OECD officials provide update on international tax agenda

by Julie Martin

Tax officials, during a March 28 webcast, discussed the OECD’s international tax agenda, including plans to release tax and transfer pricing guidance and promote tax certainty.

Officials also provided an update on work aimed at ensuring the implementation of OECD/G20 base erosion profit shifting (BEPS) project minimum standards and discussed the expected signing the BEPS multilateral instrument.

Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration reported that the new US Treasury secretary, Steven Mnuchin, attended his first G20 finance ministers’ meeting on March 17—18.

Saint-Amans said that an important outcome of the meeting was that the new Treasury secretary reaffirmed the US’s commitment to the BEPS project.

Tax certainty, inclusive framework

Saint-Amans also said that much discussion at the finance ministers’ meeting was focused on the need for tax certainty.

He said the Forum on Tax administration, comprised of tax commissioners from OECD and G20 countries, will seek to enhance tax certainty at their September meeting by exploring ways to promote use of bilateral advance pricing agreements and joint or simultaneous audits.

“We are also trying to . . . relaunch the interest of tax administrations in cooperative compliance and make it broader,” Saint Amans said.

Saint-Amans also said that, to date, 94 countries have joined the BEPS inclusive framework, agreeing to implement BEPS minimum standards set by OECD and G20 countries in October 2015. Just over half of the inclusive framework members are non-OECD, non-G20 countries, he said.

BEPS MLI & treaty shopping hubs

Saint-Amans said he expected that “most if not all” countries considered “treaty shopping hubs” will sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

The OECD is has been identifying “jurisdictions of relevance” with respect to Action 6 on treaty shopping, which are countries that have not joined the inclusive framework but which will be nonetheless be reviewed for compliance with the minimum standards. The OECD has urged these countries to sign the multilateral instrument or risk receiving a negative review, Saint-Amans said.

Gita Kothari, Senior Legal Advisor, OECD Legal Directorate, reported that more than 25 jurisdictions are expected to opt for mandatory binding MAP arbitration in the MLI.

Everything is on track for countries to begin signing the MLI on June 7 at the OECD in Paris, she said.

OECD held a “speed matching event” on February 27—March 2, Kothari said, where countries discussed their position on the MLI and their list of reservations and notifications. She said that 55 delegations participated and more than 300 meetings took place between pairs of jurisdictions.

Transfer pricing guidelines

Jefferson Vandervolk, Head of the OECD’s Tax Treaty, Transfer Pricing & Financial Transactions Division, reported that the OECD hopes to complete by June revised discussion drafts on the attribution of profits to permanent establishments (PEs) and the transactional profit split method.

This work is being done through Working Party 6 of the OECD Committee on Fiscal Affairs (WP6) in its inclusive framework format, so all 94 members are participating in the standard setting on an equal footing, Vandervolk said.

An important goal of the revised PE guidance is to clarify that there is no double taxation of profits in source counties as result of the interaction between Articles 7 and 9 of the OECD Model Tax Convention, Vandervolk said. The guidance will also suggest approaches for countries to minimize compliance and administrative burdens, he said.

Revised guidance on the transactional profit split method will focus on when the method is the most appropriate method and how to apply the method in particular circumstances, he said.

WP6 is also working on implementation guidance for hard-to-value intangibles, Vandervolk reported. “We are close to finalizing a draft for public comment,” he said.

Further, the OECD aims to release guidance on the transfer pricing of financial transactions by this summer, he said. Vandervolk said the guidance will include discussion on how to accurately delineate a transaction in the captive insurance area.

A new consolidated version of the OECD transfer pricing guidelines is also being prepared that will incorporate the transfer pricing changes made in the final BEPS reports, Vandervolk said. The amendments to chapter 9 on business restructuring are expected to soon be considered by the OECD Council, he said.

He also said that work is progressing regarding drafting examples to be added to the commentary to the OECD Model Tax Convention clarifying the application of the principal purpose test to non-CIV funds.

The commentary will expressly state that the examples are merely illustrative and do not set any conditions or requirements, Vandervolk said.

Country-by-country reporting

Achim Pross, Head of International Co-operation and Tax Administration, reported that the OECD intends to issue more guidance on technical issues associated with country-by-country reporting.

Pross discussed the status the BEPS inclusive framework’s implementation of the four BEPS minimum standards: countering harmful tax practices, preventing tax treaty abuse, implementing country-by-country reporting, and improving the mutual agreement procedure (MAP) for resolving tax treaty disputes.

Pross said that peer review of the country-by-country reporting minimum standard began in February. He noted that over 45 jurisdictions have adopted country-by-country reporting legislation and that an EU directive has been approved to translate country-by-country reporting into EU law.

So far there are 57 signatories to Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, and more are expected, Pross said. Countries are also agreeing to exchange country-by-country reports through bilateral agreements.

Jurisdictions of relevance

Pross also discussed the process for identifying “jurisdictions of relevance” for BEPS purposes. The idea is to not give countries that operate outside the BEPS process a competitive advantage, Pross said.

The process is “a member-driven dynamic process,” he explained. Inclusive framework working groups identify countries that do not appear to comply with the BEPS minimum standards and then refer the country to the inclusive framework, which makes the decision about whether the country should or should not be considered to be one of relevance, he said.

The inclusive framework then engages with the country and encourages it to change its practices rather than be identified, Pross said.

Harmful tax practices, MAP

More than 90 tax regimes from 46 jurisdictions are currently under review for compliance with BEPS minimum standards on preferential tax regimes, Pross said. So far, 10 preferential regimes have either been abolished or are now consistent with the modified nexus approach. Pross added that more tax regimes may be scrutinized in the future.

Pross also reported that by the end of 2016, information about tax rulings was exchanged about 6,000 times. He said that 44 OECD and G20 countries are now undergoing peer review in this area.

Pross and Saint-Amans strongly urged taxpayers to respond to OECD calls for feedback on countries’ MAP processes to assist with peer review in that area.

Saint-Amans noted that companies can share their views anonymously by submitting them to an industry group, which can then relate the taxpayer’s comments without any identifying information.