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OECD Report: BEPS Corner 

Updates on developments in the OECD’s BEPS initiative, including developments from Australia, the EU, the OECD and the UK.

On 16 March 2018, the G20/OECD inclusive framework on base erosion and profit shifting (BEPS) released Tax Challenges Arising from Digitalisation – Interim Report 2018, which has been agreed by more than 110 jurisdictions. This article provides short summary of BEPS related developments.

Updates on developments in the OECD’s BEPS initiative

Australia: The government has issued revised exposure draft legislation dealing with hybrid arrangements and branch mismatch arrangements that largely follows the OECD BEPS framework, but also would introduce a rule that could operate to disallow interest on loans from related parties that are resident in low tax jurisdictions. See the article in this issue.

European Union: On 13 March 2018, EU finance ministers reached political agreement on the proposed tax intermediaries directive that would require mandatory reporting by tax intermediaries and the automatic exchange of information by the tax authorities of member states for certain cross-border arrangements. See European Union alert, 14 March 2018.

On the same date, the finance ministers issued a second update to the EU list of noncooperative jurisdictions. See the article in this issue.

OECD: The OECD has announced that the multilateral instrument (MLI) will first enter into force on 1 July 2018, following Slovenia’s deposit of the fifth instrument of ratification of the MLI on 22 March 2018. See the article in this issue.

On 16 March 2018, the OECD released an interim report on the tax challenges arising from digitalization, which updates the final report on action 1 of the BEPS project that was issued in 2015. The report focuses on new digital business models and how income generated from cross-border digital activities should be allocated among jurisdictions, but makes no specific recommendations with respect to either a long-term, comprehensive solution to issues surrounding the digital economy or short-term interim measures. See the article in this issue.

On 12 March 2018, the OECD announced the release of the third round of peer reviews on the implementation of the BEPS minimum standard on improving tax dispute resolution (BEPS action 14). The eight new “stage 1” peer reports issued cover Czech Republic, Denmark, Finland, Korea, Norway, Poland, Singapore and Spain, and provide specific recommendations for each jurisdiction. The country’s implementation of the recommendations will be assessed in “stage 2” of the peer review process. The OECD also has requested taxpayer input on the fifth round of peer reviews – which will cover Estonia, Greece, Hungary, Iceland, Romania, Slovakia, Slovenia and Turkey – by 9 April 2018.

The OECD announced on 12 March 2018 that Serbia has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes.

On 9 March 2018, the OECD announced the issuance of model mandatory disclosure rules to require service providers (including lawyers, accountants, financial advisors, banks and other service providers) to inform the relevant tax authorities of schemes put in place for clients to circumvent the Common Reporting Standard (CRS) requirements or to prevent the beneficial owners of entities or trusts from being identified (for prior coverage, see World Tax Advisor, 15 December 2017). The model rules, which were issued in response to a request from the G7 finance ministers, draw extensively from the recommendations in the report on BEPS action 12 (mandatory disclosure rules). The rules aim to target persons and their advisors that try to hide offshore assets and avoid CRS reporting, by requiring a wide range of financial intermediaries to notify the tax authorities about such schemes.

The OECD and Egypt’s Ministry of Finance are launching an EU-funded program that aims to assist Egypt in implementing the new international standards to combat tax avoidance and evasion. Egypt already is a member of the Inclusive Framework on BEPS and the Global Forum on Transparency and Exchange of Information for Tax Purposes.

United Kingdom: The tax authorities have published an updated statement of practice covering the mutual agreement procedure (MAP), which describes the UK’s practice in relation to methods for reducing or preventing double taxation. The update, which supersedes the version published in 2011, incorporates a number of changes made as a result of the OECD BEPS project, specifically, action 14 on dispute resolution. The changes will take effect in the UK’s treaties once the UK and the relevant treaty counterparties have ratified the OECD multilateral instrument.

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