OECD and G20 countries have agreed to a framework for country-by-country reporting by multinational corporations, to the criteria to assess whether preferential intellectual property regimes are harmful, and to a plan to create a multilateral instrument to implement tax treaty-related measures, the OECD said February 6.
The agreements, which implement OECD/G20 base erosion profit shifting (BEPS) plan, will be presented at the G20 Finance Ministers meeting on February 9-10 in Istanbul, Turkey.
Country-by-country reporting
The countries agreed that country-by-country reporting for MNEs would begin in 2016 and the related government-to-government exchange mechanism would start in 2017. MNEs with less than € 750 million annual revenue would be exempt from reporting.
Under the plan, the parent corporation would file in its state of residence and that state would exchange the information on an automatic basis with qualifying jurisdictions in which the MNE group operates. Secondary mechanisms will apply if the parent jurisdiction fails to exchange the information, providing for local filing or requiring the reporting obligation to fall to next tier parent company.
Jurisdictions participating in the project must enforce the confidentiality of the country-by-country report and must agree that the information only be used to assess transfer pricing risk.
The transfer pricing master file and local file would be filed directly with the local tax administration. Countries will “take into account” agreed to standards when writing local rules to implement the agreement.
IP regimes
The countries also agreed to a framework for determining which intellectual property regimes and other preferential regimes can be considered harmful tax practices, the OECD said.
The OECD reported that all OECD countries and G20 countries have endorsed a solution proposed by Germany and the UK on a modified nexus approach, which ties benefits under an IP regime to expenditures for R&D carried out in the country.
The approach also allows a taxpayer’s non-qualifying related party outsourcing and acquisition costs to be included in qualifying R&D expenditures, up to an amount equal to 30 percent of the qualifying expenditures, and provides for generous transition rules.
Multilateral instrument
The countries further agreed on a plan to develop a multilateral instrument to implement BEPS action items such as the proposals addressing hybrid entities, treaty abuse, artificial avoidance of the permanent establishment standards, and dispute resolution.
The mandate sets out the objective and intended scope of the work and the process for drafting the instrument, including identifying who will conduct the work, and how it will be funded.
“These are important steps forward, which demonstrate that progress is being made toward a fairer international tax system,” OECD Secretary-General Angel Gurría said. “These decisions signal the unwavering commitment of the international community to put an end to base erosion and profit shifting, in line with the ambitious timeline endorsed by G20 leaders.”
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Related MNE Tax articles:
- UK/German proposal for IP regimes supported by OECD Forum on Harmful Tax Practices, says UK official
UPDATE (2/10/2015): G20 finance ministers endorse plan for multilateral instrument: G20 finance ministers have agreed to a mandate to create a multilateral instrument to implement tax treaty-related measures under OECD/G20 the base erosion and profit shifting (BEPS) plan, the ministers said in a communique following their February 9-10 meeting in Istanbul . . .
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