On Tuesday, Sept. 16, the OECD will deliver to the G-20 work on seven items under its 15-point Action Plan on Base Erosion and Profit Shifting. In anticipation of this release, below is a summary of the work on these items since the action plan was issued in July 2013.
Action 1, Addressing the Tax Challenges of the Digital Economy
The OECD issued a discussion draft on problems in the digital economy in March and held a public consultation in April after receiving 60 comments. The draft said many key features of the digital economy--in particular those linked to asset mobility stemming from heavy reliance on intangibles, and mobility of customers, employees and functions--“exacerbate” opportunities for base erosion and profit shifting. It discussed ways that the digital economy allows some companies, particularly those whose profits primarily come from intangible assets, to avoid taxation, and it made several recommendations for restoring taxation on so-called stateless income. OECD and U.S. officials have said there is no intention to create sector-specific rules for the digital economy; rather, the OECD will take a holistic approach.
Action 2, Neutralizing the Effect of Hybrid Mismatch Arrangements
The OECD issued two drafts on hybrid mismatch arrangements in March: one with recommendations for domestic laws and the other addressing treaty issues. A public consultation was held in May after receiving 68 comments. Most of the comments urged the OECD to adopt a “bottom up” approach to curbing some types of hybrid arrangements and said the 10 proposed percent threshold for related-party status was too low.
Action 5, More Effectively Countering Harmful Tax Practices
No drafts have yet been issued on this action item. The deliverable due Sept. 16 is a finalized OECD review of member country regimes.
Action 6, Preventing Tax Treaty Abuse
The OECD issued a discussion draft in March and held a public consultation in April on this item after receiving comments. The chair of the OECD focus group on the issue has said countries participating in the BEPS project believe the OECD Model Tax Treaty needs to include a general anti-abuse rule as well as a limitation-on-benefits provision. Many commenters expressed the view that both types of provisions were not necessary.
Action 8, Making Transfer Pricing Outcomes Reflect Value Creation: Intangibles
The OECD's most recent output on this issue, a July 2013 draft revision of Chapter 6 of the Transfer Pricing Guidelines, precedes the BEPS action plan. The OECD expects to release an updated draft Sept. 16, but the update of the current draft's “Section B,” on entitlement to intangible-related returns, will be delayed until 2015. A hot-button issue under the BEPS project has been the discussion of "special measures"--alternative ways to approach hard-to-value intangibles that would fall outside the arm's-length principle. Germany's approach to restructuring transactions, Argentina's "sixth method" and the U.S. commensurate-with-income approach have been given as possible examples of special measures.
Action 13, Reexamining Transfer Pricing Documentation
In what has perhaps been the most controversial piece of the BEPS project, the OECD is proposing to require groups to provide governments with information on their global allocation of income, economic activity and taxes paid according to a common template. A draft template for country-by-country reporting was issued in January. Changes to the template were announced in late March by Joseph Andrus, then head of the OECD's transfer pricing unit.
Action 15, Developing a Multilateral Tax Treaty
The OECD plans to first report on public international law issues and then develop a multilateral tax treaty to enable jurisdictions to amend their bilateral tax treaties in order to rapidly implement BEPS measures. The report on international law issues, expected Sept. 16, will be the first output under this action item.
To see Transfer Pricing Report's coverage of the BEPS plan, sign up for a free trial at http://www.bna.com/Transfer-Pricing-Report-p7899/.
Readers also are invited to join us in Toronto Sept. 29-30 for the first Global Transfer Pricing Conference in Canada, where U.S. and Canadian officials and expert practitioners will discuss BEPS and other issues. To see the agenda and register, visit http://www.bna.com/canada-tp/?utm_source=LinkedIn&utm_medium=post&utm_campaign=Canada%20TP%20Conference.
Molly Moses, Managing Editor, Transfer Pricing Report
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