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The OECD on Monday provided an update via a webcast of its BEPS (Base Erosion & Profit Shifting) corporate tax reform proposals.
The leading tax officials at the Paris-based Organisation for Economic Co-operation and Development, Pascal Saint-Amans , director, Centre for Tax Policy and Administration (second from left above); Raffaele Russo, head of BEPS Project (left); Marlies de Ruiter, head of Tax Treaty, Transfer Pricing and Financial Transactions and Achim Pross, head of International Cooperation and Tax Administration Division, spoke of developments in the project that is due to be completed next year.
The OECD represents all developed countries among its 34-country membership.
Substantial activities in IP (intellectual property) regimes: Tracking and tracing and how to apply new rules for substance; improving transparency with compulsory spontaneous exchange of information on rulings with a need to keep exchanges broad, but focused. The principles and framework for such exchanges agreed with exchanges to commence in 2015.
They also dealt with permanent establishments (PE) with an aim to develop changes to the definition of PE to prevent the artificial avoidance of PE status in relation to BEPS … …including through the use of commissionnaire arrangements … … and the specific activity exemptions. Work on these issues will also address allocation of profit issues.
Commissionnaire arrangements: The OECD said a commissionnaire arrangement may be loosely defined as an arrangement through which a person sells products in a given State in its own name but on behalf of a foreign enterprise that is the owner of these products. "Since the person that concludes the sales does not own the products that it sells, it cannot be taxed on the profits derived from such sales and may only be taxed on the remuneration that it receives for its services (usually a commission)."
Changes to PE definition to address commissionnaire and similar strategies: Four alternative options to ensure that there will be a PE where the activities that an intermediary (other than independent agent) exercises in a country result in the regular conclusion of contracts to be performed by a foreign enterprise; company acting almost exclusively for related parties will be unable to claim to be an independent agent.
These issues are of relevance to foreign owned operations in Ireland where artificial structures exist in respect of overseas sales to avoid tax, are common.
See Webcast video below.
Two global business surveys conducted by Grant Thornton, an accountancy group, finds businesses sceptical about the success of the OECD’s BEPS Project on intergovernmental action on tax and wanting greater clarity as to what is acceptable and unacceptable tax planning -- even if this provided less opportunity to reduce tax liabilities across borders.
“They have a responsibility to their investors and shareholders to keep costs down. Simply telling them to pay their 'fair share' is not a viable alternative to a clear set of rules or principles.”
“We applaud the OECD in taking on this much needed project,” said Francesca Lagerberg, global leader of tax services at Grant Thornton International. “But we caution the business community that finding a global solution will be very difficult and will not be speedy.”
Grant Thornton surveyed 2500 businesses in 34 countries in May and found that only 23% think the OECD Base Erosion and Profit Shifting (BEPS) Action Plan is likely to be successful.
“We are hoping that over the last few months businesses are feeling more confident of meaningful change, given Ireland eliminating the ‘Double Irish Dutch Sandwich’ and the UK imposing a diverted profits tax ‘Google tax’ on multinationals,” said Lagerberg.
“Many of the objectives of the BEPS Action Plan are valid. They include the elimination of loopholes that allow profits to ‘disappear’ for tax purposes. The concern is that the scope is so broad it touches almost every area of international taxation. It’s as if in an attempt to get rid of some traffic black spots, the authorities have decided to overhaul the entire road network and require every driver to modify their car.”
A separate global business survey conducted by Grant Thornton in 2013 found the vast majority (68%) would welcome more global cooperation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities across borders.
“Businesses need things in black and white,” said Lagerberg. “They have a responsibility to their investors and shareholders to keep costs down. Simply telling them to pay their 'fair share' is not a viable alternative to a clear set of rules or principles.”