General comments. BEPS Position Paper. 9 June 2015

Transcription

1 BEPS Psitin Paper 9 June 2015 BIAC has been supprtive f the OECD s Base Ersin and Prfit Shifting ( BEPS ) prject since its inceptin, and has prvided cnstructive and detailed input frm the internatinal business cmmunity in respnse t all discussin drafts. Althugh we value the penness f the cnsultatin prcesses, and acknwledge the effrts f OECD and G20 member gvernments and the OECD Secretariat, we are anxius that sme serius business cncerns are nt being sufficiently cnsidered r addressed. At the March 2015 meeting f the BIAC Tax Cmmittee, a substantial number f member rganizatins expressed substantial cncerns ver the directin f certain aspects f the BEPS prject, and the ptential significant negative ecnmic cnsequences f several Actin Items, and it was agreed t set thse ut in a shrt dcument. Fllwing that meeting, BIAC cnducted a survey f its members in rder t prepare a cnsensus dcument t explain its cncerns. This Psitin Paper 1 represents the cnsensus feedback BIAC has received, cvering general cmments in relatin t the entire prject, as well as cmments n specific Actin Items. We wuld reiterate, despite the cncerns nted belw, that we want the BEPS prject t succeed. We will cntinue t apprach this prject bth befre and after the adptin f the recmmendatins by the G20 in a cnstructive, flexible and incremental way as the best way f achieving that success. General cmments Many f the cncerns identified in this Psitin Paper are cmmn acrss the range f Actin Items. We have expressed these cncerns t the OECD befre, and als understand the pressure f the BEPS timetable, but we feel they are wrth repeating as their imprtance cntinues t grw, nt nly as the prject mves twards cmpletin, but als beynd that t subsequent implementatin. Scping: It wuld still be helpful t mre narrwly target the scpe f each Actin t increase the chance f develping the necessary inter-gvernmental cnsensus. At present, many prpsals appear t g beynd the scpe required t effectively target BEPS related activities. We strngly believe that success in the BEPS prject wuld be achieved with a set f detailed, well-defined prpsals that can be (and are) implemented cnsistently. It is nt necessary t cver every issue that culd arise under every Actin Item. We shuld seek t avid verly-brad prpsals that cuntries are likely t implement differently. Ecnmic impact: There is great cncern that the ecnmic cnsequences f the prpsals have nt yet been fully cnsidered, and that recmmendatins may be adpted withut a prper impact assessments. Althugh uncertainty, duble-taxatin, disputes and cmpliance burdens are a fcus f business, we are als cncerned abut the brader ecnmic impact that may nt have been cnsidered s far. These might include, fr example, the impact n the efficiency f markets, r the sustainability f certain legitimate nn-tax driven cmmercial transactins (fr example, crss-brder infrastructure prjects). We believe that the justified targeting f BEPS activities must be integrated with larger ecnmic cncerns related t creating jbs and grwth thrugh crss-brder trade and investment. Clear guidance: In a number f areas, the BEPS Actin Plan prpses substantially new and cmplex rules t tackle avidance. Given the pressures f the ambitius timeframe, there have been very few pprtunities t explre hw these cmplex prpsals can be adpted and implemented n an internatinal basis. Bth tax authrities and businesses will need detailed implementing guidance t ensure that the intentin f each Actin Item is clear. This will be critically imprtant in delivering recmmendatins that are unifrmly adpted, aviding further verlaps. There is n infrmatin at this pint ver hw and if such guidance will be develped, and this shuld be made clear at the earliest pssible pprtunity. 1 This is intended t be a living dcument, and will be updated fr subsequent OECD/G20 actins 1

2 Interactin f the Actin Items: Althugh the prject is appraching its cnclusin, there is n clear strategy t identify hw the different Actin Items interact with each ther r hw the prpsals will be brught tgether. We knw that the OECD is aware f the issue, and has, n many ccasins, said that such interactins will be cnsidered. But we d nt, at the mment, see the mechanism thrugh which that will ccur. BIAC is cncerned that certain BEPS issues will be targeted by multiple Actin Items. Unless a clear review prcess clarifies thse interactins, and cnsiders the ramificatin f the immediate adptin f multiple recmmendatins at the same time, there culd be swift and unintended cnsequences. Althugh we fully understand that the timetable is plitically-mandated, it is crucial t cnsider these interactins befre widespread implementatin. Clearly defining the target Many f the OECD s discussin drafts d nt begin by clearly defining the abuses they intend t tackle. Given this lack f fcus, we are cncerned that nn-tax mtivated cmmercial transactins and structures culd be unintentinally impacted by the breadth f the OECD s prpsals fr example, the verly-brad denial f treaty benefits r the lwering f the threshlds fr Permanent Establishments (PEs). There shuld be a much sharper fcus n specific abuses (which starts with clear articulatin f such abuse), and n designing a narrw and prprtinate respnses. The prprtinate nature f the respnse shuld als be infrmed, where pssible, by empirical data n the extent and scale f BEPS in each f the relevant areas. Reaching cnsensus BIAC has strngly supprted the OECD as the best rganisatin t deliver a successful cnsensus utcme under the BEPS mandate. Hwever, we are cncerned that in many instances, it has prved difficult (and ccasinally impssible) fr member gvernments t reach cnsensus. This has resulted in discussin drafts cntaining numerus, smetimes cnflicting ptins. We recgnise that these discussin drafts were nn-cnsensus dcuments (and we welcmed the pprtunity fr early cnsultatin). Hwever, ur cncern is increasing that it will nt be pssible t secure the agreement f all cuntries t deliver rules with sufficient clarity and bjectivity. A lack f cnsensus will lead, and in sme cases, has already led, t unilateral BEPS measures. Cmplexity and cmpliance burden The BEPS prpsals are likely t create significant implementatin difficulties and greater cmpliance burdens, nt nly fr Multinatinal Enterprises (MNEs), but als gvernments - this is in part due t the substantial number f prpsals, but als the cmplexity f the recmmendatins. Fr example, the tw-tiered apprach t Transfer Pricing Dcumentatin (TPD) will require businesses t add mre infrmatin t lcal files that is nt currently required by mst cuntries. Thus, a prject initiated t streamline dcumentatin has delivered the ppsite. Furthermre, Cuntry-by-Cuntry Reprting (CbCR) will require significant resurces in designing new IT slutins t gather the requisite data. In additin, prpsed amendments t the Transfer Pricing Guidelines (TPG) fr Risk and Recharacterisatin suggest that significantly mre effrt will be required t analyse transactins and cntracts. BEPS prpsals will als have implicatins fr indirect taxatin, fr example, the recmmendatins under Actin 7 n PE Status wuld result in an unmeasurable increase in the number f mnthly VAT submissins. Other Actin Items (fr example, Actins 2, 3, 4, 7 and 12) are als likely t require significant additinal resurce t ensure cmpliance with new, cmplex and smetimes cntradictry rules. Tax administratins already receive significant amunts f infrmatin that they ften struggle t prcess. We are cncerned that withut additinal resurces, tax administratins will face difficulties in effectively using this additinal infrmatin and in dealing with the expected increase in requests fr exchange f tax infrmatin between cuntries. It may actually becme mre difficult t identify risks, r t target abuse, t the advantage nly f the mst aggressive taxpayers. We believe a greater fcus n tax administratin wuld be beneficial - fr example, thrugh fully integrating the wrk f the Frum n Tax Administratin - and the use f targeted risk-based measures. This culd include materiality threshlds and ther risk-identificatin tls t target higher risk taxpayers/issues that represent the mst substantial sums f lst tax revenues. Such appraches reduce the burden n the vast majrity f cmpliant taxpayers, freeing up resurces fr mre prductive, value-creating activities. Cperative cmpliance als has an imprtant rle t play in this area. Understanding the ecnmic impact It is a matter f sme regret that, wing t the plitical nature f the timetable, the BEPS prject culd nt begin with a detailed ecnmic analysis f the abuses identified in the Actin Plan, including the scale and imprtance f duble nn- 2

3 taxatin and tax cmpetitin. On the latter cncept, we cntinue t supprt the wrk f The Frum n Harmful Tax Practices t ensure that tax cmpetitin is always linked t the taxatin f genuine and substantive ecnmic activity. Differences in dmestic tax systems can indeed create unintended arbitrage pprtunities that shuld be addressed, but we als believe that sme intended differences in dmestic tax systems driven by apprpriate plicy ratinal can have a psitive impact n the glbal ecnmy by encuraging investment and grwth. In this regard, the recent Actin 11 discussin draft acknwledges difficulties in distinguishing BEPS activities frm the impact f genuine incentives in a specific ecnmy. Any brad recmmendatins t reduce the availability f tax incentives shuld be infrmed by thse difficulties. There are certain key Actin Items, fr example, PE Status (7) and Interest Deductibility (4), where the ecnmic (tax and nntax) implicatins f the prpsals culd be substantial. Althugh it will nt be pssible fr all Actin Items, in the areas where the ecnmic impact is likely t be large but unknwn, we encurage the OECD t attempt t mdel the micr- and macrecnmic impacts n crss-brder trade and investment. Part f that impact relates t the uncertainty that prpsals (e.g. Actin 7) can create, making it difficult fr MNEs t appraise investment prpsals, and ptentially creating cmpliance burdens that utweigh the ecnmic benefit f a prject. Discuragement f related party trade Many f the BEPS Actin Items apply nly in an intra-grup cntext and culd significantly increase the cst f perfrming varius functins r undertaking certain transactins inside a grup f related cmpanies.. Fr example, the recmmendatins t lwer the PE threshld culd greatly increase the cmpliance cst assciated with varius intra-grup activities, and the prpsals relating t Cst Cntributin Arrangements (CCAs) culd apply nn-arm s length restrictins t related party transactins. In sme cases, taxpayers may, effectively, be frced t cnduct business with third parties t mitigate excessive tax cst r uncertainty. This wuld reduce cmmercial and ecnmic efficiencies and hamper internatinal trade (as well as, quite pssibly, lwering the wages and benefits in utsurced functins especially in develping cuntries). We believe that these effects shuld be cnsidered in greater detail befre we g t far dwn a rad that culd discurage the vertical integratin f functins. Incnsistent Implementatin and Unilateral Actins As nted at the beginning f this dcument, further clarity is required n hw the BEPS prject will be brught tgether and crdinated t assist cuntries and taxpayers in understanding where interactins between actins exist, hw the mst imprtant issues will be tackled, hw rules will be implemented and hw best t ensure cmpliance hpefully encuraging cuntries t wrk twards cnsensus. This wuld reverse the emerging trend where certain participating jurisdictins have already prpsed unilateral measures that are directly r tangentially related t the BEPS Actin Plan. Unilateral actins cause cnfusin as t what the BEPS Actin Plan is targeting, and increase the likelihd f incnsistent implementatin. Apprpriate resurces fr tax administratins Many gvernmental cncerns relate t difficulties in effectively implementing existing tax laws, rather than a need fr new laws. Tax laws are ften cmplex, and their applicatin by taxpayers (and tax administratins) takes time and expertise. At present, resurce-cnstrained gvernments, even in develped cuntries, struggle t review all infrmatin received t effectively target aggressive avidance. The situatin is even mre difficult in develping cuntries. We are cncerned that the BEPS Actin Plan recmmendatins will result in additinal layers f cmplexity, with tax administratins having t deal with mre infrmatin, mre verlapping rules and mre interactins between their wn rules and ther cuntries. Best practice recmmendatins wuld be welcmed that set ut hw tax administratins shuld be funded and resurced, t ensure that adequately trained experts are dedicated t effectively implementing new laws, and targeting the mst significant risks, maximising the recvery f lst tax revenues. Based n the BEPS recmmendatins, any additinal resurce will likely be cnsumed by gathering infrmatin and trying t administer an increasingly cmplex set f internatinal rules (with the added difficult f prliferating infrmatin exchange requests and a significant uptick in disputes). Multilateral implementatin Ultimate success f the BEPS prject will be multilateral implementatin f specific, measurable, achievable and realistic Actins n a timely basis. Whilst much wrk n implementatin mechanisms is still t cme, we encurage early discussins n appraches t enhance credibility and likely success f the prject. We make the fllwing recmmendatins in this regard: 3

4 The OECD shuld remain invlved t assist in implementatin, and we wuld welcme clarity ver that invlvement. A pst-beps engagement prcess shuld be frmalised t enable the recmmendatins t be implemented in a way that accrds with the riginal aims f the BEPS prject but als prtects trade and investment. As a first step, all cuntries shuld agree t key principles t be fllwed in any dmestic legislatin used t enact BEPS prpsals. Such principles culd include that: the plicy bjective shuld be clearly stated; the plicy bjective shuld be cnsistent with the BEPS recmmendatin, and in particular, shuld address specific abuses; draft legislatin shuld be published with a minimum perid fr detailed stakehlder cnsultatin; and an impact assessment shuld be prepared t evaluate any cmpliance burdens created. Crdinatin f implementatin shuld als be encuraged s that natinal measures have a reasnable degree f cnsistency. We encurage the OECD t cnsider hw it can best assist with cnsistent implementatin. BEPS Actin Item-specific cmments Address the tax challenges f the digital ecnmy (Actin 1) We understand that the Digital Taskfrce will be meeting twards the end f 2015 t cnsider hw BEPS prpsals are likely t address cncerns relating t the Digital Ecnmy. We greatly welcmed the riginal 2014 reprt (Addressing the Tax Challenges f the Digital Ecnmy), but there is a cncern amngst BIAC members that a number f cuntries are cnsidering withhlding taxes n digital transactins. Such prpsals will certainly result in duble r even multiple-taxatin unless there is a very clear and strng cnsensus as t hw the prfits f digital business transactins shuld be taxed. If necessary, mre time shuld be taken t ensure that cnsistency can be achieved. In additin, it is vitally imprtant that individual cuntries d nt take unilateral actin. Neutralizing the effects f hybrid mismatch arrangements (Actin 2) While we d nt defend hybrid mismatches as a general plicy matter, we d want t make tw imprtant pints: The cmplexity f the prpsed rules will create substantial cmpliance difficulties, and will cmplicate the allcatin f taxing rights between jurisdictins, increasing the risk f duble taxatin (e.g., the rules n imprted mismatches ). We understand that the accmpanying cmmentary may prvide clarity n sme issues, but at the price f still further cmplexity, The financial services industry cntinues t be cncerned that insufficient attentin has been given t hw the prpsals will impact instruments deemed imprtant by banking regulatry authrities fr systemic liquidity. Care must be taken nt t undermine the alternative instruments that regulatry regimes permit t ensure that banks are able t raise adequate regulatry capital. Special prvisins shuld be develped t accmmdate mismatches arising frm dwn-streaming f externally issued hybrid regulatry capital. Additinally, rep and stck lending markets play a vital rle in the peratin f financial markets - the prpsals culd significantly impact transactins in thse markets as they are ften facilitated by related party dealings. Any requirement t prve that n hybrid mismatch exists culd create a disprprtinate cmpliance burden fr taxpayers, but als swamp tax authrities with unnecessary infrmatin. Strengthen CFC rules (Actin 3) The brad nature f the OECD s CFC prpsals fr a minimum standard illustrate the difficulty in reaching a cnsensus psitin n even the basic purpse f rules, with clear disagreements between gvernments ver whether such rules shuld tackle prfit shifting frm the parent entity, r freign-t-freign abuse. Withut clear agreement ver the underlying principles, the chances f delivering clear, prprtinate and practical slutins will be almst impssible. This is an pprtunity missed t refine a useful tl, based n well-understd cncepts f active and passive incme in ways that culd reduce dependence n subjective, fact-intensive enquiries while at the same time limiting the cmpliance burden and risk f duble taxatin. 4

5 Limiting base ersin via interest deductins & ther financial payments (Actin 4) Prpsals under Actin Item 4 will have serius implicatins fr grups ecnmic activity and their ability t btain tax deductins fr funding csts. These prpsals (t date) have been made withut a clear articulatin f hw they specifically target BEPS activities. Indeed, the OECD s prpsals are likely t restrict interest deductins fr a large number f nnaggressive taxpayers. The lack f supprt fr the arm s length principle in Actin Item 4 als undermines legitimate cmmercial reasns fr having intercmpany debt. A grup s cash psitin and decisins n hw t deply cash shuld nt be limited by rules that are nt based n the arm s length principle. We have substantial cncerns abut the apprpriateness and practicality f glbal grup-wide tests. This apprach culd create the perverse incentive t increase verall leverage fr tax purpses, which runs cunter t the lessns f the financial crisis. Althugh a fixed rati apprach n a jurisdictin-by-jurisdictin basis is a preferable, and is a relatively simpler apprach, it culd als have substantial negative cnsequences if detailed wrk is nt undertaken t determine an apprpriate rati, taking int accunt the funding requirements f different industries. A rati set t lw culd substantially raise the cst f capital fr the majrity f lw-risk taxpayers undertaking cmmercial transactins. Where fixed ratis are used, flexibility shuld be permitted regarding the use f asset values r earnings based appraches. Interest is the raw material fr financial services businesses. Althugh a net interest apprach is endrsed, it is imprtant that the utstanding questins facing the financial services industry are reslved, particularly s that prpsals d nt cntradict the regulatry agenda. Prevent treaty abuse (Actin 6) The newly prpsed minimum treaty standards are expected t create a significant cmpliance burden fr taxpayers (especially if bth a LOB and PPT is adpted by certain cuntries), and will ptentially bring int scpe legitimate structures that ught t be entitled t treaty benefits. We are cncerned that: Structures nt invlving treaty shpping may be unintentinally caught by brad rules. There will be increased crss-brder investr uncertainty, especially fr pensin fund investrs and svereign wealth funds, where the ptential fr tax treaty abuse is lw. Uncertainty fr Cllective Investment Vehicles (CIVs) will be unavidable, and the time taken t receive repayments f tax deducted at surce will impact the Net Asset Values f funds. Surce cuntry tax authrities may experience additinal demands t prcess an increased vlume f reclaims, placing further pressure n already resurce cnstrained administratins. If the brad scpe f the prpsals is nt clarified, there will be uncertainty as t whether treaty relief is available in rdinary cmmercial circumstances. This uncertainty risks undermining the usefulness f treaty netwrks in facilitating trade and prmting ecnmic grwth. Whilst we recgnise that tax administratins require assurance that treaty benefits are nly being granted in apprpriate circumstances, anti-abuse rules shuld be applied in a prprtinate and targeted manner. Brad disapplicatin f treaty benefits culd create substantial withhlding tax burdens, and negatively impact crss-brder trade Preventing the artificial avidance f PE status (Actin 7) The ptential intrductin f new language fr determining whether a taxpayer has a PE gives rise t cncern. This is particularly the case in relatin t digital businesses where the reprt issued under Actin 1 raises further questins abut the ptential fr taxing a digital presence. A lack f clear principles r cnsensus agreement ver the interpretatin f standards presented in the newly prpsed cmmentary wuld cntribute t an increase in difficult-t-reslve disputes. This cncern is greatly increased because the prpsals include a number f new and (t date) undefined terms and appear t substantially lwer the existing threshld (cmpared t the current OECD mdel). Additinal guidance r clarificatin needs t be prvided n the attributin f prfits t a PE. Unfrtunately, this is nt expected until the end f 2016, sme time after tax administratins will have started t reflect the OECD s prpsals in their practices. Althugh BIAC welcmes the narrwing f the ptins in its latest discussin draft, mre detailed guidance and definitins are needed t better target the prpsals at BEPS activities and t facilitate practical implementatin. 5

6 Transfer pricing (Actins 8-10) We have cnsistently acknwledged the need t update internatinal tax rules n Transfer Pricing, especially in relatin t intangibles. Hwever, aspects f BEPS prject illustrate fundamental differences in pinins between cuntries ver the Arm s Length Principle (ALP) in Transfer Pricing and its cntinued viability. Prpsals further increase the subjectivity f the ALP fr example, in the draft guidance n risk and recharacterisatin, which prpses examples that appear t bradly supprt recharacterisatin in situatins where the cntract is clear, and where the relatinship as a legal matter is beynd dubt. Althugh the OECD has cntinually supprted the ALP, a number f Actin Item recmmendatins suggest that gvernments are lsing cnfidence in the ability f the ALP t apprpriately price transactins. These are fundamental issues that must be reslved in a frank way befre recmmendatins are finalised. Examples f ptential departures frm the ALP include: special measures that g beynd the ALP t reallcate prfits between related parties; cnsidering all alternative ptins realistically available at the time a transactin is entered int; using a cmparisn f pre- and pst-tax results as a factr t be cnsidered in recharacterisatin; and the rejectin that related party transactins can exhibit elements f mral hazard. OECD prpsals will increase the difficulty f relying n third party cmparables, thus, indirectly prmting the use f the prfit split methd. This is alngside the subjective and cmplex criteria fr characterizing transactins and attributing risk and returns (including diminishing the rle f the cntract and the separate entity cncept). All develpments taken tgether create the ptential fr a significantly increased cmpliance burdens and an increased number f disputes, with the attendant risk f duble (r greater) taxatin. The ptential intrductin f special measures, in the absence f glbal cnsensus and effective guarantees against duble taxatin, exacerbates this cncern. If the applicatin f the ALP is t becme increasingly cmplex, it wuld be apprpriate t explre practical ptins, such as glbally accepted safe harbur pricing methds fr particular transactins t reduce the burden and uncertainty fr bth sides. Financial services institutins face regulatry pressures that differentiate them frm grups perating in ther sectrs. The OECD s 2010 reprt n the attributin f prfits t PEs remains relevant fr the taxatin f this sectr. BIAC cautins against special measures r general principles that mve away frm this well-established apprach. Re-examine transfer pricing dcumentatin (Actin 13) BIAC fully supprts the recgnitin under Actin 13 f the imprtance f prtecting the cnfidentiality f cmmercially sensitive infrmatin. This prtectin shuld apply acrss all three pillars f transfer pricing dcumentatin. Peer review mechanisms shuld be develped t mnitr jurisdictins adherence t apprpriate cnfidentiality standards, and t ensure that the OECD s prpsals are unifrmly adpted. The Actin 13 recmmendatins will create substantial burdens fr business and effective cmpliance will require much preparatin. The deadline fr cmpliance with the OECD s prpsals is quickly appraching, and BIAC is cncerned by the delay in releasing implementing guidance. Withut such guidance, much f the necessary preparatin is impssible. Such implementing guidance shuld, where pssible, leverage data reprted under similar regimes (fr example the EU s CRD IV fr banking rganisatins) t streamline the cmpliance burden fr as many taxpayers as pssible. Only unifrm transfer pricing dcumentatin rules acrss cuntries will limit the resulting cmpliance csts fr cmpanies. Make dispute reslutin mechanisms mre effective (Actin 14) Again, we acknwledge very recent wrk by the OECD in this area, but wuld strngly reiterate that an inability t make majr prgress n imprving internatinal dispute reslutin under Actin 14 wuld represent a failure f the prcess. Many prpsals and the interactins between the Actin Items will create duble taxatin. BIAC encurages prgress t ensure: widespread adptin f mandatry, binding arbitratin; substantial imprvements t MAP best practices, with effective peer reviews r mnitring t ensure adptin; and clser wrking and cllabratin with the Frum n Tax Administratin t fster the grwth f Cperative Cmpliance prgrammes t address BEPS cncerns and the use f alternative methds such as the use f a glbal dispute reslutin frum (with mediatin services). 6