayer and the American retiree  (through reduced retirement savings/pension growth), but it establishes the EU as the new world order with the US happless.

EU case below

 Commissioner Margrethe Vestager, in charge of competition policy, said: "Member States cannot give tax benefits to selected

Comision_Europea_logo.svg companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."

Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office". The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. These profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.  

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.

In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.

Apple's tax structure in Europe

Apple Sales International and Apple Operations Europe are two Irish incorporated companies that are fully-owned by the Apple group, ultimately controlled by the US parent, Apple Inc. They hold the rights to use Apple's intellectual property to sell and manufacture Apple products outside North and South America under a so-called 'cost-sharing agreement' with Apple Inc. Under this agreement, Apple Sales International and Apple Operations Europe make yearly payments to Apple in the US to fund research and development efforts conducted on behalf of the Irish companies in the US. These payments amounted to about US$ 2 billion in 2011 and significantly increased in 2014. These expenses, mainly borne by Apple Sales International, contributed to fund more than half of all research efforts by the Apple group in the US to develop its intellectual property worldwide. These expenses are deducted from the profits recorded by Apple Sales International and Apple Operations Europe in Ireland each year, in line with applicable rules.

The taxable profits of Apple Sales International and Apple Operations Europe in Ireland are determined by a tax ruling granted by Ireland in 1991, which in 2007 was replaced by a similar second tax ruling. This tax ruling was terminated when Apple Sales International and Apple Operations Europe changed their structures in 2015.

Apple Sales International

Apple Sales International is responsible for buying Apple products from equipment manufacturers around the world and selling these products in Europe (as well as in the Middle East, Africa and India). Apple set up their sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland.

The two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple Sales International (rather than the wider set-up of Apple's sales operations in Europe). Specifically, they endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a "head office" within Apple Sales International. This "head office" was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the "head office", where they remained untaxed.

Therefore, only a small percentage of Apple Sales International's profits were taxed in Ireland, and the rest was taxed nowhere. In 2011, for example (according to figures released at US Senate public hearings), Apple Sales International recorded profits of US$ 22 billion (c.a. €16 billion[1]) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland, leaving €15.95 billion of profits untaxed. As a result, Apple Sales International paid less than €10 million of corporate tax in Ireland in 2011 – an effective tax rate of about 0.05% on its overall annual profits. In subsequent years, Apple Sales International's recorded profits continued to increase but the profits considered taxable in Ireland under the terms of the tax ruling did not. Thus this effective tax rate decreased further to only 0.005% in 2014.

Apple Operations Europe

On the basis of the same two tax rulings from 1991 and 2007, Apple Operations Europe benefitted from a similar tax arrangement over the same period of time. The company was responsible for manufacturing certain lines of computers for the Apple group. The majority of the profits of this company were also allocated internally to its "head office" and not taxed anywhere.

Commission assessment

Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities to give a company clarity on how its corporate tax will be calculated or on the use of special tax provisions.

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, profits must be allocated between companies in a corporate group, and between different parts of the same company, in a way that reflects economic reality. This means that the allocation should be in line with arrangements that take place under commercial conditions between independent businesses (so-called "arm's length principle").

In particular, the Commission's state aid investigation concerned two consecutive tax rulings issued by Ireland, which endorsed a method to internally allocate profits within Apple Sales International and Apple Operations Europe,two Irish incorporated companies. It assessed whether this endorsed method to calculate the taxable profits of each company in Ireland gave Apple an undue advantage that is illegal under EU state aid rules.

The Commission's investigation has shown that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe,which has no factual or economic justification. As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.

The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission's assessment, are the only profits which can be attributed to the "head offices".

Similarly, only the Irish branch of Apple Operations Europe had the capacity to generate any income from trading, i.e. from the production of certain lines of computers for the Apple group. Therefore, sales profits of Apple Operation Europe should have been recorded with the Irish branch and taxed there.

On this basis, the Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe's sales profits to their "head offices", where they were not taxed. As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under EU state aid rules.

This decision does not call into question Ireland's general tax system or its corporate tax rate.

Furthermore, Apple's tax structure in Europe as such, and whether profits could have been recorded in the countries where the sales effectively took place, are not issues covered by EU state aid rules. If profits were recorded in other countries this could, however, affect the amount of recovery by Ireland (see more details below).

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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.

The Commission has set out in its decision the methodology to calculate the value of the undue competitive advantage enjoyed by Apple. In particular, Ireland must allocate to each branch all profits from sales previously indirectly allocated to the "head office" of Apple Sales International and Apple Operations Europe, respectively, and apply the normal corporation tax in Ireland on these re-allocated profits. The decision does not ask for the reallocation of any interest income of the two companies that can be associated with the activities of the "head office".

The Commission can only order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in this matter, which dates back to 2013. Ireland must therefore recover from Apple the unpaid tax for the period since 2003, which amounts to up to €13 billion, plus interest. Around €50 million in unpaid taxes relate to the undue allocation of profits to the "head office" of Apple Operations Europe. The remainder results from the undue allocation of profits to the "head office" of Apple Sales International. The recovery period stops in 2014, as Apple changed its structure in Ireland as of 2015 and the ruling of 2007 no longer applies.

The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This could be the case if they consider, in view of the information revealed through the Commission’s investigation, that Apple's commercial risks, sales and other activities should have been recorded in their jurisdictions. This is because the taxable profits of Apple Sales International in Ireland would be reduced if profits were recorded and taxed in other countries instead of being recorded in Ireland.

The amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts. These are conducted by Apple in the US on behalf of Apple Sales International and Apple Operations Europe, for which the two companies already make annual payments.

Finally, all Commission decisions are subject to scrutiny by EU courts. If a Member State decides to appeal a Commission decision, it must still recover the illegal state aid but could, for example, place the recovered amount in an escrow account pending the outcome of the EU court procedures.

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. 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 Amazon and McDonald's.

This Commission has pursued a far-reaching strategy towards fair taxation and greater transparency and we have recently seen major progress. Following our proposals on tax transparency of March 2015, Member States reached a political agreementalready in October 2015 on automatic exchange of information on tax rulings. This legislation will help to bring about a much greater degree of transparency and deter from using tax rulings as an instrument for tax abuse. In June 2015, we unveiled our Action Plan for fair and effective taxation: a series of initiatives which aims to make the corporate tax environment in the EU fairer and more efficient. Key actions included a framework to ensure effective taxation where profits are generated and a strategy to re-launch the Common Consolidated Corporate Tax Base for which a fresh proposal is expected later this year. The Commission launched a further package of initiatives to combat corporate tax avoidance within the EU and throughout the world on 27 January of this year. As a direct result, Member States have already agreed to tackle the most prevalent loopholes in national laws that allow tax avoidance to take place and to extend their automatic exchange of information to country-by-country reporting of tax-related financial information of multinationals. A proposal is also on the table to make some of this information public. All of our 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.38373in the State aid register on the DG 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.

[1]         Based on historical exchange rates

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September 5, 2016 in BEPS | Permalink | Comments (0)

Tuesday, August 30, 2016

OECD publishes public comments on Chapter IX of the OECD Transfer Pricing Guidelines, "Transfer Pricing Aspects of Business Restructurings".

On 4 July 2016, interested parties were invited to review the conforming amendments to Chapter IX of the OECD Transfer OECDPricing Guidelines, "Transfer Pricing Aspects of Business Restructurings". The OECD is grateful to the commentators for their input and now publishes the comments received.

Download Comments-conforming-amendments-chapter-ix-transfer-pricing-guidelines

August 30, 2016 in BEPS | Permalink | Comments (0)