The OECD has released 17 comment letters responding to a draft report that explores how countries can improve their tax laws to counteract tax avoidance by multinational enterprises (MNEs) through use of branch mismatch structures.
The draft report, issued on August 22, targets double nontaxation and base erosion that occurs when a multinational group locates its head office and its branch in different countries that have different views with respect to how to allocate of income and expenditure between a branch and head office.
In the comments, published August 22, business representatives argued that the new rules would add significant complexity and burdens on multinationals.
The Business and Industry Advisory Committee to the OECD (BIAC) said that while BIAC does not defend branch mismatch structures, the draft’s recommendations on how to remedy mismatches are not comprehensive and may prove unworkable in practice.
The draft is particularly unclear, BIAC said, regarding how it would apply to a worldwide taxation system, such as the US system, where income is taxed and relief from double tax is provided through a foreign tax credit.
Following up on this point, The United States Council for International Business (USCIB) argued that none of the draft proposals should apply to an outbound case where the US is the residence country and the branch is located in another country.
With respect to US inbound cases, the final report should make it clear that existing triangular branch rules in treaties and the section 882 regulations address the reports’ concerns and are thus not changed by the report, the USCIB argued.
Several groups representing banks commented on the draft. The Dutch Banking Association argued that the rules should not apply where there is clear commercial and/or regulatory rationale for the existence of a branch.
“[B]ank branches are typically set up for commercial and regulatory reasons and any mismatch in the sense of the discussion draft would simply be the result of the (mandatory) application of relevant laws and treaties rather than a deliberate planning instrument,” the Association said.
The BEPS Monitoring Group was the sole commentator that did not represent business interests. The group, comprised of NGOs that campaign for tax justice, strongly urged the OECD to draft sample language implementing its recommendations for use by interested countries.
The following groups commented on the draft: British Bankers Association/ Association for Financial Markets in Europe; Federation of German Industries; Banking and Finance Company; Working Group on BEPS; BEPS Monitoring Group; BIAC; Confederation of British Industry; Confédération Fiscale Européenne; Chartered Institute of Taxation; Dutch Banking Association; Ernst & Young; Sergio Guida; European Business Initiative on Taxation; IFA Grupo Mexicano, A.C.; International Alliance for Principled Taxation; Japan Foreign Trade Council, Inc.; PricewaterhouseCoopers International Limited; USCIB.
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