Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Ben Stupples
The U.K. is preparing to reject new guidance from the OECD designed to stop multinational companies from avoiding tax through changes to the definition of a fixed place of business, according to the British government.
The U.K. won’t adopt the OECD’s changes for the definition of a fixed place of business outside of companies’ home countries, otherwise known as a permanent establishment, according to a Dec. 12 presentation from Her Majesty’s Treasury and H.M. Revenue and Customs seen by Bloomberg BNA.
The move risks upsetting other countries that have committed to adopting the Organization for Economic Cooperation and Development’s revised definition of PE.
“The reason I think that there’s certainly concern over permanent establishment wording changes is that some parts are still being worked on, and it’s not clear how much extra revenue countries are going to get by adopting some of those wording changes,” Bill Dodwell, a tax partner and head of U.K. tax policy at Deloitte, told Bloomberg BNA.
Dodwell said the U.K.'s position seems to be that “if we’re not going to get some extra money here, why are we bothering to do it?”
Changing the definition for a permanent establishment is part of the seventh action of the OECD’s 15-action base erosion and profit shifting, or BEPS, project that it developed with the Group of 20 countries to tackle multinational companies avoiding tax by moving profits to low-tax jurisdictions.
Action 7 is a non-compulsory part of BEPS, which ranges from compulsory requirements, such as country-by-country reporting of companies’ tax, profits and other information to guidance on the best practices for international tax law.
The proposals in the presentation are also subject to ministerial approval.
The OECD’s changes expand the PE definition to include commissionaire arrangements—structures used when companies sell products of foreign entities in exchange for a fee. These structures then allow companies to avoid having a permanent establishment to which sales are taxed.
Action 7 also seeks to challenge the way multinational enterprises fragment their operations into auxiliary or preparatory activities, such as warehouse operations, which are exempt from the existing PE definition. To continue their exemption, multinational companies cooperating with Action 7 would have to prove that such activities aren’t a core part of their businesses.
While the Treasury and HMRC said they won’t adopt a definition of a permanent establishment that includes commissionaire agreements, which forms the primary part of BEPS Action 7, the U.K. will aim to adopt the OECD’s proposed anti-fragmentation rules, according to the Dec. 12 presentation.
The U.K. government’s stance comes amid preparation to sign the OECD’s multilateral instrument, or MLI, in June 2017 that will allow countries to implement quickly any tax treaty changes from BEPS.
Countries, though, will coordinate on the MLI from February in order to help reach a consensus on how they will amend individual tax treaties, according to the Dec. 12 presentation.
“HMRC will produce and publish consolidated versions of treaties as amended by the MLI,” it said. “Where possible, we will agree these with our treaty partners before entry into effect—some have already started to approach us with the same objective.”
More than 100 jurisdictions are signed up to the MLI, which will affect more than 2,000 tax treaties worldwide, according to the OECD’s Nov. 24 statement on the conclusion of the MLI’s negotiation.
In April 2015, the U.K. introduced its diverted profits tax, unofficially dubbed the “Google Tax,” which partly overlaps with the OECD’s changes to the definition of a permanent establishment.
U.S. officials have been critical of the provision as going beyond the agreed BEPS measures. U.S. Treasury attorney adviser Brett York said at the time the tax was introduced that it undercut the “whole point” of BEPS.
A spokesman for HM Treasury told Bloomberg BNA Sept. 20 that the tax “compliments” the OECD’s efforts through BEPS to stop large companies using “artificial arrangements” to avoid paying tax.
The U.K.’s diverted profits tax will raise 1.4 billion pounds ($1.7 billion) for the government by 2020, according to HMRC’s summary of impacts document published for the 2014 Autumn Statement.
A spokesperson for HM Treasury didn’t respond Dec. 16 to an e-mailed request for comment.
To contact the reporter on this story: Ben Stupples in London at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)