20/02/17

OECD Base Erosion Profit Shifting – Minimum Standards and Peer Reviews

The G20 agreed to the various actions under the 15 BEPS Action Plan at the end of 2015 subject to further work in some areas which was largely completed by the end of 2016. A major piece of work completed by the end of 2016 was agreement to the Multilateral Instrument which is going to be signed in Paris in June this year and will allow those countries who sign up to it to modify, with immediate effect, the agreed changes to their existing Double Tax Treaties, reports ICAEW.

The countries involved in the BEPS Action Plan now number about 100 which are all part of the Inclusive Framework and all these countries have agreed to implement the BEPS minimum standards: these cover four of the Actions. At a meeting in Paris as part of the meeting of the Committee of Fiscal Affairs these 100 countries agreed how they are going to ensure the implement the minimum standards,

Each of the minimum standards is subject to a peer review process in order to ensure timely and accurate implementation

Countering harmful tax practices

There are two aspects to the this minimum standard: one involves the review of preferential tax regimes to ensure they are not harmful and the second is a transparency framework that will apply to tax rulings.

The review of preferential tax regimes will continue to be dealt with by the Forum on Harmful Tax Practices which has been working on these issues for nearly 20 years.

In relation to the transparency framework there are six categories of taxpayer-specific rulings which in the absence of compulsory spontaneous exchange of information could give rise to BEPS concerns. These are:

• rulings relating to preferential regimes;

• unilateral advance pricing agreements (APAs) or other cross-border unilateral rulings in respect of transfer pricing;

• cross-border rulings providing for a downward adjustment of taxable profits;

• permanent establishment (PE) rulings;

• related party conduit rulings; and

• any other type of ruling agreed by the FHTP

Country by country (CbC) reporting

The objective of the CbC report is to provide tax administrations with a high level overview of the operations and tax risk profile of the largest multinational enterprise groups (MNE Groups). CbC reporting applies to MNE Groups with annual consolidated group revenue of €750 million or more (or near equivalent in local currency) in the immediately preceding fiscal year.

The terms of reference for the monitoring of the CbC reporting action focus on the following three key aspects that a jurisdiction must meet:

• the domestic legal and administrative framework

• the exchange of information framework; and

• the confidentiality and appropriate use of CbC reports.

Making dispute resolution more effective

This is another BEPS minimum standard and OECD published similar information about the peer review and monitoring process which we reported in November and which you can access by clicking here.

At that time OECD was seeking input from third parties in relation to the MAP process in relation to Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States. That information had to be submitted by 28 November 2016 and OECD is now seeking similar information in relation to Austria, France, Germany, Italy, Liechtenstein, Luxembourg and Sweden and comments should be submitted by 27 February 2017 using the taxpayer input questionnaire.

Model treaty changes

The final minimum standard requires provisions in double tax treateies to prevent treaty abuse (including treaty shopping) by impeding the use of conduit companies to channel investments through countries and jurisdictions with favourable tax treaties in order to obtain reduced rates of taxation.

Overview of the BEPS Action Plan

In January 2017 OECD published a Background Brief on the Inclusive Framework setting out what all the countries which have signed up the BEPS Action Plan are going to be required to do.

The OECD Secretary General will be publishing his periodic update on the whole BEPS Action Plan in advance of the G20 Finance Ministers’ meeting which will take place in Germany at Baden Baden on 17 March 2017.