The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – is seeking public feedback on a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets, a practice by which some multinational corporations try to minimise their tax liability.
The tax treatment of ‘offshore indirect transfers’ (OITs) — the sale of an entity located in one country that owns an “immovable” asset located in another country, by a non-resident of the country where the asset is located — has emerged as a significant concern in many developing countries. It has become a relatively common practice for some multinational corporations trying to minimise their tax burden, and is an increasingly critical tax issue in a globalised world. But there is no unifying principle on how to treat these transactions, and the issue was not addressed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.
This draft toolkit, “The Taxation of Offshore Indirect Transfers – A Toolkit,” examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.
The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organisations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.
The Platform partners now seek comments by 25 September 2017 from all interested stakeholders on this draft. Comments should be sent by e-mail to email@example.com, a common comment box for all the Platform organisations. Spanish and French language versions of the toolkit are forthcoming and will also be posted for comment. The Platform aims to release the final toolkit by the end of 2017.
Questions to consider
- Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
- Does it lay out a clear principle for taxing offshore indirect transfers of assets?
- Is the definition of an offshore indirect transfer of assets satisfactory?
- Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
- Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
- Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
- Are there other implementation approaches that should be considered?
- Is the draft toolkit’s preference for the ‘deemed disposal’ method appropriate?
- Are the complexities in the taxation of these international transactions adequately represented?
Please do not restrict yourself to these questions; any other views you have on addressing the taxation of offshore indirect transfers of assets would be welcome. Comments and inputs on the draft will be published, and will be taken into consideration in finalising the toolkit.