TaxConnections

 
 

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace

Please enter your input in search

Tag Archive for BEPS

Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 3 of Series): “TPEP Execution Phase”

Doug Schwerdt

In this third article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Execution Phase.

The Execution Phase immediately follows the opening conference and consists of continued risk assessment, fact finding, information gathering, and issue development. Stages of issue development include determining the facts, applying the law to those facts, and understanding the various tax implications of the issue. The issue team is advised to make every effort to resolve factual differences with the taxpayer.

Read more

Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 2 of Series): “TPEP Planning Phase”

GUY SANSCHAGRIN

In this second article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Planning Phase.

The Planning Phase determines the scope and issues of the transfer pricing examination. The TPEP states, “Issues selected for examination should have the broadest impact on achieving compliance regardless of the size or type of entity.” Important steps in the Planning Phase are: 1) the Initial Transfer Pricing Risk Assessment, 2) issuance of the Initial Transfer Pricing Information Document Request (IDR), 3) IRS internal planning meetings, 4) development of the exam plan, timelines and milestones, and 5) the opening conference, which is the final step of the Planning Phase and marks the transition to the Execution Phase.

Evolving Guidance
Read more

Evolution Of OECD’s Two Pillar Approach To Address Tax Challenges Of The Digitalization Of The Economy

ROBERT BACHMANN

In February 2019 the OECD released a public consultation document draft titled “Addressing the Tax Challenges of the Digitalisation of the Economy”. The draft notes that back in 2015 the 2015 BEPS Action 1 Report on Addressing the Tax Challenges of the Digital Economy initially cited the challenges for international taxation which stemmed from the digital economy and that much of this consultation draft was to address these issues. It is in the February 2019 document in which the two pillar approach for addressing the digital economy was first introduced.
Pillar One focuses on the allocation of taxing rights and considers profit allocation and nexus rules. At this time three proposals for Pillar One were discussed:

1. User participation proposal: The proposal would modify current profit allocation rules to allocate profit based on where businesses’ active and participatory user bases are located, irrespective of whether those businesses have a local physical presence. The proposal notes that user participation is highly relevant for social media platforms, search engines and online marketplaces.

2. Marketing Intangible Proposal: This proposal would segment profit based on marketing intangibles in market jurisdictions. Marketing intangibles are defined as intangibles that aid in the commercial exploitation of a product or service and/or have an important promotional value for the product concerned. Some marketing intangibles it lists are brand, trade name, customer data, customer relationships and customer lists.
Read more

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.
Read more

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.
Read more

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.
Read more

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.

Read more

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.

Read more

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.

Read more

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.

Read more

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.

Read more