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Tag Archive for BEPS

U.S. Concerns About OECD/G20 IF-BEPS Sparks Controversy – Mark Zuckerberg(Facebook) Sides With OECD On IF-BEPS

Gary Heald Jr on OECD - BEPS

Today, Facebook announced that they support global tax reform, even if it means they have to pay more tax and pay it in different places under a new framework.

As discussed previously, the OECD/G20 has been working toward a resolution with regard to the extreme abuses in international tax (transfer pricing) base erosion and profit shifting. Until about December 3rd, 2019, the U.S. all but led the way in the discussions. Amid international tensions with tariffs as well as the potential for damage to American MNE’s to whom the new rules would apply, the U.S. floated the idea of adding a “Safe Harbor” provision to the rules, allowing the U.S. to opt-out of some or even all of the agreement. A Safe Harbor is where a boat goes to get out of the storm — it essentially allows it to opt out, when waters get too rough. The Safe Harbor would allow Facebook the ability to avoid more tax, so why would they support the OECD/G20 IF-BEPS and not the US Treasury on the safe harbor proposal?

On one hand, the Safe Harbor provision is problematic because as it stands the OECD/G20 have constructed the system in such a way as to require the entire multilateral agreement to be adopted and executed by each member state in order for the full system to work. If one state does not adopt the rules, then that state has the potential to become the tax haven to which MNE’s flee to avoid tax. The fact that Facebook is already in the United States reveals that even amid discussions for including the Safe Harbor protection, a new generation of American MNE is emerging which is more globally conscious and believes in a more fair system of taxation. Put differently, Zuckerburg could say nothing, lobby the U.S. to stay out of the agreement and reap the benefits that would come with the U.S. maintaining a position as a tax haven for digitalized MNE’s.
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Introduction: Organization For Economic Co-Operation And Development Inclusive Framework On The Base Erosion And Profit Shifting Project

GARY HEALD JR. on OECD AND BEPS

In 2018, 79 countries lost $125B in corporate tax revenue through profit shifting and base erosion. The greatest monetary losses were experienced by India, Russia and the U.S. at $24B, $16B and $32B. These are major loss amounts, but when the least-well-off countries lose even a fraction of this revenue, it has a marginal cost impact much greater than than the losses born by countries who are economic powerhouses. It is incumbent on all of us to level the playing field to make things fairer for developing nations to increase their rate of access to opportunity, to be at least commensurate with the level of increase experienced by other nations, but for their losses.

There is no doubt that enhanced systems of tax avoidance coupled with economic digitalization have changed the international tax ecosystem. For now, it’s an environment where transfer pricing opportunities are ubiquitous and extremely lucrative. In response, the OECD & G20 have been working diligently to tighten the reins on transfer pricing through the Inclusive Framework Base Erosion and Profit Shifting Project. Recently, a deadline has been for the Inclusive Framework to produce a workable plan available for implementation by January of 2021. None of this is without challenge because at its core, taxation is a state-based enterprise.
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Base Erosion And Profit Shifting(BEPS) – Organization For Economic Co-Operation And Development Public Discussion Draft

OECD and BEPS

Under the mandate of the Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”), Working Party No. 6 (“WP6”) has produced a non-consensus discussion draft on financial transactions.

The first part of the discussion draft provides guidance on the application of the principles contained in Section D.1 of Chapter I of the Transfer Pricing Guidelines to financial transactions.

In particular, Section B.1 of the discussion draft elaborates on how
the accurate delineation analysis under Chapter I applies to the capital structure of an MNE within an MNE group. The discussion draft clarifies that the guidance included in this section does not prevent countries from implementing approaches to address capital
structure and interest deductibility under their domestic legislation. Section B.2 outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions.

The second part of the discussion draft, contained in sections C, D and E, addresses specific issues related to the pricing of financial transactions such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance.The discussion draft also includes a number of questions to commentators on which inputs from stakeholders will be particularly relevant to WP6 to further its work and prepare another discussion draft after considering the input received.
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Transfer Pricing And BEPS – Important Announcement From President Of The Council Of The European Union

The Council Of The European Union came to a political agreement to the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. All delegations in the Commission “agree on the principle that disclosure of potentially aggressive tax planning arrangements of a cross-border dimension can contribute effectively to an environment of fair taxation in the internal market and that tax authorities share the disclosed information with their peers in other Member States.”

“The Commission presented the legislative proposal with the main purpose of this initiative is to strengthen tax transparency and fight against aggressive tax planning by including into the existing Council Directive on administrative cooperation in the field of taxation (DAC) new provisions, which would require Member States to:

– lay down rules for mandatory disclosure to national competent authorities of potentially aggressive tax planning schemes with a cross-border element (“arrangements”) by the “intermediaries”    (e. g. tax advisers or other actors that are usually involved in designing, marketing, organizing or managing the implementation of such “arrangements”); and ensure that national tax authorities automatically exchange this information with the tax authorities of other Member States by using the mechanism provided for in DAC.

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Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS

On June 7, 2017, over 70 Ministers and other high-level representatives participated in the signing ceremony of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”).

Signatories include jurisdictions from all continents and all levels of development. A number of jurisdictions have also expressed their intention to sign the MLI as soon as possible and other jurisdictions are also actively working towards signature.

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Mauritius Signs The Multilateral BEPS Convention

Mahess Rawoteea of the Ministry of Finance and Economic Development of Mauritius, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) in the presence of Douglas Frantz, OECD Deputy Secretary-General.

Based on expressed reservations at this point in time, 23 tax treaties would be impacted by this signing. Read more

Seven More Jurisdictions Sign Tax Co-operation Agreement

William Byrnes

As part of continuing efforts to boost transparency by multinational enterprises (MNEs), Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have now signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), bringing the total number of signatories to 57. Lithuania and Hungary joined the Agreement in October and December 2016 respectively.

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OECD Updates BEPS Financial Payments And Tax Treaties

William Byrnes

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.

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Peru Joins The Inclusive Framework On BEPS

William Byrnes

Following the first meeting of the Inclusive Framework on BEPS in Japan, on 30 June – 1 July, and recent regional meetings, more countries and jurisdictions are joining the framework. The Inclusive Framework on BEPS recently welcomed Peru bringing to 91 the total number of countries and jurisdictions participating on an equal footing in the Project.

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Monaco Strengthens International Tax Co-operation

William Byrnes

Monaco today deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”). By doing so, Monaco underlines its commitment to fighting tax evasion and avoidance and takes another important step in implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries as well as automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

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Transfer Pricing Summit—Register Today!!

The issue of transfer pricing has never been a bigger issue than now. With news of the IRS auditing U.S. corporations who operate outside of the country, the Organization for Economic Cooperation and Development (OECD) latest action plans under the Base Erosion Profit Sharing (BEPS) project, and the U.K. voting to leave the European Union (Brexit), the effects with be seen by U.S. multinationals. You have the opportunity to learn from top tax experts who will discuss and analyze the transfer pricing market.

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TEI-SJSU High Tech Tax Institute – 11/9-11/10, 2015 in Palo Alto, California

As a Reminder, the 31st Annual TEI-SJSU High Tech Tax Institute will be held on November 9 and 10 at the Crowne Plaza Cabana in Palo Alto, California.  Topics include practical consequences of BEPS, EU hot topics, Sections 41 and 199 applied to cloud computing transactions, repatriation strategies, and IRS developments.  Speakers include Heather Maloy, Joe Mikrut, Larry Langdon, Jim Fuller, Eli Dicker and Ivan Humphreys.  The agenda includes speakers from China, Ireland and the UK.

For the complete agenda and speaker list, as well as online registration, please visit http://www.tax-institute.com.

A discount is offered for TEI members. Read more