15 December 2015

BEPS: The global issue of transfer pricing

In October 2015, the OECD presented its final package of measures to address “base erosion and profit shifting” (or BEPS) and to bring about the “comprehensive, coherent and co-ordinated reform of the international tax rules” (see the OECD press release here).

The outcome of an ambitious and broad sweeping two year plan, the BEPS agenda covered off on 15 “Action Items”, each designed to provide governments and revenue authorities with tools to close the purported gaps in their tax revenues.  These tools consist of international treaty rules (including common standards to be adopted), model domestic legislation and other guidance – some of which will be implemented immediately (such as revisions to the OECD Transfer Pricing Guidelines).  The full reports and explanatory statement can be found here.

With offices around the globe, including in Australia, China, Germany, France, Italy, Luxembourg, Spain and the United Kingdom, King & Wood Mallesons is well placed to assist you in understanding how these new rules affect you. The tables below summarise how each of these jurisdictions have implemented the BEPS package so far (as at 1 December 2015).  Please get in contact with your closest office for more information.  

Australia's reaction to BEPS

Government Priority Actions

Status

Australian action

OECD Item 1:

Tax challenges of digital economy

Y

Digital economy issues addressed by other Action Items. The Government has announced that it will introduce an integrity measure to apply the GST to digital products and services imported by Australian consumers, which is consistent with this item.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Australian Government Board of Taxation ("BOT") released a Discussion Paper on the implementation of the anti-hybrid rules on 20 November 2015.  BOT will release a final report by the end of March 2016 in time for the May 2016 Federal Budget.

OECD Item 3:

Controlled foreign company rules

Y

Australia’s CFC rules meet OECD best practice guidance.

OECD Item 4:

Limit interest deductions

Y

Australia has already tightened its thin capitalisation rules.

OECD Item 5:

Counter harmful tax practices

Y

Australia has already implemented exchange of rulings regime.

OECD Item 6:

Prevention of treaty-shopping

Y

To be adopted into negotiation of new / updated treaties.  This has been implemented in the Australia/German treaty (signed 12 November 2015).

OECD Item 7 :

Prevent artificial avoidance of permanent establishment

Y

The Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 deems an Australian permanent establishment to exist in certain situations.

Other OECD recommendations are in line with Australia’s treaty practice. 

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

Australia has already enacted the BEPS recommendations in its domestic laws (Division 815).  Australian revenue authorities are now more focused on the substance of transactions including detailed analysis of the functions, assets and risks of associated enterprises.

OECD Item 11:

Methodologies to collect and analyse BEPS data

Y

Estimate of BEPS problem 4 - 10% of global corporate income tax revenue. Further work on methodologies to measure progress required.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

Y

OECD recommends countries consider adopting disclosure rules. Australian tax authorities considering recommendations.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

Under Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 certain entities will be required to provide the Commissioner with a master file, local file and country-by-country report. 

OECD Item 14:

Dispute resolution

Y

A number of countries (including Australia) are committed to binding arbitration.  Australia has already included an arbitration clause in the Australian/German double tax treaty (signed 12 November 2015).

OECD item 15:

Multilateral instrument

Further implementation work being undertaken

95 countries (as of 12 November 2015) (including Australia) are working on instrument to quickly update bilateral treaties with BEPS outcomes. To be open for signing by end 2016.

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China's reaction to BEPS

Government Priority Actions

Status

Chinese action

OECD Item 1:

Tax challenges of digital economy

Y

China is contemplating to revise the relevant laws and regulations in relation to digital economy by taking into account BEPS achievements.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

China will introduce new rules in this regard.

OECD Item 3:

Controlled foreign company rules

Y

The CFC rules in China will be revised in Circular on Implementation Measures for Special Tax Adjustments (“updated Circular 2”), by taking into account the BEPS achievements.

OECD Item 4:

Limit interest deductions

Y

China is expected to revise the domestic interest deduction rules from the following aspects: (i) thin-capitalisation rules will be revised in updated Circular 2, by taking into account the BEPS achievements; (ii) interest deduction rules in Enterprise Income Tax Law will be amended.

OECD Item 5:

Counter harmful tax practices

Y

China will take the following measures: (i) to amend SAT’s internal manual in relation to information exchange; and (ii) to review domestic rules of preferential tax treatment and accept OECD’s investigation and review.

OECD Item 6:

Prevention of treaty-shopping

Y

China will revise the current administrative measures for non-resident’s entitlement to tax treaties as well as introduce new implementation rules to prevent treaty-shopping.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

Y

SAT plans to draft procedural measures or a guideline to manage permanent establishment risk. In addition, China will introduce new rules for the purpose of the recognition and tax administration of permanent establishment.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

In the updated Circular 2, China will improve the relevant rules in connection with intangible assets, risk, capital and other high-risk transactions.

OECD Item 11:

Methodologies to collect and analyse BEPS data

Y

According to the BEPS requirement, China will establish a system for analysing and monitoring BEPS data and calculating the tax loss incurred from BEPS.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

Y

China will introduce mandatory disclosure rules in the Tax Collection Law and the revised Circular 2.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

China will revise the transfer pricing documentation chapter in updated Circular 2 in order to adopt master file, local file and country-by-country report and also to clarify the reporting measures.

OECD Item 14:

Dispute resolution

If necessary

If necessary, China will amend the current Implementing Measures for Tax Treaty Negotiation Procedures.

OECD item 15:

Multilateral instrument

Y

China will participate in the draft of BEPS multilateral instrument and study the matters related to the conclusion of the instrument by China.



China's reaction to BEPS: GAAR

  • Trial Implementation: effective as of 1 February 2015
  • To conduct special tax adjustment to cross-border tax arrangements without reasonable business purpose but to obtain tax benefits
  • Major characteristics of a “tax avoidance arrangement":
    • Commercial Purpose: acquiring tax benefits as the sole purpose or main purpose; and
    • Economic Substance: acquiring tax benefits by using a tax avoidance arrangement not consistent with its economic substance
  • Both case filing and case conclusion should be reported to and approved by SAT
  • SAT's measures to conduct special adjustment - "substance-over-form principle":
    • to re-characterise the nature of all or part of the transactions under the arrangement;
    • disregarding the transaction party, or deeming different transaction parties as the same entity;
    • re-characterising relevant income, deduction, tax incentives, foreign tax credits, etc. or re-allocating such tax attributes among parties in the transaction concerned; and
    • other reasonable measures.

China's reaction to BEPS: Circular 16

  • 4 types of non-deductible expenses:
    • outbound payments made to foreign related parties which do not undertake any functions, assume any risk or conduct actual business operations;
    • outbound service fee payments that fail the tests;
    • royalty payments made to a foreign related party that possesses the legal ownership of an intangible property but has not contributed to the creation of its value; and
    • royalties payments made to a foreign related party for the spinoff benefits arising from the relevant pre-Listing financing activities.

China's Reaction to BEPS: Circular 16

China's reaction to BEPS: Revision to Circular 2

  • Circular 2 was effective as of 1 January 2008, as a master guide for China TP rules and anti-avoidance rules (e.g. GAAR, CFC rules, thin-cap rules, etc.)
  • In Sep 2015, SAT announced the Revision to Circular 2 for public consultation which is expected to be finalized in December and to go into effect for the 2016 tax year (“Discussion Draft”)
  • Major revisions include:
    • more specific definition on related party and more explicit scope on the type of transactions and arrangements considered to fall within the TP scope for example equity transfer;
    • contemporary TP documentation and Country-by-Country (“CBC”) Reporting requirement;
    • new TP methods;
    • transfer pricing issues of intra-group service provision and intangibles; and
    • Cost Sharing Agreement (“CSA”) and Location Specific Advantages (cost saving and market premium).

Focuses of the Discussion Draft

TP Methodology

  • Value Contribution Attribution Method: apply to transactions where no appropriate comparable are available but consolidated profits and value contribution could be reasonably recognised.
  • Assets Valuation Methods: Valuation TP Methods (cost, market, and income methods) are introduced to support TP analysis of transactions in intangible assets and equity transfers.

TP Documentation

  • Introduce master file, local file and special issues file which covers intercompany services, CSA and thin capitalisation in contemporaneous documentation.
  • CBC report is filed as part of the annual related party reporting.

Intra-Group Services

  • Intra-group services should be in line with arm’s length principle including a. the beneficial nature of the intercompany services and; b. the services are charged in a way that independent entities would be willing to pay or charge in the same or similar circumstances, which is basically in line with Bulletin [2015] No.16.
  • The draft gives a detailed explanation on the concept of “beneficial services” by providing exclusion scenarios.
  • Special issues file with respect to intra-group services.

Intangibles

  • Income arising from intangibles shall be allocated in accordance with value creation of each party, which is line with the core principle of BEPS.
  • DEMPEP approach: contributions to the value of intangibles is to be evaluated by examining Development, Enhancement, Maintenance, Protection, Exploitation, Promotion) functions performed, assets used and risks assumed.
  • Value creation factors such as LSAs, group synergies, etc. should be considered for the determination of the income arising from the intangibles.

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Germany's reaction to BEPS

Government Priority Actions

Status

German action

OECD Item 1:

Tax challenges of digital economy

Y

Digital economy issues addressed by other Action Items. For cross border B2C transactions VAT mechanism for taxation in the jurisdiction of the consumer and respective collection mechanism already implemented from 2015 onwards based on European Directive

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Initial hybrid mismatch regulations for dividends and contributions already implemented since 2007 and tightened in 2013. Further legislative proposal for more extensive approach in 2014 initially denied.  

OECD Item 3:

Controlled foreign company rules

Y

Germany´s CFC rules already might even be more restrictive than the OECD requirements.

OECD Item 4:

Limit interest deductions

Y

Germany has introduced the interest barrier regulations from 2008 onwards which are seen as in line with the OECD best practice approach; including a limitation of the interest deduction to 30% of the EBITDA (“fixed ratio rule”), an exemption based on  the equity of the worldwide group (“group ratio rule” however not referring to EBITDA) and a € 3m exemption threshold (“De minimis monetary threshold”)

OECD Item 5:

Counter harmful tax practices

Y

No preferential regimes in Germany. Exchange of rulings intended on a European basis.

OECD Item 6: Prevention of treaty-shopping

Y

Adopted into negotiation of new or updated treaties for the last couple of years. 

OECD Item 7 :

Prevent artificial avoidance of permanent establishment

N

No response yet

OECD Items 8, 9 and 10:

Transfer pricing and value creation

N

No response yet. Germany will most likely implement the OECD rules if these will be considered to be in line with the arms´ length principle.

OECD Item 11:

Methodologies to collect and analyse BEPS data

N

No response yet.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

N

No response yet. Legislative proposal in 2008 denied.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

N

No response yet. Draft legislation expected in the near future.

OECD Item 14:

Dispute resolution

Y

Germany committed to binding arbitration.  In line with recent trend in German treaty policy.

OECD Item 15:

Multilateral instrument

Further implementation work being undertaken

95 countries (as of 12 November 2015) (including Germany) are working on multilateral instrument to quickly update bilateral treaties with BEPS outcomes. Aiming for signing by the end of 2016.

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France's reaction to BEPS

Government Priority Actions

Status

French action

OECD Item 1:

Tax challenges of digital economy

N

There are for the moment only reports on taxation of digital sector calling for new tax rules.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Taxes on hybrid products began to be adapted by the 2014 Finance Act. In January 2016, the European Commission should present its third tax package which will probably incorporate strengthened rules on hybrid products.

OECD Item 3:

Controlled foreign company rules

Y

In January 2016, the European Commission should present its third tax package which will probably incorporate rules on controlled foreign companies.

OECD Item 4:

Limit interest deductions

Y

In domestic law, the deductibility of loan interest has been limited and the rules relating to thin capitalization has been strengthened in order to avoid that companies artificially increase their debt in order to avoid tax.

OECD Item 5:

Counter harmful tax practices

Y

Directive on the automatic exchange of rulings will enter into force on 1 January 2017 and will cover all rulings under 5 years and those that were in force on 1 January 2014 and which are obsolete today. France is considering implementing the ECOFIN agreement of October 8 on the automatic exchange of rulings into law.

OECD Item 6:

Prevention of treaty-shopping

Y

To be adopted into negotiation of new / updated treaties.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

N

Detailed response awaited.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

The Act of December 6 created a reporting obligation on transfer pricing. The 2016 draft Finance Act under consideration provides an  obligation of electronic filing of these transfer pricing tax returns allowing the French tax authorities to strengthen the effectiveness of controls (for tax returns to be filed as from 1st January 2016).

OECD Item 11:

Methodologies to collect and analyse BEPS data

N

Detailed response awaited.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

N

Detailed response awaited.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

Transfer pricing documentation: the large companies must provide a transfer pricing documentation since 2010 at the beginning of a tax audit. It was extended to the rulings issued by foreign tax administrations.

Country-by-country reporting: Announced initially as required in the draft amended Finance Act for 2015 reporting country-by-country was introduced on amendment in the draft Finance Act for 2016. This obligation:

  • would apply to groups referred establishing consolidated accounts, whose consolidated turnover exceeds EUR 750 million;
  • would be effective for fiscal years beginning on or after 1 January 2016, and thus give rise to the filing of the first statement at the end of 2017; and
  • would be sanctioned by a fine of 100 000 euros.

OECD Item 14:

Dispute resolution

Y

A number of countries (including France) are committed to binding arbitration.

OECD Item 15:

Multilateral instrument

Further implementation work being undertaken

95 countries (as of 12 November 2015) (including France) are working on instruments to quickly update bilateral treaties with BEPS outcomes. To be open for signing by end 2016.

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Italy's reaction to BEPS

Government Priority Actions

Status

Italian action

OECD Item 1:

Tax challenges of digital economy

Y

Former VAT registration requirements for providers of online advertising services (so-called “Web tax”), enacted in 2014, have been subsequently abolished. 

No plans of any other future intervention have been scheduled nor announced so far.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Italian Tax Law provisions currently in force are already aligned with the provisions set in BEPS Action 2.

OECD Item 3:

Controlled foreign company rules

Y

Italian Tax Law provisions currently in force are already aligned with the provisions set in BEPS Action 3.

OECD Item 4:

Limit interest deductions

Y

Italian Tax Law provisions currently in force are already aligned with the provisions set in BEPS Action 4.

OECD Item 5:

Counter harmful tax practices

Y

Please note that, contrary to provisions set in Action 5, Italy has recently introduced a special IP regime (so-called Patent Box), enacted during 2015, granting partial exemptions for Corporate and Regional Income Tax for incomes derived from certain intangible assets.

Further on the above, no plans of any other future intervention have been scheduled nor announced so far.

OECD Item 6:

Prevention of treaty-shopping

Y

To be implemented into negotiation of new / updated DTC.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

Y

We do not have evidence of any prospective change to the definition of PE, which is generally aligned with current OECD version.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

Current TP provisions actually in force already entail focus on substance of transactions, including details regarding functions performed and risks assumed by each associated enterprises.

We might expect administrative guidance endorsing items 8, 9 and 10.

OECD Item 11:

Methodologies to collect and analyse BEPS data

X

No plans of any future intervention have been scheduled nor announced so far.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

Y

Law Decree no. 147 of September 14th 2015 introduced a Cooperative Compliance Program to tackle some of possible aggressive tax planning issues faced by large MNEs (on a voluntary basis).

No plans for any further future intervention regarding mandatory disclosure have been scheduled nor announced so far.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

It is generally accepted, both by the jurisprudence and by the administrative practice that the OECD Guidelines, in their most recent developments, represent a primary source of reference on the interpretations of the transfer pricing rules.

Country-by-country reporting has not yet been formally enacted into Italian TP provisions.

OECD Item 14:

Dispute resolution

Y

To be implemented into negotiation of new / updated DTC.

No plans of any future intervention have been scheduled nor announced so far.

OECD item 15:

Multilateral instrument

Further implementation work being undertaken

95 countries (as of 12 November 2015) (including Italy) are working on instruments to quickly update bilateral treaties with BEPS outcomes. To be open for signing by end 2016.

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Luxembourg's reaction to BEPS

Government Priority Actions

Status

Luxembourg action

OECD Item 1:

Tax challenges of digital economy

N

There is no information available in this respect.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

N

There is no information available in this respect.

OECD Item 3:

Controlled foreign company rules

N

There is no information available in this respect.

OECD Item 4:

Limit interest deductions

N

There is no information available in this respect.

OECD Item 5:

Counter harmful tax practices

Y

Luxembourg has announced that it will amend its IP box regime to adopt the modified nexus approach but no further information is available with respect to BEPS.

OECD Item 6:

Prevention of treaty-shopping

N

There is no information available in this respect.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

N

There is no information available in this respect.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

Luxembourg has started introducing transfer pricing legislation with respect to financing transactions in 2012  but there is no further information available in this respect.

OECD Item 11:

Methodologies to collect and analyse BEPS data

N

There is no information available in this respect.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

N

There is no information available in this respect.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

N

There is no information available in this respect.

OECD Item 14:

Dispute resolution

N

There is no information available in this respect.

OECD item 15:

Multilateral instrument

N

There is no information available in this respect.

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Spain's reaction to BEPS

Government Priority Actions

Status

Spanish action

OECD Item 1:

Tax challenges of digital economy

N

No particular action taken.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Article 15 CT Law:

  1. no deduction of interest of profit-sharing loans among entities within the same group; and
  2. no deduction when different qualification at recipient: expenses deriving from transactions with related party that have a different qualification at the level of such party; generating no income, an exempted income and an income taxed at a nominal rate lower than 10%.

Article 21 (1) CT Law:

No exemption on dividend if deducted at source i.e. dividends that have been regarded as a deductible expense by the payer.

Article 22 (1) CT Law:

No deduction of foreign PE expenses: losses generated by a PE abroad are not considered until:

  • liquidation of the PE; or
  • transfer of the PE.

OECD Item 3:

Controlled foreign company rules

Y

Article 100 CT Law: Extension of the CFC system

  1. The Spanish CFC system has traditionally applied to dividends, gains and interest
  2. Now it is extended to all kind of income if:
    • The controlled under taxed foreign entity does not have the human and material means to develop the business activity
    • Unless the activity is developed through the group’s means

OECD Item 4:

Limit interest deductions

Y

Limit 1 (art.15.h):

0% of the interest on the intra-group financing deriving from intra-group acquisition shares.

Limit 2 (art.16.5, 67.b & 83):

30% of the yearly EBITDA of  a company (or group) acquiring shares in another company, when it is merged or its tax group is expanded, except when:

  1. the financing is not higher than 70% of the price; and
  2. the financing is reduced proportionally to 30% in the following 8 years

Limit 3 (art.16): the higher of 30% the yearly EBITDA of a company (or group) or 1 million euro and the excess can be deducted in following years within the same limits.

OECD Item 5:

Counter harmful tax practices (part 1)

Y

Article 5 CT Law: Definition of

  1. Business activity: use of one’s (or the group’s) own human or material resources with the aim of producing or distributing goods or services.
  2. Real estate business activity: Requires at least a full-time employee.
  3. Non-trading entity: More than half of its assets (measured as an average of the quarterly balance sheets) are not business-securities or are not linked to a business activity.
  4. Business securities: 5% capital stakes held for at least one year and managed through human and material means.

Article 21(5) CT Law:

Gains arising from the transfer of shares in non-trading entities do not give entitlement to the participation exemption.

OECD Item 5:

Counter harmful tax practices (part 2)

Y

Article 8(1) CT Law:

  1. Tax authorities can presume that a tax haven entity is tax resident in Spain if:
    1. its main assets are directly or indirectly located in Spain
    2. its main activity is developed in Spain.

Article 11(9, 10 &11) CT Law:

No deduction of intra-group losses until realised before third parties.

Article 20(1) CT Law:

Anti double-holding provision:

  1. The participation exemption requires a 1-year holding of 5% or 20 MM€ acquisition value.
  2. However it will not apply if:
    • the company distributing the dividend obtains more than 70% of its income from shares (dividends or gains); and
    • the indirect holding in the underlying companies does not reach 5% or 20 MM€ acquisition value.

OECD Item 6:

Prevention of treaty-shopping

Y

Article 14(1.h) NRT Law:

Amendment of anti-abuse of the Parent-Subsidiary exemption:

  1. Exemption applicable for a 5% or 20M€ holding for 1year.
  2. Except when the majority of the voting rights in the Spanish company are directly or indirectly held by non-EU residents, unless the incorporation and business of the parent respond to valid economic motives and to substantive business reasons

Article 14(1.m) NRT Law:

Same amendment for the royalty exemption contained in Directive 2003/49/CE.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

N

No particular action taken.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

Article 18(8) CT Law:

The estimated cost/income derived from internal transactions made with foreign PEs shall be incorporated to the taxable base.

AD 6 NRT Law:

Taxation of estimated expenses of Spanish PEs:

  • If estimated expenses from internal transactions with head-office are deductible in Spain.
  • The estimated income corresponding to the head-office will follow the general withholding tax rules.

OECD Item 11:

Methodologies to collect and analyse BEPS data

Y

The Spanish tax authorities have addressed these issues directly with the major Spanish enterprises through a Code of Best Tax Practices to which any Spanish company can voluntarily adhere.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

Y

The Spanish tax authorities have addressed these issues directly with the major Spanish enterprises through a Code of Best Tax Practices to which any Spanish company can voluntarily adhere.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

New article 18 CT Law:

The tax reform of the beginning of the year adapted transfer pricing documentation to BEPS.

OECD Item 14:

Dispute resolution

Y

Spain committed to provide for mandatory binding MAP arbitration in its bilateral tax treaties.

OECD Item 15:

Multilateral instrument

Y

Spain has already implemented its commitments under Council Directive 2014/107/EU and the OECD multilateral competent authority agreement signed on 29 October 2014 through the recent modification of the Spanish General Tax Law (Law 58/2003, of 17 December) and the publication of Royal Decree 1021/2015, of 13 November.

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UK's reaction to BEPS

Government Priority Actions

Status

UK action

OECD Item 1:

Tax challenges of digital economy

Y

Digital economy issues addressed by other Action Items.

OECD Item 2:

Neutralise hybrid mismatch across borders allowing double non-taxation

Y

Draft legislation published on 9 December 2015 following consultation. The legislation is intended to have effect from 1 January 2017.

OECD Item 3:

Controlled foreign company rules

Y

HMRC considers that existing CFC regime complies with OECD requirements.

OECD Item 4:

Limit interest deductions

Y

Consultation on changes to the rules governing  the tax deductibility of corporate interest expenses in light of item 4 published 22 October 2015. Not expected to come into force until 1 April 2017 at earliest.

OECD Item 5:

Counter harmful tax practices

Y

Draft legislation published on 9 December 2015 to amend the UK patent box regime to ensure it complies with item 5 mainly with effect from 1 July 2016. Transitional rules allow IP within existing regime to be governed by it until 30 June 2021.

OECD Item 6:

Prevention of treaty-shopping

Y

Formal announcement awaited. Anticipated that preference will be for principle purpose test provisions.

OECD Item 7:

Prevent artificial avoidance of permanent establishment

N

Detailed response awaited.

OECD Items 8, 9 and 10:

Transfer pricing and value creation

Y

UK is expected to adopt revised OECD transfer pricing guidelines at an early date.

OECD Item 11:

Methodologies to collect and analyse BEPS data

N

Details awaited.

OECD Item 12:

Mandatory disclosure of aggressive tax planning

N

Details awaited, but HMRC has signalled that they are fully supportive of this initiaitive.

OECD Item 13:

Transfer pricing documentation and country-by-country reporting

Y

Draft Taxes (Base Erosion and Profit Shifting) (Country by Country Reporting) Regulations HMRC published on 5 October 2015. UK multinationals with revenues of £586m or more  will be obliged to submit CBC data for accounting periods starting on or after 1 January 2016.

OECD Item 14:

Dispute resolution

Y

A number of countries (including UK) are committed to binding arbitration. 

OECD item 15:

Multilateral instrument

Further implementation work being undertaken

95 countries (as of 12 November 2015) (including UK) are working on instruments to quickly update bilateral treaties with BEPS outcomes. To be open for signing by end 2016.

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