BEPS · Action 8 of the OECD/G20 BEPS Project, which requested the development of rules to prevent...

BEPS

Vienna University of Economics and BusinessMarch 2018

www.pwc.com

PwC

Agenda

The Major Players

Base Erosion and Profit Shifting (BEPS)

Transfer Pricing: BEPS Action 8-10

The Multilateral Instrument

Preventing the artificial avoidance of permanent establishment status

Improving dispute resolution

BEPS Transparency: Documentation and Country-by-Country Reporting

C(C)CTB

Roadmap to BEPS compliance

2

Vienna University

PwC

Timeline of Publications Including Comparability

3

PwC

The Major Players

International organisations

4

Vienna University

PwC

The Major Players

5

Vienna University

PwC

(Too) Many Cooks in the Kitchen (?) !!!

6

Vienna University

PwC

BEPS Inclusive framework

Benefits and Opportunities

• Implementing measures protecting your tax base• Being part of an inclusive dialogue on an equal

footing• Accessing capacity building support

Membership

• OECD countries• G-20 Economies• Developing economies• Regional organisations (ATAF, CIAT, …)• 108 countries (March 2018)

Developing countries losearound USD 100 billion peryear in revenues due to taxavoidance practices.

Source: UNCTAD, 2015

7

Vienna University

PwC

Platform for Collaboration on Tax

International Monetary Fund (IMF),Organisation for Economic Co-operation and Development(OECD),The United Nations (UN) andWorld Bank Group (WBG)• Intensify the co-operation between these International

Organisations (IOs) on tax issues• Formalise regular discussions between the four IOs

• design and implement standards for international tax matters,• strengthen capacity-building support to developing countries,• deliver jointly developed guidance, and• increase ability to share information on operational and

knowledge activities globally• Development of ‘toolkits’

8

Vienna University

PwC

European Union

DG Taxud

Tax Directives (e.g. ATAD 1, ATAD 2, EoI (CbC), [public] CbCR, parent-subsidiary, GAARs)

Dispute resolution and arbitration (Arbitration Convention – directiveon arbitration)

Common (Consolidated) Corporate Tax Base (C(C)CTB)

Joint Transfer Pricing Forum

DG Competition

State Aid investigations, including taxation, leading to State aid ‘arm’slength principle’

9

Vienna University

PwC

Base Erosion and Profit Shifting

10

Vienna University

PwC

BEPS Report and BEPS Action Plan

11

Vienna University

PwC

BEPS overview per theme

Coherence

Action 2

Neutralising the Effects of Hybrid Mismatch

Arrangements

Action 3

Designing Effective Controlled Foreign Company

(CFC) Rules

Action 4

Limiting Base Erosion Involving Interest Deductions

and Other Financial Payments

Action 5

Countering Harmful Tax Practices More Effectively,

Taking Into Account Transparency and Substance

Substance Transparency

Action 6Preventing the Granting of

Treaty Benefits in Inappropriate Circumstances

Action 7

Preventing the Artificial Avoidance of Permanent

Establishment Status

Actions 8 – 10

Aligning Transfer Pricing Outcomes with Value

Creation: Intangibles

Risks & CapitalHigh-Risk Transactions

Action 1

Addressing the Tax Challenges of the Digital

Economy

Action 11

Measuring and Monitoring BEPS

Action 12

Mandatory Disclosure Rules

Action 13

Transfer Pricing Documentation and Country-

by-Country Reporting

Action 14

Making Dispute Resolution Mechanisms More Effective

Action 15

Developing a Multilateral Instrument to Modify Bilateral Tax Treaties

Analysis

12

Vienna University

PwC

BEPS Minimum Standards

Minimumstandards

Reinforced international

standards

Common approaches & best practices

Analytical reports & measuring

BEPS

Action 2


Arrangements

Action 3


(CFC) Rules

Action 4



Action 5





Action 7



Actions 8 – 10




Action 1


Economy

Action 11


Action 12


Action 13



Action 14


Action 15


13

Vienna University

PwC

Focus in particular on transfer pricing

Minimumstandards


standards



BEPS

Action 2


Arrangements

Action 3


(CFC) Rules

Action 4



Action 5

Countering Harmful Tax Practices More

Effectively, Taking Into Account Transparency

and Substance



Action 7



Actions 8 – 10




Action 1


Economy

Action 11


Action 12


Action 13



Action 14


Action 15


14

Vienna University

PwC

Implementation

Minimumstandards


standards



BEPS

Action 2


Arrangements

Action 3


(CFC) Rules

Action 4



Action 5





Action 7



Actions 8 – 10




Action 1


Economy

Action 11


Action 12


Action 13



Action 14


Action 15


15

Vienna University

PwC

Transfer Pricing

BEPS Action 8 - 10

Vienna University

16

PwC

A lot of new guidance for taxpayers and tax administrations on transfer pricing matters

17

It’s…ensuring taxation of profits in the jurisdiction where the value creation takes place

• Revisions to Chapters I, II, VI and VII of the OECD TP Guidelines covering a.o.

- Intangibles

- Treatment of risks and control over risk

- Guidance on how to apply the arm’s length principle

- Commodity transactions (CUP)

- Low-value adding services (cost+5%)

- Cost Contribution Agreements

• Ongoing work on guidance for profit-split methods

• Ongoing work on TP guidelines for financial transactions

PwC

4(i) Does

conduct follow

contract?

4(ii) Control &

financial capacity?

Test 4(ii) based

on conduct

NO

YES

5. Allocate to party with

control & financial

capacity

6. Price

YES

NO

1. Identify risks

2. Contracts

3. Functional analysis

Risk analysis framework

18

PwC

A lot changed over the last years

The new guidance was developed under Action 8 of the OECD/G20 BEPS Project, which requested the development of rules to prevent BEPS by moving intangibles among group members by:

i. adopting a broad and clearly delineated definition of intangibles;

ii. ensuring that profits associated with the transfer and use of intangibles are appropriately allocated in accordance with (rather than divorced from) valuecreation;

iii. developing transfer pricing rules or special measures for transfers of hard-to-value intangibles.

iv. updating the guidance on cost contribution arrangements“Assure that transfer pricing outcomes

are in line with value creation”

19

PwC

“Legal” vs. “Economic” ownership

“Trade” vs. “Marketing” intangibles

“Routine” vs. “Non-routine”

intangibles

Legal / accounting definitions

What is the definition of an intangible in a TP context?

“Something”, not being a physical asset or a financial asset, and which is capable of being owned or controlledfor use in commercial activities.

Not capable of being owned, controlled or transferred by a single enterprise e.g. Group synergies, Features of local markets, Level of disposable income, Workforce in place, Location savings, Purchasing power

Intangibles

“Premium IP returns”

Market conditions

“Taken into account for comparability purposes”

Irrelevant

What would 3rd parties do?

Bottom-Line

Where does premium profits stem from?

What will provide next phase of growth?

20

PwC

Legal ownership is not sufficient to retain all intangible returns

21

• Returns from intangibles need to accrue to entities that control the relevant risks and carry out the important functions in relation to the development, enhancement, maintenance, protection and exploitation of the intangibles (“DEMPE”).

• Legal owner of intangible will only be entitled to retain all the returns derived from the exploitation of the intangible in case (i) it performs all the functions; (ii) contributes all assets used; and (iii) assumes all risks related to the development, enhancement, maintenance, protection, and exploitation of the intangible. Requirement for control over risk and

important functions

Intangible lifecycle

Development

Enhancement

ProtectionMaintenance

Exploitation

Authority & Capability

Priority Setting

Strategic Directions

Active Control Over Risk

PwC

The Multilateral Instrument

BEPS Action 15

22

Vienna University

PwC

Multilateral InstrumentBEPS Action 15Some Generalities

Published: 24 November 2016

Aim: treaty related changes

• Transpose BEPS Tax Treaty measures into existing bilateral andmultilateral treaties and conventions

• Introduce provisions related to BEPS standards and mandatoryarbitration

Open for signature as of 31 December 2016, formal signing ceremonieson 7 June 2017 and on 24 January 2018

Effective: after ratification by parties; effective only between the firstfive signatories after 5th ratification: As of 24 January 2018, fourjurisdictions - Austria, the Isle of Man, Jersey and Poland - haveratified the Convention – Slovenian ratification expected by 13 March2018

23

Vienna University

PwC

Multilateral Instrument BEPS Action 15

What is covered:

• Hybrids (Action 2); (Common approach & best practice)

• (limited) Limitation of Benefits approach – Principal Purpose Test(Action 6); (BEPS standard)

• Avoidance of PE Status (Action 7); (reinforced internationalstandard)

• Mutual Agreement Procedure (Action 14); (standard)

• Corresponding adjustments in line with Art 9(2) OECD MTC (Action14); (Common approach & best practice) and

• Mandatory arbitration (Action 14), (Common approach & bestpractice)

24

Vienna University

PwC

Multilateral Instrument BEPS Action 15

How to be applied:

• Implementation of standard provisions (BEPS standards);

• Flexibility

- Opt-in

- Opt-out

- Reservations not to apply (part of) a provision

• Signatories need to communicate to the depositary of the MLI (OECDSecretariat) their options and reservations or whether the treatiesconcerned contain provisions described the MLI

25

Vienna University

PwC

Preventing the Artificial Avoidance of Permanent Establishment Status

BEPS Action 7 (Reinforced International Standard)

26

Vienna University

PwC

Multilateral InstrumentArtificial Avoidance of PE Status (Art. 12, MLI)

Commissionaire structures and similar strategies

Based on BEPS revision of Art 5(5) OECD MTC

PE unless qualified as preparatory or auxiliary activities

• Acting on behalf of an enterprise

• Habitually plays leading role in conclusion of contracts routinelyconcluded without material modifications

- In the name of the enterprise

- For transfer of (rights in) property or rendering services

Independent agent: No PE, unless (almost) exclusive for the enterprise

Possibility to introduce reservation to not apply the new provisions

Notification to depositary

27

Vienna University

PwC


Specific Activity Exemptions

Principle: Activities not constituting a PE should be of an auxiliary orpreparatory nature

2 options:

• All activities mentioned in Art. 5(4) OECD MTC are subject to thecondition they must be of an auxiliary or preparatory nature

• Activities mentioned in Art. 5(4) (a) to (d) (‘stocks’): exemption willstill apply, but activities not listed (e) or combination of activities (f)must be of an auxiliary or preparatory nature

Two branches or two (closely related) entities: cohesive business(exemptions art. 5(4) do not apply)

Possible reservation not to apply the article

Notification to the depositary of the option chosen or reservation

28

Vienna University

PwC


Contract 1: 11 months Contr. 2: 11 m Contr. 4: 11 mContr. 3: 11 m

29

Splitting-up of Contracts

Construction sites: PE if > 12 months (OECD MTC)

Vienna University

PwC


Splitting-up of Contracts

Contract + Connected activities (> 30 days): combined

Enterprise and closely related parties

Reservation not to use the article is possible + notification to depositaryin such case

Closely related party: defined in Art. 15, MLI

• Control over the other party (directly or indirectly)

• Possess directly or indirectly 50 % of beneficial interest (votes,shares, …)

30

Vienna University

PwC

Multilateral Instrument

To Conclude

For the time being: uncertainty (reservations – opt-ins and opt-outs)

How long will the ratification process take (e.g. 6 Governments in B)

Crucial: Depositary’s database must be very accurate

Complexity on how to read the treaties

Creation of additional uncertainty and controversy

31

Vienna University

PwC

Improving Dispute Resolution

BEPS Action 14

32

Vienna University

PwC

Multilateral InstrumentImproving Dispute Resolution (Art. 16, MLI)

Mutual Agreement Procedure

Minimum Standard: Incorporation of MAP in DTTs

Based on Art. 25(1) – (3) OECD MTC

Several alternative texts are available

Notification to the depositary

33

Vienna University

PwC

Multilateral InstrumentImproving Dispute Resolution (Art. 17, MLI)

Corresponding Adjustment

Best practice under BEPS

Article 9(2) OECD MTC Analogue

Reservation not to include corresponding adjustment is possible,However, as BEPS Action 14 is a minimum standard, it requires accessto MAP. Signatories making a reservation should agree to either:

• Make the corresponding adjustment

• Endeavour to resolve the TP case under the MAP provision in itstreaties

When one state makes a reservation as above, but the other does not,there is no expectation created that the other state will givecorresponding relief

34

Vienna University

PwC

Multilateral InstrumentImproving Dispute Resolution (Art. 18 and following, MLI)

Mandatory Arbitration

Not a standard under BEPS Action 14

Articles on

• Introduction of arbitration

• Types arbitration process (different types exist)

• Appointment of arbiters

• Confidentiality issues

• …

Parties must explicitly choose to introduce arbitration in the DTTs

35

Vienna University

PwC

Proposed Double Taxation Dispute Resolution Mechanism in the European Union

Broadened scope

Clearly defined time-limits

Explicit obligation of result

Possibility for alternativedispute resolution

Publication

Etc.

36

Vienna University

PwC

BEPS Transparency: Documentationand Country-by-Country Reporting

37

Vienna University

PwC

Action 13: OECD Guidance on TP documentationand CbC Reporting

Who? Multinational enterprises (MNE) headquartered inG20 and OECD countries; expansion to CIAT,ATAF and others

What? CbC Report, Master File and Local File to besubmitted annually

Where? CbC report to be filed with ultimate parent’s hometax authority; master file and local file to be fileddirectly with relevant tax jurisdictions

When? Implementation date anticipated for fiscal yearsbeginning on or after 1.1.2016.

How? MNE will file the CbC report with the tax authorityof the ultimate parent of the MNE who will share itvia treaty network; master file and local file will befiled directly with local tax administrations in localjurisdictions

Confidential? Only available to tax administrations

Review? Requirements will be re-assessed in 2020

38

Vienna University

PwC

The Future of TP Documentation –A Three-tiered Approach

Provides aggregated financial and tax data by tax jurisdiction to facilitate risk assessments

Provides more detailed information relating to specific intercompany transactions and detailed functional analysis. Assures compliance with the arm’s length principle in material transfer pricing positions impacting a specific jurisdiction

Provides a complete picture of the MNE’s global operations, including an analysis of profit drivers, supply chains, intangibles, and financing

39

Vienna University

PwC

Implementation Country-by-Country Reporting

• Domestic law

• International instrument (Double tax treaty or Multilateral Convention on Administrative Assistance in Tax Matters)

• Qualifying Competent Authority Agreement (bilateral or multilateral)

• Nothing provided in BEPS MLI

European Union

• Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation

• Covers BEPS Action 13 Standard on Country-by-Country Reporting

• Transposed in domestic law by 4 June 2017

• Also proposal for directive on public CbCR

40

Vienna University

PwC

C(C)CTB

41

Vienna University

PwC

CCTBScope and key features

• Mandatory common corporate taxbase for EU companies with a totalconsolidated group revenue exceedingEUR 750Mio.

• Voluntary opt-in system for othercompanies (5 year)

• PE definition (art. 5)• A broadly designed tax base• Interest limitation rule• AGI: Allowance for Growth and

Investment• Super deduction for R&D (enhanced for

start ups)• Depreciation rules• Losses• Anti tax avoidance provision• Hybrid and tax residency mismatches

• Interest limitation rule• AGI: Allowance for Growth and

Investment+ Deduction for increase− Decrease taxable

• Super deduction for R&D (enhanced forstart ups)

• 50% ≤ € 20m• 25% > € 20m

• Enhanced: 100% for start-ups(standalone) up to € 20m

• Corporate tax rates remainscompetence of MS

• Applicable from 1 January 2019 (cf.ATAD I & II)

Coordinate now,consolidate

later

42

Vienna University

PwC

CCCTBScope and key features

• Once CCTB is implemented, the more complex aspect ofconsolidation will be introduced.

• Key features:

Cross-border consolidation of profits and losses

Formulary apportionment based on labour, sales and fixedtangible assets (elimination of intra-group transactions)

One-stop-shop system: file one single tax return for all EUactivities

• Corporate tax rates remains competence of MS

• Applicable from 1 January 2021

CCCTB

COMMON

CONSOLIDATED

CORPORATE

TAX BASE

43

Vienna University

PwC

Roadmap to BEPS compliance

44

Vienna University

PwC

How to address: Roadmap to BEPS compliance

Existing requirements

AssessGap analysis

AssessChanges to the business and facts

Analysis Functional interviews and value chain analysis to support business model and profit allocation

Draft documentationDraft master file and local files with updated benchmark studies in line with business model

PolicyAre changes to policies required? (e.g. E-commerce)

ReviewAssess compliance with existing local country rules and OECD Guidance or EU directives

Readiness assessment

Updated functional & value chain analysis

Implementation

45

Vienna University

PwC

Thoughts?

This publication has been prepared for general guidance on matters of interest

only, and does not constitute professional advice. You should not act upon the

information contained in this publication without obtaining specific professional

advice. No representation or warranty (express or implied) is given as to the

accuracy or completeness of the information contained in this publication, and,

to the extent permitted by law, PwC, its members, employees and agents do

not accept or assume any liability, responsibility or duty of care for any

consequences of you or anyone else acting, or refraining to act, in reliance on

the information contained in this publication or for any decision based on it.

© 2016 PricewaterhouseCoopers Tax Consultants bcvba. All rights reserved.

“PricewaterhouseCoopers” refers to the network of member firms of

PricewaterhouseCoopers International Limited, each of which is a separate

and independent legal entity.

Stefaan De BaetsPwC | Senior CounselDirect: +32 2 710 47 19 Mobile: +32 491623616Email: [email protected]

Fanny Castañeda GonzalezPwC | Senior ConsultantDirect: +32 2 710 92 31Mobile: +32 472902812Email: [email protected]

[email protected]

mailto:[email protected]

mailto:[email protected]

Date post:	10-Jul-2020
Category:	Documents
Upload:	others
View:	3 times
Download:	0 times

BEPS · Action 8 of the OECD/G20 BEPS Project, which requested the development of rules to prevent...

Documents