OECD Tax Talk #10 – BEPS

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On 16 October 2018, after six months of Radio silence, Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration, reported back in a new Webinar together with Achim Pross, Head of International Cooperation and Tax Administration,

Jeffrey van Hove, Senior Tax Advisor, Tax Treaty, Transfer Pricing and Financial Transaction Division, Melissa Dejong, Head of Harmful Tax Practices & Tax and Crime Units, and Félicie Bonnet, Advisor Mutual Agreement Procedures Unit.


Initially, Pascal Saint-Amans briefly summarised the most important events of the last six months. An impor-tant milestone for him was the launch of the Automatic Exchange of Information (AEOI) on 30 September 2018, in which more than 100 countries participated. Some countries had been a bit slower than others, but the process is working. He particularly mentioned Singapore and Switzerland, which were both ready on the

dot for the AEOI. At the next meeting in Uruguay at the end of November 2018, the Global Forum, which monitors the AEOI, will develop framework conditions and methods for how the review process of the AEOI should take place in 2019 and beyond.

Last week in Bali, the team around Pascal Saint-Amans also presented the G20 finance ministers with a new work plan for a platform (Platform for Collaboration on Tax) which shall further promote cooperation in the tax field. According to Pascal, this is important in order to avoid overlapping activities of organisations such as the OECD, the UN or the World Bank.

The tax challenges of a digital economy (Action Point 1)

At the last Tax Talk #9 in March 2018, the interim report on «Digitisation of the Economy» was presented.

Subsequently, the Task Force on the Digital Economy (TFDE) held another meeting in July 2018, during which the countries submitted new proposals to the TFDE:

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The next meeting will take place at the beginning of December 2018, during which the tax challenges of a digital economy will be further discussed. The aim is that the TFDE will draw up a recommendation or guide-line and that it may then be possible to present concrete solution proposals or even an agreement between the countries at the G20 Finance Ministers' meeting in Japan in June 2019.

Action Point 5 on harmful tax practices

Melissa Dejong reported on the state of affairs regarding Action Point 5 (Harmful Tax Practices), which re-presents a minimum standard of the BEPS project. As far as preferential regimes are concerned, great pro-gress can be observed. Almost every day, they receive updates from countries that change their legislation in order to implement the so-called «Nexus Approach». In the case of the spontaneous Exchange of informa-tion on tax rulings, a review process was carried out this year in which about 92 countries were reviewed. This revealed, among other things, that more than 16'000 rulings had been exchanged. The further findings of the review process will be published at the end of the year.

Multilateral Instrument (Action Point 15)

Jeffrey van Hove announced the latest figures concerning the Multilateral Instrument (MLI): 84 countries have signed the treaty to date, 15 of them have ratified it. The Multilateral Agreement came into force on 1 July 2018. The MLI made it possible for more than 1'400 double taxation agreements (DTAs) to be supple-mented by the BEPS recommendations and agreed between the two countries concerned. It was particu-larly noteworthy that Action Point 6 on the prevention of treaty abuse (minimum standard) was implemented in all previously coordinated agreements by reformulating the preamble accordingly and incorporating the so-called «principal-purpose-test» (PPT) in the agreement. Moreover, many countries also use the opportu-nity to improve the agreed mutual agreement procedures in the sense of Action Point 14 on Dispute avoi-dance and Resolution (minimum standard). So far, 28 countries have opted for arbitration proceedings. Two types of arbitration Proceedings are provided for in the MLI:

 

1. Final offer or «baseball» arbitration, in which each country submits its solution to the dispute to the arbitra-tor and the latter selects one of them.

2. Independent opinion option, in which the arbitrator examines the facts of the case and the applicable standards and makes an arbitration decision himself.

It is assumed that the popularity of such arbitration proceedings will increase with the countries' growing ex-perience and that more and more countries will then introduce arbitration proceedings as a dispute settle-ment instrument in their DTAs. Furthermore, the first annual peer review report on Action Point 6 is currently being finalised. The goal is to achieve this by December 2018. Pascal Saint-Amans then stressed that the

countries are very keen to implement the prevention of treaty abuse under Action Point 6 and that today it can be said that the «treaty shopping» phenomenon has come to an end.

Country-by-Country Reporting (Action Point 13)

Achim Pross provided information on the Country-by-Country Reporting (CbCR) under Action Point 13. More than 70 countries have so far introduced the obligation to exchange country-specific reports and more than 1'800 exchange relationships have already been activated. During the first exchange at the end of June 2018, there were some technical problems, but these were eventually solved. But what happens to the exchanged information? Achim reminded that the country-specific reports are intended for risk assessment. That is why the next step, together with the tax authorities and corporations, is to see how this information can best be used and evaluated for risk assessment. A «Risk Assessment Handbook» is to gather the expe-riences of tax authorities and a «CbCR risk assessment template» is to help developing countries to benefit as much as possible from the Information contained in the country-specific reports. A major report reviewing the CbCR is to be published in 2020. Meanwhile, a first collection of peer review Reports was published in May 2018.

Mutual Agreement Procedure (MAP)

Félicie Bonnet revisited Action Point 14 on dispute avoidance and resolution and provided information on the so-called Mutual Agreement Procedure. She gave the following overview regarding the status of the peer review reports:

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Félicie appealed to taxpayers to share their experiences with the countries under peer review, as their team would often lack input from taxpayers. Inputs concerning the seventh group of countries can still be submit-ted until mid-December 2018. In addition, the second stage, in which the recommendations of the first stage will be followed up, has already begun for the first and second group of countries.

Furthermore, the «2017 MAP statistics» were published last week. This year, for the first time, the collected information was published for each country individually, so that one can see for each country with which other countries they have the most pending or completed mutual agreement procedures. This enhances transparency and also helps her team to minimise double counting of open and closed cases. The good

news that can be drawn from the «2017 MAP statistics» is that 60% of the cases closed in 2017 were closed in less than 24 months.

Conclusion

Jeffrey van Hove briefly informed about the new discussion draft on Action Points 8-10 (Transfer Pricing), which was published in July 2018, and Achim Pross gave information about an Analysis regarding the cir-cumvention of the Common Reporting Standard (CRS). Then Pascal Saint-Amans took the final word and referred to two webcasts they had recently made: One on the trends in tax policy reforms in 2018 («Tax poli-cy reforms 2018») and the other on tax inspectors («Tax inspectors without borders») who assist developing countries in tax matters. As there were not many further questions from the audience, the team around Pascal Saint-Amans bid farewell. The next Webinar is scheduled for January 2019.