BEPS and Automatic Exchange of Information

Report
OECD-G20 WORK ON TAXATION – BEPS AND
AUTOMATIC EXCHANGE OF INFORMATION
18th Cross Atlantic and European Tax Symposium
21 November 2014
Achim Pross, OECD
Outline
BEPS
• Background and context
• OECD BEPS Report
• Action Plan against BEPS
• The 2014 Deliverables
• Next steps
Automatic Exchange of
Information
• Background, context and timeline
• The Standard: basic approach and
key features
• Next steps
2
BASE EROSION AND
PROFIT SHIFTING
3
Background and context
• Tax rates on foreign income – often very low / issue of double
non-taxation;
• Separation of place of economic activity and place where
profits are reported for tax purposes;
• Increasing importance of intangible assets;
• Principles of international taxation often developed in the
1920s:
– Less cross-border activity;
– Changes to business models, e.g. globalisation of value chains, „digital
economy“;
– Built on the assumption that profits are taxed in the other country.
4
Background and context (cont.)
• Doing nothing is not an option:
─
─
─
─
Increased possibilities for mismatches;
Increased competitive distortions;
Additional disputes and increased uncertainties for business;
Use of anti-avoidance measures may decide who will grab a part of the
taxable income (“First in time, first in line.”);
─ Tax rates → Race to the bottom;
─ Danger of undermining voluntary compliance by other taxpayers.
• No blaming / no finger-pointing:
– Not about blaming business; if we want different results we need to look again
at the system
– And not about blaming particular countries either.
5
OECD BEPS Project to date
• Step 1: Addressing BEPS (February 2013):
– Identifies main pressure areas leading to opportunities for BEPS
– Calls on governments to address these areas: if governments are not happy
with the results under the laws, they must change the laws.
– Welcomed by G20 Finance Ministers (16 February 2013)
• Step 2: BEPS Action Plan (July 2013):
– 15 actions to be delivered in 2014 and 2015 based on coherence, substance
and transparency
– Endorsed by G20 Leaders (6 September 2013)
• Step 3: First Seven Deliverables
– September 16,2014, release of first seven deliverables, agreed by consensus
by all OECD and G20 countries
– Welcomed by G20 Finance Ministers (21 September 2014)
6
Key pressure areas
Hybrid Mismatch
Arrangements
Availibility of
preferential regimes
Group financing
Treaty abuse, Anti-avoidance
measures, etc.
Transfer pricing
Delivery of digital
goods and services
Intangibles
Financing
7
Overview all actions
September 2014
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
Digital Economy Report
Hybrids
Review of HTP Regimes
Preventing Treaty Abuse
Addressing TP aspects of
Intangibles (Phase 1)
Addressing TP
documentation
Multilateral Instrument
Report
September 2015

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CFC Rules
Interest Deductibility
Strategy on expansion of FHTP
Addressing avoidance of PE
status
Addressing TP aspects of
Intangibles (Phase 2)
Addressing TP aspects of risks
and capital
Addressing TP aspects of other
high risk transactions
Report on Data and Economic
Analyses
Mandatory Disclosure Rules
Dispute Resolution
December 2015



Addressing TP Interest
Deductions
Revision of HTP Criteria
Multilateral Instrument
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46 countries involved
Iceland
Canada
USA
Mexico
Chile
Austria
Belgium
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Israel
Italy
Latvia
Luxembourg
Netherlands
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
Russia
Saudi Arabia India
Colombia
China
Japan
Korea
Malaysia
Singapore
Indonesia
Brazil
Australia
Chile
Argentina
South Africa
New Zealand
9
THE 2014
DELIVERABLES
10
The 2014 Deliverables
• Explanatory Statement
• 3 Reports:
– two final reports on the Digital Economy (Action 1) and the Feasibility
of a Multilateral Instrument (Action 15)
– one interim report on harmful tax practices (Action 5)
• Draft Rules in 4 areas
–
–
–
–
Hybrid mismatch arrangements
Treaty abuse
TP Intangibles
TP Documentation and CBC template
11
Action 1 – Digital economy - key
outcomes
•
•
•
•
•
Common understanding of digital economy, its business models and aspects
relevant for taxation
Digital economy can not be segregated from wider economy
Does not raise unique BEPS issues, but some of its key features (especially
mobility) may exacerbate BEPS risks. These features need to be taken into account
in other work in BEPS, e.g. (i) artificial avoidance of PE, (ii) CFC rules, and (iii)
Transfer pricing and value creation
Digital economy also raises broader challenges for direct tax (related to nexus,
characterisation, and data which may overlap), and indirect tax (related to VAT
collection for cross-border business-to-consumer transactions)
Task Force discussed potential options and agreed on framework for evaluation,
but concluded that the fact that other work to address BEPS is ongoing makes the
scope of challenges and impact of options difficult to evaluate
12
Action 1 – Digital economy - key
outcomes
• Work continues in order to:
– Address collection of VAT in B2C transactions
– Ensure that work in other areas of BEPS addresses BEPS in the digital economy
– Address broader tax challenges, refine potential options, and evaluate impact
of BEPS work
– Consider economic incidence of VAT and CIT and impact on broader options
– If further actions are necessary to address BEPS in digital economy, consider
limiting application of options for broader tax challenges to situations in which
BEPS concerns arise
• Work will be completed by December 2015
13
Action 2 – Hybrid mismatches
• What is a hybrid mismatch arrangement?
– An arrangement that exploits the different tax treatment in two jurisdictions
to produce a mismatch in tax outcomes
– Mismatch is either two deductions for the same payment or a deductible
payment that is not included in income by the recipient
• What are we trying to achieve?
– Recommendations for domestic law changes and changes to OECD Model
Convention to deal with hybrids.
– Clear, automatic and comprehensive rules that neutralise the tax mismatch
without disturbing the commercial or regulatory consequences.
14
Action 2 – Overview of key features
Linking rules
Rule order
Scope
DN/I
Instruments /
entities
Indirect DN/I
Instruments /
entities
DD
Entities only
Special rule on
dividend exemption
for instruments
General rule:
deny deduction
Primary rule & defensive rule.
Controlled groups and structured arrangements.
Related parties for instruments.
15
Action 2 – Where have we got to?
• We have consensus on:
-
Linking rules as a concept and their detailed application.
Scope to ensure rules are comprehensive but still administrable by taxpayers and tax
administrations.
Rules that neutralise hybrid mismatches even if counterparty jurisdiction does not have
them.
Rules that ensure application does not lead to double taxation.
• Rules both reduce transaction costs and tax risks for cross-border
investment when compared with uncoordinated action.
• Ongoing work to ensure co-ordination with other Actions
• Commitment to a second phase of work with a focus on implementation
issues.
16
Action 5 – Harmful tax practices
• 2014 Progress report
– Update on work on substantial activity as it would apply to IP regimes
– Framework for exchanging information on taxpayer specific rulings
– List of member and associate regimes under review
• Next steps:
– Finalise agreement on an approach to substantial activity for IP regimes
in particular in light of joint UK-German proposal
– Agree how to apply elaborated substantial activity criteria to other, non
IP, regimes
– Apply framework on rulings and start to exchange information
– Engage with third countries (i.e. non-OECD/G20) on participation in
FHTP
– Consider revisions or amendments to the existing criteria
17
Action 6 – Treaty abuse
• Agreement that treaties not to be used to generate double
non-taxation
• Agreement on a common minimum standard to tackle treaty
abuse
• Further work to be done on some technical details related to
the drafting of the provisions
• Further work to consider impact of anti-abuse provisions on
collective investment vehicles.
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Action 8 – Intangibles
• A broad definition of intangibles is introduced
• Important value creating activities relating to intangibles will get
appropriate remuneration
• If no comparables exist, techniques to value are available
• Benefits following from corporate synergies cannot be centralised
in low tax locations, but must be shared among the group members
which contribute to these synergies
• Guidance on locational advantages
• Many examples
• Artificial profit shifting to “cash boxes” no longer tolerated
• Some guidance interim since issues are closely related to 2015 work
on treatment of risks, capital, and recharacterisation
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Action 13 – Transfer pricing
documentation
• Agreement on standard TP documentation that includes Master
file, local file and country-by-country reporting template
• Overview of where profits, sales, employees, and assets are located
and where taxes are paid and accrued on a country-by-country
basis
• Useful tool for risk assessment
• Work ongoing on scope and filing mechanism to be completed early
2015
• Post implementation review by 2020
20
Action 13 – Model Template of CbC
report
21
Action 13 – Model Template of CbC
report (cont.)
22
Action 15 – Multilateral Instrument
• Based on precedents from various areas other than tax, a
multilateral instrument to implement BEPS measures is feasible
• It is also desirable to ensure the sustainability of the consensual
framework to eliminate double taxation
• Goal is to expedite and streamline the implementation of the
measures developed to address BEPS
• Report recommends a multilateral instrument to be developed
soon and to cover at least tax treaty related BEPS measures
23
Next steps
• All recommendations are agreed but will remain in draft form
so that the potential impact of the 2015 deliverables can be
incorporated before finalising them.
• Implementation and practical guidance will be developed.
• The next outputs of the BEPS Project are due to be delivered
in September and December 2015.
24
STANDARD FOR
AUTOMATIC EXCHANGE
OF FINANCIAL ACCOUNT
INFORMATION
25
The OECD-Standard on Automatic
Exchange of Information
G20 Summit, St Petersburg Sep ‘13
Support to OECD/G20 work on:
- Presenting standard by February 2014; and
- Finalizing technical modalities by mid-2014.
Next slide
Asked the GFTEI to establish mechanism to monitor and
review implementation of standard.
Called on the OECD, the GFTEI and others to ensure developing
countries can benefit from new standard (technical assistance).
26
The OECD-Standard on Automatic
Exchange of Information
• February 2014:
G20 endorsement of the Common Reporting
Standard for automatic exchange of tax
information
• September 2014: G20 endorsement of the full standard and
commitment to begin exchanging information
by 2017 or end-2018
• November 2014: Presentation to G20 Leaders
27
35 years of automatic exchange in 3 slides
The first 20 years
‘81
‘92
Design of
the Paper
Standard
Format
Standard
Magnetic
Format (SMF)
adopted
‘03
‘05
Approval of EU
Savings Directive
which builds upon
SMF
‘10
US enacts
FATCA
Standard
Transmission
Format (STF)
adopted
EU Savings
Directive updates
to STF
28
35 years of automatic exchange in 3 slides
The transition
Jun ‘12
Jul ‘12
Nov ‘12
Apr ‘13
FATCA Model
1 IGA includes
commitment
to develop a
common
model
In Los Cabos,
G20 welcomes
OECD report
on AEOI
G20
Support
AEOI
G5 pilot
(early
adopters)
29
35 years of automatic exchange in 3 slides
Design and implementation of the CRS
Jun
‘13
Sep
‘13
Nov
‘13
Jan
‘14
Dec
‘13
Mar
‘14
Feb
‘14
G20 endorse
European
AEOI as new
Council
global
commits to
standard and adopt DAC2
ask OECD to
in 2014
develop CRS
Early
adopters
statement
(44
countries)
G20
endorse
CRS
OECD
report to
G8 on
common
model for
AEOI
GFTEI
creates
AEOI
group
May
‘14
OECD
approves
first part of
standard
Jun
‘14
Jul
‘14
Sep
‘14
Oct
‘14
Oct
‘14
Nov
‘14
OECD
Full version of GF Berlin: 93
jurisdictions
approves full
standard
commit to
version of
endorsed by
AEOI
standard
G20 Ministers
OECD
Ministerial
Declaration
(OECD
Members +
14 other
countries,
including
Singapore)
OECD Council
Recommend.
on AEOI
CAA signed
by 51
jurisdictions
Ecofin
political
agreement
on revised
DAC2 which
incorporates
CRS
Ongoing business consultation
2017
First exchange
under CRS
Full version
of Standard
presented to
G20 Leaders
together with
overview of
committed
countries
30
Jurisdictions committed to AEOI
2017
2018
31
Automatic exchange standard
Basic approach: Leveraging on FATCA
Account
Holder
Bank


Country A
1. Model 1 IGA reporting
2. Model 1 IGA exchanges
3. Leveraging on Model 1 IGA implementation
to develop standardised automatic exchange
in a multilateral context


US


Bank
Account
Holder
Country B

Account
Holder

Bank
32
AEOI standard: Building on FATCA, EU Savings Directive
and FATF to have Single Standard and Reduce Cost
Similar scope of information reported
• Personal data: name, address, tax residence, TIN
• Financial data: account balance, investment income, sales proceeds from financial
assets
Similar scope of financial institutions required to report
• Banks, custodians, insurance companies and investment entities (e.g. certain
collective investment vehicles)
Similar scope of account holders subject to reporting
• Individuals
• Entities (including trusts and foundations)
• Controlling persons (i.e., beneficial owners) of entities
Similar Due diligence procedures
• Distinction pre-existing /new, individual/entity, lower value/high value accounts
33
Next Steps
Country implementation
•
•
•
•
•
•
Translating the reporting and due diligence rules into domestic law
Selecting a legal basis for the exchange of information
Entering into Competent Authority Agreements
Protecting confidentiality and safeguarding data
Making effective use of the information
Putting in place the related administrative resources and required IT
infrastructure
• Developing secure, effective and common transmission systems
• Measuring impact
• Voluntary disclosure initiatives
34
Next steps for OECD
• Ongoing maintenance to resolve issues and ensure consistency (in
consultation with FIs)
• Produce training material (CRS Implementation Handbook) and co-host
training events for implementing countries (together with Global Forum)
• CRS portal for both general and country-specific information on
implementing the Standard (including information on TINs and residence
rules)
• Continued support to “operationalise” Multilateral CAA
• Voluntary disclosure
• Toolbox for making effective use of information
• Alignment of TRACE to CRS and assist in country implementation
35
OECD-G20 work on taxation –
BEPS and Automatic Exchange of Information
Questions and comments:
[email protected]
36

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