Update on OECD Base Erosion and Profit Shifting measures
Tax Alert - March 2020
By Bart de Gouw and Melanie Meyer
OECD renews commitment to address tax challenges arising from the digitalisation of economy
The OECD/G20 Inclusive Framework on BEPS has released a statement on the Two-Pillar Approach to address tax challenges arising from the digitalisation of the economy.
The proposals have the potential to materially impact the taxation of
multinationals and shift the taxing rights between countries. While the OECD
has released some high level analysis of the potential shift in taxing rights between high, medium, low income countries and investment hubs there has not been any analysis published by individual countries (including New Zealand) on the impact on their economies.
The statement includes two annexes:
- The first annex, an “Outline of the Architecture of a Unified Approach on Pillar One,” has been agreed as the basis for upcoming negotiations;
- The second annex is a progress note on Pillar Two.
The statement explains that any agreement on a reallocation of taxing rights under Pillar One would require improved tax certainty, including effective and
binding dispute prevention and resolution mechanisms. The statement highlights a number of other issues where significant divergences will have to
be resolved. A more substantive summary of the statement by Deloitte Global can be found here.
OECD seeks public consultation on Country-by-Country Reporting
The OECD Inclusive Framework on BEPS has released a public consultation document on the 2020 review of Country-by-Country Reporting (“CbCR”). The deadline for submissions is 6 March 2020. The consultation document sets out several specific questions regarding CbCR which indicate potential reform.
Currently, corporate groups headquartered in New Zealand with annual consolidated group revenue over EUR 750 million in the preceding fiscal year (approximately NZ$1.2 billion measured using 1 January 2015 exchange rates, as per OECD requirements) are required to submit annual Country-by-Country (“CbC”) reports to Inland Revenue. Some of the discussion questions relate to proposals that may impact the thresholds for filing CbC reports. Relevant questions include:
- Whether separate groups with common controlling ownership and
aggregated revenue over the CbCR revenue threshold should be required to file CbC reports,
- Whether the CbCR revenue threshold should be reduced,
- Whether a single enterprise with one or more foreign
permanent establishments should be regarded as a group for CbCR,
- Whether jurisdictions with a consolidated group revenue threshold denominated in a currency other than Euros (e.g. NZD) be required or permitted to rebase its threshold,
- Whether more than one year of preceding consolidated revenue
be considered for the revenue threshold,
- Whether extraordinary or investment income should be included
in consolidated group revenue, and
- Whether additional information fields should be added to the
The above non-exhaustive list highlights that the number of taxpayers that are
required to submit CbC reports may increase in the future depending on the
answer to these questions and whether reform is enacted. The threshold has
wider uses in international taxation as a number of countries, including New
Zealand, have adopted it as a benchmark for the application of some
international regimes. The consultation document also contains questions
related to the content of CbC reports.
To discuss the potential implications for your business, please contact the
authors or your usual Deloitte advisor.
March 2020 Tax Alert contents
- GST issues paper proposes some much needed R&M to the GST Act
- Another year over, and a new year just begins
- How healthy is your tax compliance for your rental property?
- OECD guidance on financial transactions finalised
- Update on OECD Base Erosion and Profit Shifting measures
- Snapshot of recent developments
- Deloitte Tax Calendar - Last Call