The 2015 Report on BEPS Action 4 established a common approach which directly links an entity’s net interest deductions to its level of economic activity, based on taxable EBITDA. Further work on two aspects of the common approach was completed in 2016 and this is included in this update.

Comments are invited on draft examples included in a discussion draft on the follow-up work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds.

Paragraph 14 of the final version of the BEPS report on Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions included in the Report on Action 6 address adequately the treaty entitlement of these funds.

As part of the follow-up work on this issue, on 24 March 2016 the OECD published a consultation document on the treaty entitlement of non-CIV funds which included a number of specific questions related to concerns, identified in the comments received on previous discussion drafts related to the Report on Action 6, as to how the new provisions included in that Report could affect the treaty entitlement of non-CIV funds as well as possible ways of addressing these concerns. The comments received in response to that consultation document were published on the OECD website on 22 April 2016.

This discussion draft has been prepared to provide stakeholders with information on the subsequent developments in the work on the interaction between the treaty provisions of the report on BEPS Action 6 and the treaty entitlement of non-CIV funds, including the conclusions reached at the May 2016 meeting of Working Party 1* and the subsequent work on the development of examples related to the application of the principal purposes test (PPT) rule included in the Report on Action 6 with respect to some common transactions involving non-CIV funds. The discussion draft invites comments on three draft examples under consideration by the Working Party for inclusion in the Commentary on the PPT rule.

The Committee invites interested parties to send their comments on these three examples. The draft examples and the comments received will be discussed by Working Party 1 at its February 2016 meeting.

Comments should be sent by 3 February 2017 at the latest by e-mail to taxtreaties@oecd.org in Word format (in order to facilitate their distribution to government officials). They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.

Please note that all the comments on the examples will be made publicly available. Comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective group, or the person(s) on whose behalf the commentator(s) are acting.

The draft examples included in this discussion draft do not, at this stage, represent the consensus views of the CFA or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment.

* Working Party No. 1 on Tax Conventions and Related Questions is the subsidiary body of the OECD’s Committee on Fiscal Affairs responsible for the tax treaty-related work, including the follow-up work on BEPS Action 6.