OECD officials discuss international tax and transfer pricing agenda

October 16, 2018 Africa, Americas, Asia-Pacific, Digital Economy, Europe, Featured News, Multinational, OECD, Transfer Pricing, United States
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by Julie Martin, MNE Tax

Tax officials provided an update on the international tax and transfer pricing work underway at the OECD Centre for Tax Policy and Administration during an OECD Tax Talks webinar held October 16.

This latest webinar covered a range of topics, including OECD efforts to facilitate global agreement on new international tax rules for multinational digital firms, to revise the transfer pricing rules for financial transactions, and to ensure that the 2015 OECD/G20 base erosion profit shifting (BEPS) plan “minimum standards” are implemented worldwide.

 Here are highlights of the discussion:

  • Digital economy: Countries continue to disagree on how to update the international tax rules to account for multinational digital firms. According to Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration, during a July meeting of the Task Force on the Digital Economy (TFDE), German and French officials expressed interest in the use of a minimum tax to address the taxation of digital firms; US officials again advocated in favor of a broad reform of the international rules for allocating taxing rights to better account for market jurisdiction contributions that would apply to all industries; and the UK and other countries said they favored changing the tax rules only for highly digitalized businesses so as to take into account value creation through user participation.
  • Digital economy next steps: Saint-Amans said the timeline for digital economy work is as follows: the next TFDE meeting will be held December 4—5. The TFDE recommendations will then be taken up by the 119-member Inclusive Framework on BEPS at their January 19 meeting. The OECD plans to deliver its second update on the taxation of the digital economy to the G20 at the Osaka Summit in June 2019. The goal is to reach global consensus by 2020.
  • Transfer pricing for financial transactions: Jeff Van Hove, Senior Tax Advisor, Tax Treaty, Transfer Pricing and Financial Transactions Division, acknowledged that countries are still having difficulty reaching consensus on fundamental issues needed to advance the OECD’s planned update to the transfer pricing rules for financial transactions. Even very basic issues, such as the role of the arm’s length principle in evaluating capital structures, remain unresolved, he said. Van Hove said that public input on a non-consensus discussion draft issued last July has been helpful and that he hoped the additional insights would lead to agreement on the outstanding issues.
  • Country-by-country reporting: Achim Pross, Head of International Co-operation and Tax Administration, noted that the BEPS agreements call for a 2020 review of country-by-country reporting. Assessment of country-by-country reporting for this review will begin in 2018 and stakeholder input will be sought, Pross said. He also said that the OECD plans to prepare a country-by-country reporting risk assessment template for developing countries to help these countries make good use of the information. “In a nutshell, [country-by-country reporting] has been implemented around the world,” Pross reported. More than 1800 country-by-country reporting relationships have been activated so far and first deadline for exchanges was June 30.
  • MLI: Van Hove reported that, so far, 15 countries have deposited with the OECD their instruments of ratification of the BEPS multilateral instrument (MLI): Austria, Isle of Man, Jersey, Poland, Slovenia, Serbia, Sweden, New Zealand, United Kingdom, Lithuania, Israel, Slovak Republic, Australia, France, and Japan. To date, 84 jurisdictions have signed the agreement. The MLI entered into force on July 1, 2018, and will have effect for 47 matched agreements beginning January 1, 2019, he said.
  • Tax treaty abuse: The first peer review of countries’ implementation of the Action 6 minimum standard on prevention of tax treaty abuse is now underway, Van Hove said. Countries have completed the first step, which is to perform a self-assessment of their compliance with the standard. The next step is for Working Party 1 of the Committee on Fiscal Affairs (CFA) to prepare a peer review report for delivery at the January 2019 CFA/Inclusive Framework meeting. Saint Amans said that treaty shopping hubs have signed the MLI to incorporate the BEPS treaty shopping minimum standards and that treaty shopping and will thus end.
  • MAP peer review: Félicie Bonnet, Advisor, Mutual Agreement Procedures Unit, said that the 7th batch of MAP peer reviews is about to commence. The MAP practices in Brazil, Bulgaria, China, Indonesia, Papua New Guinea, Russia, and Saudi Arabia will be assessed. Bonnet said that the peer reviews rely on stakeholder feedback on countries’ MAP practices; however, this feedback has been insufficient, particularly for the later rounds of review.
  • Automatic exchange: Saint Amans noted that the first exchanges under automatic exchange of financial account information began September 30. More than 100 countries have commenced exchanges, including countries known for their strict bank secrecy, such as Singapore and Switzerland, he said. “That is a big milestone in the history of international tax cooperation,” Saint Amans said.
  • CBI/RBI schemes: Pross noted that the OECD today released an analysis of over 100 residence and citizenship by investment schemes (Golden Visas) that potentially pose a high risk to the integrity of the common reporting standard. These schemes allow IDs and residence permits to be obtained that might misrepresent an individual’s jurisdiction of tax residence. The OECD also published related guidance to enable financial institutions to identify and prevent cases of common reporting standard avoidance.

The next OECD Tax Talks update will likely be held after the new year, Saint Amans said.

Julie Martin

Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at [email protected].

Julie Martin
Julie can be reached at [email protected].

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