beps the story so far - kpmg · 5 harmful tax practices 6 treaty abuse 7 definition of pe 8...
TRANSCRIPT
BEPS – the story so far
Source: OECD
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Interaction/Role of OECD/G20 and domestic law
G20 – 20 major and emerging economies
OECD – 34 mainly developed countries
BEPS Project – Endorsed by G20 and OECD
Outcomes:
1. Policy Consensus (OECD);
2. Political endorsement (G20);
3. Implementation (Domestic Law)
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Base erosion and profit shifting – Potential implications and expectations
Coherence
■ The business structure and global tax rules needs to be coherent and needs to be
supported by a coherent approach
Substance
■ Whatever structure is put in place needs to have business substance
Transparency
■ Reporting mechanisms need to be implemented that provide transparency at the
local and multilateral level
On 19 July 2013, the OECD released a 15 point Action Plan on Base Erosion and Profit Shifting (BEPS). This multilateral initiative
looks to implement a new set of international tax rules aimed at preventing double non-taxation by focusing on the need for:
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BEPS principles
I keep hearing about
'BEPS'. What is it?
BEPS stands for 'Base Erosion and Profit Shifting'
It is the OECD’s policy response to perceived aggressive
tax avoidance by multinational corporations. The plan has
been endorsed by G20 Finance Ministers and Heads of
State.
'Base Erosion'? This catch-all term describes a range of tax planning
techniques that reduce (erode) the amount of corporate tax
paid in a country (the tax base) relative to the operating
profit disclosed in accounts.
And profit
shifting?
In broad terms, the use of 'Transfer Pricing' (pricing of
cross-border goods and services within a multinational)
to concentrate international profits in relatively low tax
locations.
What’s prompted the
debate?
There is a perception that, rightly or wrongly, multinational
companies are abusing the tax system and not paying their
'fair share' of tax. A number of governments have
collectively decided that something must be done. Global
media coverage has recently upped the pressure.
What is it?
Why is it here?
What does it mean for my organisation?
What is the BEPS
action plan?
The OECD member states have published a plan
containing 15 priority actions, which we describe
overleaf. The majority of the actions will be finalised and
implemented over the next 12 months.
How is this
relevant to
my organisation?
The BEPS actions will not only affect companies which
have implemented complex structures. Any business that
operates in multiple countries will be affected by some or
all of the BEPS changes.
■ BEPS will bring new international compliance and
documentation requirements (for example
country-by-country reporting)
■ In some cases it may change the basis on which a
company is taxed, and the locations where tax is due,
especially for digital business
■ Together with other OECD initiatives it is
fundamentally changing the way businesses,
governments and advisors approach transfer pricing
BEPS in a nutshell
November 2014
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All rights reserved.
BEPS Roadmap
2014 2015
We are here
Consolidated
Final template Sep 2014; implementation mechanism final April 2015
First report TP Guidelines intangibles complete Sep 2014; Final report Sep 2015
Recommendations complete Sep 2014; guidance implementation Sep 2015
First report complete Sep 2014; discussion draft Collective Investment Vehicles Nov 2014, final late 2015
Initial report complete Sept 2014; strategy for non-OECD members Sep 15 final criteria Dec 2015
Discussion draft Dec 2014; recommendations Sep 2015, changes OECD guidelines Dec 2015
Discussion draft Oct 2014; changes OECD Model tax convention Dec 2015
Discussion draft Dec 2014, changes OECD Model Tax Convention Sep 2015
Feasibility report complete Sep 2014; draft mandate Jan 2015 with reports late 2015, with conference to follow
Report on challenges complete Sept 2014; VAT discussion draft Dec 2014, final report Dec 2015
Discussion draft April 2015; recommendations Sep 2015
Low value-adding intra group services, commodity transactions and use of profit splits – Discussion drafts Nov and
Dec 2014; Discussion draft Cost Contribution agreements April 2015; all final Sep 2015
Discussion draft March 2015; public consultation May 2015, recommendations Sep 2015
Request for input Aug 2014, discussion draft April 2015, recommendations Sep 2015
1 Digital Economy
2 Hybrid Mismatches
3 CFCs
4 Interest deductions
5 Harmful tax practices
6 Treaty abuse
7 Definition of PE
8 TP-Intangibles
9 TP-Risk and Capital
10 TP-High Risk
11 BEPS data
12 Mandatory Disclosure
13 TP-Documentation
14 Dispute Resolution
15 Multilateral Instrument
Transfer Pricing
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Transfer pricing and dispute resolution actions
Topic Current Status Next Steps
Transfer Pricing
Documentation and CbCR
Action 13
■ Final version of Chapter V of OECD
Guidelines has been released
■ UK legislation referred to in Autumn
Statement
■ Additional work is being undertaken
regarding implementation
■ UK legislation to be released
Risk, Recharacterisation and
Special Measures
Actions 8, 9 and 10
■ Discussion draft – 19 December 2014
■ Public comments – 6 February 2015
■ Public meeting – 19-20 March 2015
Special Considerations for
Intangible Property
■ Revised discussion draft on the transfer
pricing aspects of intangibles released on
22 October 2014
■ Revised discussion draft to be
finalised once related BEPS Actions
have progressed
Low Value Services
Action 10
■ Discussion draft – 3 November 2014
■ Public comments – 20 January 2015
■ Public meeting – 19-20 March 2015
Commodity Transactions
Action 10
■ Discussion draft – 16 December 2014
■ Public comments – 6 February 2015
■ Public meeting – 19-20 March 2015
Profit Splits in the context of
Global Value Chains
Action 10
■ Discussion draft – 16 December 2014
■ Public comments – 6 February 2015
■ Public meeting – 19-20 March 2015
Dispute Resolution Mechanism
Action 14
■ Discussion draft – 18 December 2014
■ Public comments – 19 January 2015
■ Public meeting – 23 January 2015
■ Discussion draft to be finalised
Interest
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Interest deductions and other financials payments
Key points:
The approaches proposed in the discussion drafts are the
Group interest allocation rule, the Fixed ratio rule and a
combined approach
Group interest allocation rule
■ net interest expense of the group allocated to each entity
within the worldwide group
■ by reference to a measure of economic activity of the entity;
e.g. earnings or asset values
■ Interest above the amount allocated would be disallowed
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Interest deductions and other financials payments
Key points:
Fixed ratio rule
■ deductible interest expense for an entity limited by applying a fixed
ratio to the entity’s earnings or assets e.g. X% of EBITDA
Combined approach – with a view to simplifying compliance:
■ apply the group interest allocation rule with a carve-out for entities
meeting a low fixed-ratio test (to exclude low risk entities); or
■ apply a fixed-ratio rule with a carve-out permitting entities to apply the
group interest allocation rule where this results in additional
deductible interest expense
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Developments on other BEPS actions #1
■ OECD report presented September
2014
■ Relies on implementation via
domestic law
■ In the UK HMRC issued consultation
document December 2014 on the
UK domestic law, to come into force
from 1 January 2017
■ Final report due September 2015
■ OECD report presented
September 2014
■ Discussion ongoing on whether to
use Limitation of Benefit or Principal
Purpose Test or a mixture
■ Further work also require on
Collective Investment Vehicles
(‘CIV’) and non-CIV funds
■ Expecting revised changes to model
tax convention and
recommendations on domestic rules
in late 2015
Hybrids Treaty abuse
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Developments on other BEPS actions #2
■ Update Article 5 definition to prevent
abuse
■ Changes address commissionaire
arrangements, remote trading via
the internet and fragmentation of
activities
■ Change dependent agent test (Art
5(5)) to a much broader one
■ Change exemptions – storage only
not delivery
■ Anti fragmentation rules
■ Revised draft imminent
■ OECD discussion draft April 2015
setting out model regime
■ Defines: what a CFC is, the
threshold for regime to apply, control
requirements, CFC income
■ Public consultation 12 May
■ Recommendations on design of
domestic rules due September 2015
PEs CFCs