OECD officials outline international tax initiatives, country-by-country reporting guidance released

by Julie Martin

OECD officials, during a December 5 webcast, discussed OECD international tax work, including just-released guidance implementing the OECD/G20 base erosion profit shifting (BEPS) plan country-by-country reporting standards.

The discussion also covered the G20’s tax agenda, the BEPS multilateral instrument, the status of OECD drafts on profit splits and attribution of profits to permanent establishments, and peer review of the BEPS minimum standards.

Achim Pross, Head of the International Co-operation and Tax at the OECD, said that country-by-country reporting guidance, released today, consolidates into one document existing OECD guidance on transitional issues, released last June, and the updated guidance on country-by-country reporting, issued last December.

One new aspect of the guidance is that it clarifies that jurisdictions may extend the due date for MNEs to notify tax administrations regarding which entity in the group is the reporting entity for purposes of country-by-country reporting, Pross said.

Pross explained that a number of countries have required MNEs to identify the reporting entity by the end of financial period for which reporting is due, which creates practical difficulties in some instances where competent authority exchange agreements have not yet been put in place.

Under the guidance, countries may adopt a different reporting date, for example, the date of filing the tax return or the country-by-country report, or otherwise offer transition relief, Pross said.

The new guidance also announces that more countries will allow voluntary parent surrogate filing for fiscal periods beginning on or from January 1, 2016. Countries now permitting such filing are Hong Kong, Japan, Nigeria, and the United States.

The guidance reports that Liechtenstein, the Russian Federation, and Switzerland, have issued draft legislation allowing for parent surrogate filing, which still must be approved by the countries’ legislatures.

The OECD also today added a new section to its website that provides details on 48 countries’ implementation of the country-by-country reporting standards.

The information includes the first fiscal year for which filing is required, whether local filing is required, and whether surrogate filing is allowed.

Pross said that more countries will be added and the information will be regularly updated.

Inclusive framework, profit splits, PEs

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration reported that, so far, 90 countries have joined the BEPS inclusive framework, which is a group of countries that have committed to adopt and promote the implementation of BEPS minimum standards and work on future international tax standards.

Saint Amans said that finalization of draft transfer pricing guidance on profit splits and on attribution of profits to permanent establishments has been delayed because some members of the inclusive framework do not agree with some of the concepts in the drafts.

“It may be the case that we will not rush, as we thought we would, to conclude these drafts,” Saint Amans said. He added that future work on these topics may not align with the drafts.

G20’s digital economy focus

Saint Amans also reported on discussions held in Berlin during a December 1 meeting of the G20 deputy finance ministers, the first such meeting under the new German presidency.

Saint Amans said the German presidency is putting significant focus on issue of tax and digitization.

The G20 has asked the OECD to prepare a report for the March 17–18 finance ministers meeting, Saint Amans said, on “what is at stake there, on the work on the task force on the digital economy, and maybe some ideas on the way forward.”

Saint Amans said other international tax priorities of the German presidency include implementation of the BEPS minimum standards; tax certainty; tax and development, in particular the establishment of a “tax compact” in Africa;” and tax transparency, with emphasis on the need for countries to meet their obligations on exchange of information on request.

Multilateral instrument

Gita Kothari, Senior Legal Advisor at the OECD’s Legal Directorate, discussed the Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting, otherwise known as the multilateral instrument (MLI), released by the OECD on November 23.

The MLI is designed to allow countries to swiftly modify their bilateral tax treaties to incorporate the BEPS minimum standards and other BEPS output relating to tax treaties.

Kothari said that the MLI will sit on top of and modify existing tax treaties. The MLI is very efficient, Kothari said, as it allows governments to go to their parliament only once to modify many tax treaties.

Kothari reported the OECD is now helping countries prepare to sign the MLI. A June 5 signing ceremony is planned, which is expected to draw many countries. After that, countries must work on ratification of the MLI under domestic law, Kothari said.

Kothari predicted that processes similar to the MLI will be used in the future to amend tax treaties.

The MLI “may be an important precedent for updating bilateral tax treaties in a synchronized way in order to address an issue where there is broad consensus that coordinated action is required,” Kothari said.

Maikel Evers, Advisor at the OECD’s Centre of Tax Policy and Administration, said the OECD is developing a software tool to match MLI provisions selected by countries to amend their bilateral tax treaties.

Saint Amans added that a priority for future work is to make certain that the MLI’s operation on tax treaties is clear and transparent to all.

Peer review, BEPS minimum standards

Pross said that peer review by the BEPS inclusive framework on countries’ compliance with minimum standards under Action 6 (treaty abuse) will commence after work on the multilateral instrument is complete. Peer review of country-by-country reporting implementation under Action 13 is expected to begin in 2017, he said.

He said that there is ongoing assessment of countries’ compliance with BEPS standards on harmful tax practices.

“We are in the process of reviewing patent boxes, IP regimes, preferential regimes and the transparency framework [regarding the exchange of tax rulings],” he said.

In this regard, the OECD is working closely with the EU Code of Conduct Group, which is conducting a similar review of EU state laws, Pross said.

MAP standards

Pross said that peer review by the BEPS inclusive framework regarding compliance with BEPS minimum standards on the mutual agreement program (MAP) began today, with the launching of a questionnaire. The first countries to be reviewed are Belgium, the UK, Canada, the Netherlands, the US, and Switzerland.

Saint Amans called the MAP peer review work a “game changer” that will not only resolve double tax disputes, but prevent them. Saint Amans said that the publicity will put pressure on countries to improve their processes.

OECD today also released on its website the MAP statistics of many countries for the 2015 reporting period.

“Closing inventories are up by nearly 160 percent [over ten years], clearly indicating that there is a need to do something,” Pross said.

Pross added that, for 2016 and beyond, MAP statistics will be published and reported pursuant to a new agreed framework, which will make the data more consistent and provide greater transparency.

(Updated 12/8/2016 to add the UK to the list of countries in the first batch of MAP peer reviews).