OECD, UN, IMF, World Bank release revised “toolkit” on taxation of offshore indirect asset transfers

The IMF, OECD, UN, and World Bank Group, through a joint initiative known as the “Platform for Collaboration on Tax,” released a revised draft “toolkit” on July 16 that addresses how countries can change their laws to prevent tax-motivated offshore indirect transfers of assets. Comments on the revised draft are requested by September 24.

The platform has also released 19 comment letters received in response to its first of draft of the toolkit as well as a separate document describing the comments and discussing whether these comments were incorporated into the second draft or not.

An indirect asset transfer occurs when there is a sale of a corporation or other entity that owns an asset located in one country by a resident of a different state. Such transfers avoid taxation of the capital gains inherent in the underlying asset.

The toolkit states that countries have adopted divergent approaches to taxing indirect transfers and suggests two approaches for countries that wish to tax these transfers.

One method treats an offshore indirect asset transfer as the deemed disposal of the underlying asset. The second method treats the transfer as being made by the actual seller offshore but sources the gain on the transfer to the location country to enable that country to tax it.

Several commentators responding to the first draft of the toolkit favored the second option because it was less likely to increase incidences of double taxation. Most said that the draft should not express a preference for either model, though.

Several commentators, such as the USCIB, Confederation of British Industry, and Tax Executives Institute, said the toolkit should not be treated as authoritative guidance. In response, the second draft was revised to place greater emphasis on the nonbinding nature of the document and to make clear that it represents platform staff views on current practice and options.

In response to comments, the new document also makes it clearer that offshore indirect transfers can occur for reasons other than tax abuse and expands on the reasons why a country may choose to not tax such transfers.