Base Erosion and Profit Sharing Action Plan 11, 12, 14 & 15. Mr. S.P. Singh, Ex-IRS 7th November, 2015

Transcription

1 Base Erosion and Profit Sharing Action Plan 11, 12, 14 & 15 Mr. S.P. Singh, Ex-IRS 7th November, 2015

2 Contents Action 11 - Establishing Methodologies to Collect and Analyze Data on BEPS Action 12 Requiring Taxpayers to disclose their Aggressive Tax Planning Arrangements Action 14 - Making Dispute Resolution Mechanism More Effective Action 15 Develop a Multilateral Instrument Conclusion 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 2

3 Action 11 Measuring and Monitoring BEPS 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 3

4 Action 11: Economic implications of multinational tax planning Robust empirical evidence shows that MNEs engage in international tax planning Transfer pricing and preferential tax treatment of IP influences the location of intangible assets Tax planning reduces the effective tax rate of MNEs The net tax revenue loss from tax planning is estimated at 4 10% of global corporate tax revenue. Developing countries are bigger sufferers BEPS also causes other adverse economic effects 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 4

5 Action 11: Indicators of BEPS activity Concentration of FDI relative to GDP in certain countries High profit rates of low-taxed affiliates of top global MNEs High profit rates of MNE affiliates in lower-tax locations Effective tax rates of large MNE affiliates is lower relative to non-mne entities with similar characteristics Concentration of royalty receipts relative to R&D spending in low-tax countries Interest expense to income ratios of MNE affiliates in countries with above average statutory tax rates 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 5

6 Action 11: BEPS - Measuring the Extent and Impact The scale or extent of BEPS uncertain One study: less than 5% to more than 30% of the income earned by MNEs in high-tax countries being shifted to low-tax countries Key challenges in estimation: 1. Availability of data; 2. Methodology for estimating Estimation would require sophisticated technique to separate BEPS from real economic activity and from non-beps tax incentives Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 6

7 Action 11: Assessment of existing data sources Separating real economic effects from tax effects is crucial for identifying BEPS - require both data and estimation methodologies Significant limitations of exiting data sources - Private data sources have limitations Private firm-level financial account databases are not comprehensive Many countries do not make available tax return data 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 7

8 Action 11: Criteria for Assessing Data Coverage/ representation Usefulness for separating real economic effects from tax effects Ability to Focus on Specific BEPS activity Level of detail Timeliness of the information Access to the information More complete information about global MNE activity is needed Other data issues 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 8

9 Action 11: Key Issues in Measuring and Analyzing BEPS Defining BEPS The counter-factual for BEPS analysis; three alternatives: a world today without BEPS; a future world without coordinated multilateral action; and A future world with proposed countermeasures Separating BEPS from real economic activity What activities generate profits? Where are profits generated? 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 9

10 Action 11: Recommendations for maintaining data 1. Corporate Tax Statistics with a range of data and statistical analyses relevant to the economic analysis of BEPS in an internationally consistent format 2. Periodic reports on the estimated revenue impacts of proposed and enacted BEPS countermeasures 3. Analytical tools and BEPS Indicators to monitor the scale and economic impact of BEPS to be refined and the effectiveness and economic impact of BEPS countermeasures to be evaluated 4. Public reporting of business tax statistics, particularly for MNEs should be improved 5. Governments should continue to make improvements in non-tax data relevant to BEPS 6. Public private participation for research on BEPS to be encouraged and used properly 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 10

11 Action 12 Mandatory Disclosure Rules 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 11

12 Action 12: Key objectives of a mandatory disclosure scheme Timely, comprehensive and relevant information on aggressive tax planning strategies a challenge for tax authorities Tools designed to increase the information flow on tax risks The modular framework for mandatory disclosure regimes should: be clear and easy to understand balance additional costs to taxpayers with the benefits to tax administration be effective in achieving their objectives, accurately identify the schemes to be disclosed be flexible and dynamic enough for tax administration to adjust the system to new risks ensure that information collected is used effectively 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 12

13 Action 12: Key features of the scheme The following features need to be addressed Who reports What information to report When information has to be reported; and The consequences of non-reporting 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 13

14 Action 12: Requirements of countries Impose a disclosure obligation on the promoter and the taxpayer Include a mixture of specific and generic hallmarks, the existence of each of them triggering a requirement of disclosure Establish a mechanism to track disclosure Link the timeframe for disclosure to the scheme Introduce penalties to ensure compliance 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 14

15 Action 14 Making dispute resolution mechanism more effective 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 15

16 Action 14: Introduction Developing minimum standard of dispute resolution mechanisms is important The minimum standard should: Ensure that treaty obligations related to the mutual agreement procedure are fully implemented in good faith and that MAP cases are resolved in a timely manner; Ensure the implementation of administrative processes that promote the prevention and timely resolution of treaty-related disputes; and Ensure that taxpayers can access the MAP when eligible. Arbitration agreed by many countries India does not agree Actions to counter BEPS must be certain and predictable for businesses 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 16

17 Action 14: Three-pronged approach Three-pronged approach would consist: Political commitments to effectively eliminate taxation not in accordance with the OECD Model Tax Convention on Income and on Capital Provide new measures to improve access to the MAP and improved procedures Establish a monitoring mechanism to check the proper implementation of the political commitment 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 17

18 Action 14: Guiding Principles Guiding Principles Ensuring the following: Treaty obligations related to the mutual agreement procedure are fully implemented in good faith Administrative processes promote the prevention and resolution of treaty- related disputes Taxpayers can access the mutual agreement procedure when eligible Cases are resolved once they are in the mutual agreement procedure CA relationship to be improved MAP statistics should be published timely and complete The minimum standard of compliance should be followed Countries should provide transparency with respect to their position on MAP arbitration 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 18

19 Action 14: Obstacles Two obstacles that may prevent the full implementation of Article 25 of the OECD model treaty: absence of an obligation to resolve a MAP case some countries take the position that, in the absence of paragraph 2 of Article 25, they are not obligated to make corresponding adjustments or to grant access to the MAP 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 19

20 Action 14 Solutions Offered in Discussion Draft on Obstacles Discussion draft suggests that language could be added to OECD Commentary on Article 25 that states: the undertaking to resolve by mutual agreement cases of taxation not in accordance with the Convention is an integral part of the obligations assumed by a Contracting State in entering into a tax treaty and must be performed in good faith, and that the competent authorities are obliged to seek to resolve the case in a principled, fair and objective manner, on its merits, in accordance with the terms of the Convention and applicable principles of international law. Discussion draft offers a seemingly simple solution to address this issue of absence of obligation to conclude MAP : by ensuring that paragraph 2 of Article 9 is included in tax treaties, using the multilateral instrument envisaged by Action 15, when appropriate 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 20

21 Action 14: Important Points Topic 1 Ensuring That Treaty Obligations related to MAP are fully implemented in full faith 2 Ensuring that administrative process promotes prevention and resolution of treaty related disputes Important Points Absence of an obligation to resolve MAP cases under Article 25(1) Absence of Article 9 (2) in some treaties Lack of independence of CA Inappropriate influence of considerations to the negotiations of possible tax treaties Lack of resources of CA Performance indicators of CA function and staff Insufficient use of Article 25 (2) Audit settlement as an obstacle to MAP access Lack of APA programs Failure to consider implication of MAP or APA case to other tax years 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 21

22 Action 14: Important Points (contd.) Topic 3 Ensuring that taxpayers can access MAP when eligible Important Points Complexity and lack of transparency of procedures to access and use the MAP Excessive documentation requirements Right of access to MAP unclear when domestic or treaty based anti- abuse rules have been applied A CA unilaterally decide that objection is not justified Domestic remedies may have an impact on MAP Collection of taxes related issues Time limits to access MAP Self-initiated foreign adjustments 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 22

23 Action 14: Important Points (contd.) Topic 4 Ensuring that cases are resolved once they are in MAP Important Points Lack of principled approach to resolution of MAP cases Lack of cooperation, transparency or good CA working relationships Absence of MAP arbitration Multilateral MAPS and APAs Interest and Penalties in MAP 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 23

24 Action 14: Arbitration Clause Most appropriate and important resolution mechanism under MAP remains the inclusion in double taxation treaties of mandatory binding arbitration G20 countries including India have reservations about mandatory arbitration on grounds of sovereign nation s right to tax 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 24

25 Action 14: Timely resolution of treaty-related disputes Rules, guidelines and procedures to access and use MAP should be published Country MAP profile on a shared public platform MAP authorities should not be dependent on tax personnel who made adjustments Countries should not use performance indicators for their CA functions Adequate resources should be provided to the MAP functions Audit settlements should not preclude access to MAP. Countries with BAPA should provide for the roll-back of APAs 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 25

26 Action 14: Best Practices 1. Paragraph 2 of Article 9 should be included in tax treaties 2. Ensure that administrative processes promote the prevention and timely resolution of treaty-related disputes 3. Develop global awareness of the audit/examination functions involved in international matters 4. Implement BAPA programs 5. Multiple year resolution of disputes through MAP 6. Suspension of collection during the period of MAP 7. Adequate resources on MAP 8. Guidelines on MAP should clarify relationship between MAP, audit and judicial authorities 9. MAP to be allowed where taxpayer initiates adjustment resulting in double taxation 10. Guidelines should provide guidance on the consideration of interest and penalties in MAP 11. Guidelines should provide guidance on multilateral MAPs and APAs 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 26

27 Action 15 Developing a Multilateral Instrument to Modify Bilateral Tax Treaties 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 27

28 Action 15: Introduction Features of current bilateral tax treaty system facilitating BEPS needs to be addressed Sheer number of tax treaties make updating the current tax treaty network highly burdensome Current network is not well0synchronized with the model tax convention Action 15 deals with developing multilateral instrument for amending bilateral tax treaties The goal of Action 15 is to streamline the implementation of the tax treaty-related BEPS measures 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 28

29 Action 15: Benefits of multilateral instruments The multilateral instruments can: overcome the hurdle of cumbersome bilateral negotiations and produce important efficiency gains provide developing countries with the opportunity to fully benefit fro BEPS Project address some issues in a better manner than bilateral instrument increase the consistency and help ensure the continued reliability of international tax treaties Flexibility, respect for bilateral relations, and a targeted scope Level playing field will require broad participation 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 29

30 Action 15: Developing multilateral instruments is feasible The multilateral instrument would coexist with the existing bilateral tax treaty network It is identified as more appropriate than other approaches as it is more efficient and more targeted The multilateral instrument would follow traditional negotiating processes, and ratification would take place according to national law Multilateral instrument would govern the relationship between parties that have concluded bilateral tax treaties amongst themselves. An exception can be for dispute resolution 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 30

31 Action 15: Technical challenges resolution Technical challenges arising from the interaction between a multilateral instrument and bilateral tax treaties can be addressed Variations in scope between similar provisions of existing bilateral treaties can be successfully resolved Variation in language can be addressed through superseding language in a multilateral instrument Variations in the numbering of provisions can be addressed by careful drafting The timeline for signature and entry into force can be calibrated carefully In general, a flexible approach will be paramount for multilateral instrument 2015 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited 31

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