Development of the BEPS Multilateral Instrument begins

Development of the Multilateral Instrument to implement the BEPS Action Plan got underway with the establishment of an ad hoc Group which will complete the work under Action 15 of the BEPS Action Plan.

Action 15 aims to analyse the possibility of developing a multilateral instrument in order to allow countries to swiftly amend their tax treaties to implement the tax treaty-related BEPS recommendations.

The Group remains open to interested participants. Interested countries are invited to contact the OECD Secretariat with contact details of their designated qualified experts.

For more information see the OECD website.

OECD engagement on Treaty Abuse and Permanent Establishment

Chartered Accountants Ireland reiterates concerns that the OECD Base Erosion and Profit Shifting project continues to favour large economies at the expense of smaller countries like Ireland.

Treaty Abuse

Our CCAB-I submission addresses moves to limit the tax advantages available under Double Taxation Agreements. The proposed new rules, known collectively as Limitation on Benefits or LOB, will make raising finance more difficult for companies resident in jurisdictions with a small economy. Countries like Ireland which depend on foreign investment will face much more restrictive conditions compared to larger economies because LOB by its very nature, grants treaty access based on where the majority of investors are resident.

Permanent Establishment

Our submission on the latest discussion draft on the Permanent Establishment rules reiterates the concern that current proposals will contribute to delays for business in settling their taxable status with Revenue Authorities. Changes to the definition of PE will unfairly impact economies with small domestic markets and any work carried out on this matter by the OECD must not facilitate challenges by larger nations to the taxing rights of smaller nations.

The CCAB-I submissions are published in this issue of tax.point from here.

US Political Response to BEPS

We tend to focus coverage on the technical discussions surrounding the G20/OECD Base Erosion and Profit Shifting initiative (BEPS), but it is both a political as well as a technical process. Up to now, political response has largely been couched in terms of support, endorsement and cooperation. Last month’s letter to the US Treasury Secretary from two senior US politicians suggests that future political endorsement might not be so automatic.

In a joint letter to the US Treasury Secretary from the Chairman of the US Senate Finance committee and the Chairman of the US House Ways and Means committee, Senators Hatch and Ryan acknowledged that “many of the OECD’s BEPS project objectives are sound, and international cooperation as well as competition in tax policies is desirable”. However, the Senators warn against adding constraints and burdens to US interests especially on the basis of “weak empirics and metrics”.

They expressed concern over “modifying the permanent establishment (PE) rules, using subjective general anti-abuse rules (GAAR) in tax treaties, and collecting even more sensitive data from U.S. companies to analyze and measure base erosion and profit shifting”. They also expressed particular concern, partly for confidentiality reasons, over Country by Country reporting. In fact it’s hard to see any element of the BEPS project which the senators are not complaining about.

It is clear from the various BEPS discussion documents that many countries would have to alter domestic legislation to give effect to proposed BEPS minimum requirements and best practices. This letter comes from Senators responsible for committees within the US political process which determine the shape and form of fiscal legislation. The letter suggests that BEPS prompted amendments to domestic tax legislation in the US might well be less than straightforward to achieve.