Session by Raffaele Russo, Head, BEPS Project, OECD Centre for Tax Policy and Administration, Meeting of the OECD Parliamentary Group on Tax, 19 Oct 2015

1. FINAL BEPS PACKAGE -
DELIVERED
19 OCTOBER 2015
Raffaele Russo – Head of the BEPS Project

2. 2
Why the BEPS Project?
 Need to update the rules for the taxation of
multinationals to
• Reflect changes in the underlying, digitalised, economy
• Ensure that system ‘is’ and ‘is perceived to be’ fair
• Maintain long-standing consensus-based framework
 It is a matter of trust / integrity / economic efficiency /
equality

3. Addressing Base Erosion and Profit Shifting (Feb
2013)
• Identified main pressure areas leading to opportunities
for BEPS
• Noted the need for a holistic and coordinated approach
• Called for an Action Plan to tackle BEPS
From inception to action and delivery
3
Action Plan on Base Erosion and Profit Shifting (July 2013)
• Called for 15 actions organised around the following three main
pillars:
− The coherence of corporate tax at the international level
− A realignment of taxation and substance
− Transparency, coupled with certainty and predictability
• Targeted work on digital economy, and development of a multilateral
instrument to implement the measures developed under the action
plan

4. 4
The BEPS Project has been …
• 2-year time-bound
Fast-pace
• OECD and G20 countries working together on an equal footing
• 14 Developing Countries, ATAF, CREDAF and CIAT participating
directly
• Other 60 Developing Countries participating via Regional Networks
in Asia, Africa, Latin America and Eurasia
Inclusive
• 23 Discussion Draft published
• 12,000 pages of comments received
• 11 public consultations with stakeholders and regular webcasts
Transparent

5. • Explanatory statement (consensus document as the rest)
• Reinforced international standards on:
– Tax treaties: abuse, PE, MAP
– Transfer pricing: delineation transaction, risk, intangibles, commodities, services,
profit splits, documentation
– Harmful tax practices: nexus plus exchange of rulings
• Common approaches (Hybrids and Interest deductibility) and best
practices (CFC and MDR) for domestic law measures
• Analytical reports with recommendations (digital economy and
multilateral instrument)
• Data and Economic analysis on BEPS
5
What’s in the final BEPS package?

6. BEPS in a nutshell
Parent Co
Intermediate
Co 2
Intermediate
Co 1
Ultimate Residence
Country
(High Tax)
Low Tax Intermediate
Country
High Tax
Intermediate
Country
Market or
Production
Country
(High Tax)
Local
Activity
• Avoid Taxable
Presence or
• Minimise
Assets/Risks
Low or no
Withholding
tax
• Hybrid
Mismatch
• Preferential
Regime
• Maximise
Deductions
Maximise
Assets/Risks
• Ineffective/No CFC Rules
• Maximise Deductions
• Minimise Assets/Risks
HQ
Expected impact on BEPS … in a
nutshell

7. 7
• Hybrid
Mismatch
• Preferential
Regime
• Maximise
Deductions
BEPS in a nutshell
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Parent Co
Intermediate
Co 2
Intermediate
Co 1
Ultimate Residence
Country
(High Tax)
Low Tax Intermediate
Country
High Tax
Intermediate
Country
Market or
Production
Country
(High Tax)
Local
Activity
• Avoid Taxable
Presence or
• Minimise
Assets/Risks
Low or no
Withholding
tax
Maximise
Assets/Risks
• Address techniques used to
avoid the PE status
• New agency PE definition
• Preparatory or Auxiliary
Activities
• Fragmentation
Align substance with value
creation through revised/new
guidance for applying the ALP:
delineation of actual transaction,
risk allocation, intangibles
including HTVI, CCA, commodity
transactions and services
Limit interest deductibility:
Common approach on net
interest deductions limited to a
percentage (between 10%-30%)
of EBITDA plus optional group
wide ratio
Address treaty abuse through a
minimum standards on treaty
shopping (e.g. LOB and/or PPT)
and other anti-abuse clauses
Action 7
Action 8-10
Action 4
• Nexus approach uses
expenditure on R&D as a
Proxy for Activity in IP
regimes.
• Compulsory spontaneous
exchange of information
on rulings
Common approach to introduce
coordination tools. Combination
of primary and defensive rules.
Ordering rule that avoids double
taxation while preventing double
non-taxation
Action 8-10
Include income creating BEPS
concerns in the definition of
CFC income, e.g. income from
digital sales
• Ineffective/No CFC Rules
• Maximise Deductions
• Minimise Assets/Risks
Action 5
Action 2
Action 8-10
Action 4
Action 3
Action 6
Action 13
Action 12
Expected impact on BEPS … in a nutshell
Action 14
TP master file
TP local file
CbC report
Mandatory
Disclosure

8. Market /
Production Country
Avoid Taxable Presence
OR
Minimise Assets/Risks
Maximise Deductions
Intermediate Country 1 Ultimate Residence
Country
Intermediate Country 1
Local
Activity
Or Sub
Intermediate
Sub 1
Intermediate
Sub 2
Parent Co
Low or no
Witholding tax
Preferential Regime
OR
Hybrid Mismatches
OR
Base Eroding Payments
Low or no
Withholding tax
Maximise
Assets/Risks
Ineffective/No CFC Rules
Minimise Assets/Risks
Maximise Deductions
BEPS in a nutshell
8

9. WHAT’S NEXT

10. In addition to some technical follow-up work, for
example:
– Profit split and TP aspects of financial
transactions
– Finalise LOB and clarify attribution of profits
Focus turns to:
– Supporting and Monitoring Implementation
What’s next?

11. Implementation
Other recommendations
1. Hybrid entities
2. LOB and/or PPT
3. Preamble
4. Other treaty anti-abuse
measures (e.g. dividend
washing, etc.)
5. Permanent Establishment
definition
6. Minimum standard on
Dispute Resolution
(Arbitration)
Changes to MTC
1.Country-by-Country Reporting
and TP Documentation
2.Harmful tax practices
3.Hybrid mismatches
4.Interest deductibility
5.CFC rules
6.Mandatory disclosure rules
1. Chapter I: recognising actual
transactions; allocations of risk;
group synergies, location savings
and other local market features;
assembled workforce
2. Chapter II : Commodities
3. Chapter V TP documentation and
CbC report
4. Chapter VI: Intangibles
5. Chapter VII: Low value-adding
services
6. Chapter VIII: Cost contribution
arrangements
Maybe immediately applicable
depending on the legal and tax
system
Amend bilateral treaties
Multilateral instrument to be
open for signature in 2016
Changes to domestic laws or
practices depending on the
system
Changes to TP Guidelines
11

12. Developing an inclusive framework
We will continue to work on an equal footing as we monitor the
implementation of the BEPS project outcomes at the global level
[…]
and we call on the OECD to prepare a framework by early 2016
with the involvement of interested non-G20 countries and
jurisdictions, particularly developing economies, on an equal
footing […]
G20 Finance Ministers and Central Bank Governors, 4 - 5 September 2015, Ankara
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13. • A system meant to eliminate double taxation cannot itself
generate double non-taxation
– Close loopholes to ensure sustainability
– Ensure improvements in the resolution of disputes
• New environment will be one of increased transparency
– Those who continue to take aggressive position will have a hard life and be
subject to scrutiny
– Those who do not deserve certainty and predictability
• The BEPS Project is a won bet
– G20 and OECD plus developing countries demonstrated how governments can
work together and achieve tangible results in short timeframes
Concluding remarks (1)
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14. • A lot has been done
– Consensus achieved on key international corporate tax issues
• A lot still needs to be done
– Implementation is key and BEPS work should provide basis to advance
your agenda domestically
• Prioritisation probably warranted
– TP doc and CBC
– Multilateral instrument
– HTP
– Hybrids and Interest deductibility
– CFC and Mandatory disclosure
Concluding remarks (2)
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