Analysis

BEPS US tax alerts

Latest developments and guidance

The Base Erosion and Profit Shifting (BEPS) tax alerts archive includes tax alerts that highlight changes in the global tax environment, including changes and updates to requirements issued by the Organization for Economic Cooperation and Development (OECD) BEPS Action Plan.

BEPS Final Report Updates Scope of Work for Guidance on Profit Splits

As part of the 2015 deliverables, the OECD Secretariat issued a short summary of the status of the ongoing work on the use of profit splits, in advance of additional guidance to be included in the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Further work on profit splits will be undertaken during 2016 and into 2017.

In the summary, which describes the scope of work for guidance on the transactional profit split method, the OECD Secretariat recognized that any guidance on profit splits should take into account the rise of integrated models common in the digital economy and the additional guidance provided on (i) the allocation of risk, (ii) group synergies, (iii) the valuation of transactions involving intangibles, and (iv) the splitting of the return on intangibles as a result of the risks incurred and functions performed by different entities within the multinational enterprise.

October 16. 2015

Ireland - Budget 2016 includes introduction of knowledge development box and CbC reporting

On October 13, 2015, Ireland’s minister for finance presented the budget for 2016. The budget has a strong emphasis on the indigenous domestic sector, supporting entrepreneurs, assisting employees with their after-tax salaries and creating further incentives for innovation. The commitment to innovation includes the announcement of the knowledge development box. The minister also announced that country-by-country reporting, based on the OECD’s BEPS project, will be introduced. The attached alert was drafted by the international tax group in Ireland.

October 13, 2015

BEPS action 5: Countering harmful tax practices more effectively taking into account transparency and substance

The output under each of the BEPS actions are intended to form a comprehensive and cohesive approach to the international tax framework, including domestic law recommendations and international principles under the model tax treaty and transfer pricing guidelines. They are broadly classified as “minimum standards,” “best practices” or “recommendations” for governments to adopt. The G20/OECD and other governments will be continuing their work on some specific follow-up areas during the remainder of 2015, 2016 and into 2017.

As part of the 2015 output, the OECD has published a final report on action 5 in relation to “Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance.” The report establishes minimum standards with regard to both determining whether preferential regimes take sufficient account of the need to reward only substantial activities, and ensuring that there is transparency in relation to rulings. It also sets out minimum standards for domestic law provisions in respect of intellectual property (IP) regimes, such as patent box regimes.

October 8, 2015

BEPS action 7: Preventing the artificial avoidance of PE status

The output under each of the BEPS actions are intended to form a comprehensive and cohesive approach to the international tax framework, including domestic law recommendations and international principles under the model tax treaty and transfer pricing guidelines. They are broadly classified as “minimum standards,” “best practices” or “recommendations” for governments to adopt. The G20/OECD and other governments will be continuing their work on some specific follow-up areas during the remainder of 2015, 2016 and into 2017.

As part of the 2015 output, the OECD issued a final report in relation to preventing the artificial avoidance of permanent establishment (PE) status (action 7), which introduces changes to the model treaty. The report builds on proposals put forward in the G20/OECD’s discussion drafts from October 2014 and May 2015 and updates the definition of PE (taxable presence) in article 5 of the OECD model tax treaty and associated commentary.

October 7, 2015

Global Transfer Pricing DASH - OECD Releases Final BEPS Reports

The Organization for Economic Cooperation and Development (OECD) on October 5 released the final reports under the base erosion and profit shifting (BEPS) project it started two years ago to address perceived gaps in international tax rules. The final reports – one for each of the 15 items in the “Action Plan” released in 2013, except for the three transfer pricing actions, for which one report was issued – will be submitted to the G-20 finance ministers at their meeting in Lima, Peru, on October 8.

October 6, 2015

BEPS action 4: Interest deductions and other financial payments

On October 5, 2015, ahead of the G20 Finance Ministers’ meeting in Lima on 8 October, the OECD published 13 papers and an explanatory statement outlining consensus actions under the base erosion and profit shifting (BEPS) project (for prior coverage, see the tax alert dated October 5, 2015). These papers include and consolidate the first seven reports presented to, and welcomed by, the G20 Leaders at the Brisbane Summit in 2014.

October 6, 2015

United States—OECD releases final BEPS reports

On Monday, October 5, 2015 the Organization for Economic Cooperation and Development (OECD) released the 2015 Final Reports on the G20/OECD Base Erosion and Profit Shifting (BEPS) project. These reports cover the seven topics that were the subjects of the “2014 Deliverables” approved last fall, and finalize subsequent discussion drafts on the remaining eight “actions.” The 2015 Final Reports recommend changes to domestic laws, the OECD Model Tax Convention (the “OECD Model”), and the OECD Transfer Pricing Guidelines (TPG). In addition, they propose to accelerate the incorporation of recommended treaty changes into existing bilateral treaties through a multilateral convention to be entered into by interested countries.

The 2015 Final Reports are to be presented to the G20 Leaders in Lima on Thursday, October 8.

October 6, 2015

Final BEPS reports released: An overall perspective

On October 5. 2015, ahead of the G20 Finance Ministers’ meeting in Lima, Peru on October 8, the OECD Secretariat published 13 final reports and an explanatory statement outlining consensus actions under the base erosion and profit shifting (BEPS) project. These reports include and consolidate the first seven reports presented to, and welcomed by, the G20 Leaders at the Brisbane Summit in 2014. (The OECD press release, explanatory statement and final reports.)

There will be some more policy developments in 2016 and 2017, but the main activity will be in monitoring adoption of the BEPS measures. The monitoring group could be extended as other countries outside the project are invited to join. There is a precedent here, in the form of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which now includes 127 countries and jurisdictions.

This tax alert addresses two significant questions on the BEPS actions: when will they be implemented, and which countries will implement the actions.

October 5, 2015

Mexico—Measures proposed to implement CbC reporting and OECD standard for information exchange

On September 8, 2015, Mexico’s executive branch presented several bills to congress that would amend various laws. No changes are proposed to the corporate tax rate, but there are proposals to implement the OECD base erosion and profit shifting initiative on country-by-country (CbC) reporting and the transfer pricing master file/local file documentation, as well as the OECD standard for the automatic exchange of information.

The congress must discuss the proposals and they may be further amended before receiving final approval, which is likely to take place by December 2015.

September 9, 2015

Brazil—Tax planning disclosure requirement introduced—BEPS Action 12

The Brazilian government published rules (Provisional Measure (PM) 685) on 22 July 2015 that include the introduction of a new requirement for taxpayers to disclose transactions that are carried out to reduce, eliminate or defer taxes.

PM 685 is the first response of the Brazilian government to any of the action items under the OECD’s base erosion and profit shifting (BEPS) initiative. Action 12 (Mandatory disclosure rules) will require taxpayers to disclose potentially aggressive or abusive tax planning arrangements. The OECD issued a discussion draft on action 12 on 31 March 2015 in which it made recommendations regarding the design of mandatory disclosure rules, taking into account the administrative costs for tax authorities and businesses.

 

July 27, 2015

BEPS Action 13: Country-by-country reporting implementation package

On June 8, 2015, the OECD, as part of the G20/OECD work on the action plan to address base erosion and profit shifting (BEPS), released Action 13: Country-by Country Reporting Implementation Package. This follows the two reports previously issued by the OECD: (i) the agreement of a three-tier global standard for transfer pricing documentation, including a common template for county-by-country (CbC) information to be reported to the tax authorities (released in September 2014); and (ii) implementation guidance in relation to the CbC report, including the timing of introduction, application to “large” businesses and filing mechanisms (released in February 2015). The implementation package outlines model legislation that governments can use to adopt the new rules, as well as competent authority agreements to implement the sharing mechanisms for the CbC report.

June 12, 2015

BEPS Action 8: Hard to value intangibles

On June 4, 2015, the OECD, as part of its work on the action plan to address base erosion and profit shifting (BEPs), released a discussion draft in relation to developing an approach to price the transfer of “hard-to-value intangibles.” The draft contains an updated section of Chapter VI of the OECD Transfer Pricing Guidelines, including a revision of the section on arm’s length pricing when valuation is highly uncertain at the time of the transaction and adding a new section in relation to “special considerations” for hard-to-value intangibles.

As with other discussion drafts on BEPS actions, the proposals do not represent a consensus view from the G20/OECD governments involved, but are designed to provide preliminary but substantive proposals for public analysis and comment.

June 5, 2015

OECD Releases a Discussion Draft on Open Issues in BEPS Action 6–Prevent Treaty Abuse

The purpose of this alert is to discuss some highlights of the new discussion draft (the May Draft) that was recently published by the Committee on Fiscal Affairs of the Organization for Economic Cooperation and Development (OECD) on Action 6 of the G20/OECD Base Erosion and Profit Shifting (BEPS) Action Plan.

June 5, 2015

OECD Releases Revised Discussion Draft on BEPS Action 7–Preventing Artificial Avoidance of PE Status

On May 15, 2015, the Committee on Fiscal Affairs (CFA) of the Organization for Economic Cooperation and Development (OECD) released a new discussion draft of Action 7, Preventing the Artificial Avoidance of PE Status (the 2015 Draft). The 2015 Draft chooses among the multiple-choice options of the original discussion draft of Action 7 (the 2014 Draft) and supersedes the 2014 Draft, but still “does not, at this stage, represent the consensus views of the CFA or its subsidiary bodies.” Comment is requested on the 2015 Draft, although no further public consultation meeting on it will be held.

June 19, 2015

BEPS Action 6: Preventing the granting of treaty benefits in inappropriate circumstances

On May 22, 2015, the OECD, as part of its work on the action plan to address base erosion and profit shifting (BEPS), released a revised discussion draft on Action 6 in relation to preventing the granting of treaty benefits in inappropriate circumstances. As with other discussion drafts on BEPS actions, the proposals do not represent a consensus view from the G20/OECD governments involved.

The main proposals are discussed in the attached tax alert.

May 29, 2015

OECD/G20 BEPS Project Releases Discussion Draft on Action 3: Strengthening CFC Rules

On April 3, 2015 the OECD released a discussion draft on Action 3 (Strengthening CFC Rules) of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. The public has until May 1 to submit written comments. The paper (hereinafter the Draft or Discussion Draft) states that it “does not necessarily reflect consensus views of either the Committee on Fiscal Affairs (CFA) or of WP11 [Working Party No. 11] regarding the issues it addresses.”

April 14, 2015

OECD Releases Discussion Draft on BEPS Action 7–Preventing Artificial Avoidance of PE Status

In its first release of a paper under the G20/OECD Base Erosion and Profit Shifting (BEPS) Project following release of the seven “deliverables” in September 2014, the OECD on October 31 released a public discussion draft of Action 7, Preventing the Artificial Avoidance of PE Status (the Draft). Action 7 will ultimately change Article 5 of the OECD Model Tax Convention (which defines “permanent establishment” (PE)), with the goal of combatting base erosion and profit shifting that might be achieved through, for example, the use of commissionaire arrangements and the specific activity exemptions provided in Article 5(4).

December 3, 2014

OECD Releases the BEPS Project 2014 Deliverables

On September 16, the Committee on Fiscal Affairs of the Organization for Economic Cooperation and Development (OECD) released the documents (the 2014 deliverables) that it had promised, in the 2013 Action Plan on Base Erosion and Profit Shifting, to produce this year. The 2014 deliverables represent seven of the 15 actions of the BEPS Project, a project undertaken by the 44 countries that are, or will soon be, members of the OECD or of the G20 group of countries.

September 19, 2014

OECD Releases First Set of BEPS Deliverables

On Tuesday, September 16, 2014 the OECD released seven deliverables in response to its Base Erosion and Profit Shifting (BEPS) Action Plan of July, 2013. The deliverables, which are available on the OECD website, address the following actions:

  • Action 1: Addressing the Tax Challenges of the Digital Economy
  • Action 2: Neutralising the Effects of Hybrid Mismatch Arrangements
  • Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
  • Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
  • Action 7: Guidance on Transfer Pricing Aspects of Intangibles
  • Action 13: Guidance on Transfer Pricing Documentation and Country-by-Country Reporting
  • Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties
September 16, 2014

OECD Releases BEPS Draft on Hybrid Mismatch Arrangements

On March 19, 2014, the OECD released a public discussion draft on Action 2 of its Action Plan on Base Erosion and Profit Shifting (BEPS). Comments on the draft are to be sent to the OECD by Wednesday, May 2, 2014. It is important to note that the recommendations set out in the discussion draft do not necessarily represent the consensus views of the Committee on Fiscal Affairs or of Working Party No. 11 on Aggressive Tax Planning.

April 4, 2014

OECD Releases BEPS Draft on the Digital Economy

On March 24, 2014, the OECD released a public discussion draft on Action 1 of its Action Plan on Base Erosion and Profit Shifting (BEPS). Comments on the draft are to be sent to the OECD by Monday, April 14, 2014, three weeks from its release date. A public consultation meeting is scheduled for April 23, 2014. It is important to note that the recommendations set out in the draft do not represent the consensus views of the Committee on Fiscal Affairs or the Task Force on the Digital Economy.

March 26, 2014

OECD Releases BEPS Draft on Inappropriate Circumstances for Treaty Benefits

On Friday, March 14, 2014, the OECD released a public discussion draft (or note) on Action 6 of its Action Plan on Base Erosion and Profit Shifting (BEPS), entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances.” Comments on the draft are to be sent to the OECD by Wednesday, April 9, 2014, less than four weeks from release date. A public consultation meeting is scheduled for April 14-15, 2014 at the OECD Conference Centre in Paris.

March 21, 2014
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