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Tag Archive for OECD

Using IPA 2015 As A Model For OECD Market Intangible Consultation

William C Barrett

On February 13 the OECD issued a public consultation document requesting input on two pillars developed to address concerns about taxing the digital economy.(1) Pillar 1 deals with profit attributable to the jurisdiction of the customer or user (the market jurisdiction), while pillar 2 addresses base erosion and profit shifting.

Three options are proposed under pillar 1: the user participation proposal, the marketing intangibles proposal, and the significant economic presence proposal.(2)

In July 2015 then-House Ways and Means Committee members Richard E. Neal, D-Mass., and Charles W. Boustany Jr. released a discussion draft of the Innovation Promotion Act of 2015 (IPA 2015), designed to encourage the generation of intangible income in the United States.(3) A key component of the proposed legislation was to define intangible income to which a tax deduction would apply — so-called innovation box income and thus produce a lower effective tax rate on intangible income. IPA 2015 defined the profit attributable to non-marketing intangible income as the ratio of five-year cumulative research and development expenses to five-year cumulative total operating expenses.(4) The proposal reflected concepts similar to the BEPS action 5 definition of non-harmful tax incentive regimes for intellectual property.

This article tries to match the pillar 1 discussion with the guiding principles previously established under the OECD’s BEPS project. It introduces an expanded version of IPA 2015 as a potential way to reach consensus on the allocation of marketing income under pillar 1 and to address concerns that some local tax laws may constitute export subsidies under the WTO rules.

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OECD Efforts To Harmonize Value Added Tax Rules

OECD

Businesses that sell goods and services across international borders may soon face major changes, as recently-unveiled plans by the Organisation for Economic Co-operation and Development to harmonize the way online commerce is taxed by governments around the world appear set to become law within a few years.

Recently, the G20 ministers meeting in Japan endorsed an overhaul of the global corporate tax regime that was presented there by the OECD. Published reports immediately after the event quoted experts as saying the proposed corporate tax “roadmap” would represent “the most significant” such package of tax changes “in over a century.”

This “Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy,”  as it is officially called, is being considered as a means of addressing at a global level the way corporations are taxed, in an era that is seeing financial transactions increasingly taking place online and carried out over blockchain networks.

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Platform For Collaboration On Tax Invites Final Comments On “Taxation of Offshore Indirect Transfers of Assets”

The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN and World Bank Group – has undertaken, at the request of the G20, the development of a series of “toolkit” reports to help guide developing countries in the implementation of policy options for issues in international taxation of greatest relevance to these countries. One such issue identified by developing countries themselves is the taxation of offshore indirect transfers of assets. Though an important area of international tax policy, no unifying principle has been adopted by individual countries on how to treat these transactions. This issue is, though, addressed in both main double taxation model treaties, of the OECD and the UN. Countries now follow very different approaches in their domestic law—and many treaties now in effect do not include the relevant model treaty provisions.

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Landmark Tax Agreement To Strengthen Tax Treaties Enters Into Force With Additional Countries Joining

OECD, Landmark Tax Agreement

Ministers and senior officials from Kazakhstan, Peru and the United Arab Emirates have signed the BEPS Multilateral Convention bringing the total number of signatories to 79 and the number of covered jurisdictions to 81. This Convention updates the existing network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises. Estonia intends to sign the MLI on 29 June. The signatures this week come a few days before the Convention enters into force on 1 July 2018 for five of the jurisdictions that signed last year.

The Convention is the first multilateral treaty of its kind, allowing jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties. The OECD/G20 BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to “disappear” or be artificially shifted to low or no tax environments, where companies have little or no economic activity.

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What is the Economic Activity Requirement that Offshore Financial Center’s Agreed to Adopt into Law?

Fair Tax Competition: The country should not have harmful tax regimes, which go against the principles of the EU’s Code of Conduct or OECD’s Forum on Harmful Tax Practices. Those that choose to have no or zero-rate corporate taxation should ensure that this does not encourage artificial offshore structures without real economic activity. In the context of the screening process, the Code of Conduct Group invited each jurisdiction where concerns were identified to commit to address such concerns. The large majority of jurisdictions have decided to introduce the relevant changes in their tax legislation in order to comply with the EU screening criteria.  The following jurisdictions are committed to addressing the concerns relating to economic substance by 2018: Bermuda; Cayman Islands; Guernsey; Isle of Man; Jersey; and Vanuatu.

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OECD Launches Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes

More than 200 global tax and economic crime experts have identified key areas for international action following the fifth OECD Forum on Tax and Crime, in London. In a week dominated by media coverage of offshore issues, the Forum brought experts on tax, customs, anti-corruption, anti-money laundering, policing, and prosecution together to agree priorities for action.

The Forum is the latest in a series of OECD-led events and an important opportunity for the international community to strengthen collaboration in tackling these global issues.

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Peru Becomes 114th Country To Sign OECD’s Multilateral Convention On Mutual Administrative Assistance In Tax Matters

Claudia María Amelia Teresa Cooper Fort, Minister of Economy and Finance of Peru, signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in the presence of the Deputy Director of the OECD’s Centre for Tax Policy and Administration, Grace Perez-Navarro.

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OECD Releases Country-by-Country Reporting Implementation Status And Exchange Relationships Between Tax Administrations

William Byrnes, Tax Advisor

A further step was taken to implement Country-by-Country Reporting in accordance with the BEPS Action 13 minimum standard, through activation of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (“the CbC MCAA”).

Over 1000 automatic exchange relationships have now been established among jurisdictions committed to exchanging CbC Reports as of mid-2018, including those between EU Member States under EU Council Directive 2016/881/EU.

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Platform For Collaboration On Tax Invites Comments

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.    Read more

Part 2: OECD CRS: Tax Residence And The Tax Treaty Tiebreaker

John Richardson

This is Part 2 – a continuation of the post about “tax residency under the Common Reporting Standard.”

That post ended with:

Breaking tax residency to Canada can be difficult and does NOT automatically happen if one moves from Canada. See this sobering discussion in one of my earlier posts about ceasing to be a tax resident of Canada. (In addition, breaking tax residency in Canada can result in being subjected to Canada’s departure tax. I have long maintained that paying Canada’s departure tax is clear evidence of having ceased to be a tax resident of Canada.)

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How The U.S. Can Leverage FATCA Bilateral Process

TaxConnections Member Professor William Byrnes examines whether it is prudent for taxpayers to trust the governments of the 117 countries that scored a fifty or below on Transparency International’s corruption index. The complete information system invoked by the Foreign Account Tax Compliance Act (FATCA) encourages, even prolongs, the bad behavior of black hat governments by providing fuel (financial information) to feed the fire of corruption and suppression of rivals. Professor Byrnes recommends that the United States leverage a “carrot-stick” policy tool to incentivize bad actors to adopt best tax administration practices.

Article download at https://ssrn.com/abstract=2916444

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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