1. 1
BEPS (Base Erosion and Profit Shifting): An Assessment of the
Priority Actions’ Impact on Latin American Taxation
Guillermo O. Teijeiro
Curacao Step Conference
March 12-13, 2015
2. 2
Roadmap to this presentation
•Some background 2012 and beyond, lessons and BEPS startup
•BEPS path and Plan’s content in a nutshell
•BEPS Plan’s well-being: internal and external challenges ahead
•Interactions between BEPS Plan and LATAM recent tax developments
•Comments on selected BEPS Actions from a LATAM perspective
3. 3
2012 and beyond
•Looking back to hectic 2012, one might found a highly complex scenario
concerning public accounts and the financing of public expenditures in the
industrialized world (EU/US) to which politician needed to react promptly without
cutting social expenditures and/or losing votes
•Over a decade or so there had been an increasing public discontent with the
level of taxes paid by multinational enterprises (MNEs); it has been suggested
that some pay little or no tax everywhere in the world
4. 4
•So, MNEs appeared to be the perfect scapegoat
•MNEs were then presented as the personification of the corporate tax
malice, tax demons that sucks their profit using available resources within a State
(assets, labor force and access to the market), without paying their fair share of
taxes
•Traditional (technical) dividing lines among tax evasion, avoidance and
legitimate tax planning disappeared in the political language and all of them
were deemed equally immoral and reproachable
5. • A new sort of tax fundamentalism spread at both shores of the
Atlantic and MNEs’ conduct was labeled “immoral” or “unpatriotic”
(remember Margaret Hodge in U.K. Parliament's investigations, and more
recently, President Obama on inversions by U.S. MNEs)
• Confronted with those statements, the Magna Carta (1214) and modern
western constitutions receipting the reserve or legality principle deeply
trembled
• Something had to be done, but not certainly denying the legal origin and
nature of the tax obligation
5
6. Lessons from 2012
•Countries were not satisfied with tax collection levels from MNEs and
were committed to change the situation
•Countries realized that the issues rested with the tax rules themselves,
and went far beyond companies taking advantages of opportunities to reduce
their tax liabilities
•The problem was in the loopholes of the international system (by then a
sort of gruyere cheese) and a systematic and consistent combined effort
should be made to fix it. Of course a goal beyond the reach of individual
nations’ efforts or inorganic groups’ attempts
6
7. BEPS start-up
•Then, OECD was given the lead with strong support from OECD member
States and other countries
•The diagnostic was in the OECD BEPS (Base Erosion and Profit Shifting)
Report, dated October 2012
•The message from OECD was clear: Let’s make the necessary changes to
close existing loopholes through the amendment of domestic tax rules and
DTTs, as well as multilateral instruments, but without departing from
elemental traditional paradigms ruling contemporaneous international
taxation
7
8. 8
BEPS project path
• In June 2013 OECD released its first document aimed at implementing a program
to neutralize BEPS: “A step change in Tax Transparency” prepared for the G8
Meeting held in Lough Erne, in June 2013
• Next step was the release of OECD-BEPS Action Plan, a report for the G20
Meeting held in St. Petersburg in September 2013, which was approved by the
Leaders’ Declaration at that Meeting
• The OECD/G20 BEPS Project was thus launched, endorsed by original G8,
BRICS and a group of emerging economies, all of which, in the aggregate,
account for 80% of global GNP
9. 9
• Low income countries were then invited to join on an equal footing and
two reports addressed to low income economies were issued in
July/August 2014.
• More than a year later G20 endorsement to the BEPS project looked
intact as resulting from the Declaration of the Meeting of Finance and
Central Bank deputies held in Istanbul, last December
10. OECD / G20 Action Plan – What does it consist of?
•15 specific actions aimed at correcting BEPS issues, to be developed and
completed in a 2-year period (2014-2015). Each action described the issue or
issues to be addressed, the expected outcome and the deadline
•A cutting edge document which, as I once wrote back in 2013 “…will occupy
a corner of tax policymakers' and tax experts' desks for years to come”
•After some comments on the challenges faced by BEPS, I will address recent
LATAM tax development as well as interrelations of BEPS selected outcomes
and those developments
10
11. Might the BEPS Plan be still in jeopardy?
•At half way the process (one year to go) there are still internal and well as
external challenges to be aware of
•The OECD-G20 BEPS Project’s goal is ciclopeous:
• Making the global tax environment fairer than ever by closing loopholes and adopting
rules of international law which would be domesticated simultaneously and uniformly by
all relevant Nations
• All of that with the aim of making the global enterprise accountable for taxes at source
(markets) and home, and without altering existent inter-nation equity, and within a very
short time fuse (2 years)
•Nothing easy: beginning from listening to so many diverging voices on the
same table, overcoming different viewpoints, and reaching workable and
effective outcomes
11
12. • The BEPS Project is subject to internal (inherent) risks (tight schedules,
quality of outcomes, jurisdictional overlapping), and well as
• External risks (potential breach of the Nations’ compact behind a
common goal due to competing interests, and misaligned, premature and
unilateral actions by States) which might conspire against the coherence
and effectiveness of the final outcomes
12
13. • Among the first (internal risks) is notably the friction between an
overambitious schedule, in one hand, and the quality of the outcomes, on the
other. At instances, after one year of heavy work, this friction originates outcomes
which are either deceptive or below expectancy [e.g., Action 1 and 7 on digital
economy (DE) and PEs]
• And also the conceptual and procedural question marks surrounding the catch-
all multilateral agreement that, at the very end, will be aimed at embracing all
proposals affecting the current DTT network. This is still an untested instrument in
the tax field which would be conditioned upon the Nations’ willingness to execute
it, a uniform consent on its content, and, above all, the domestic political
vicissitudes inherent to the internal approval of international treaties
13
14. • Even if the BEPS Project is kept well afloat and in the right path under the
OECD-G20 leadership (something that we all expect to happen),
unintended distortions on trade and investment might arise
• Leading heads of the OECD/G20 project have for the first time publicly
recognized, on occasion of the Brisbane Meeting in November 2014, that
the end result may not be so neutral, and that jurisdictional tax overlapping
(double or multiple taxation) might occur for years to come, until countries
harmoniously consent to the allocation of the potentially greater global tax
basis arising from BEPS adjustments
14
15. Let’s now turn to some externalities
•Under heavy domestic pressure for a business-friendly tax reform that be
aligned with EU corporate trends, the U.S. still looks hesitant to
unconditionally embrace the BEPS Project
•If the compact of industrialized Nations breaks because of the US or
other large player’s defection, there is a potential risk that the monolithic
wall behind BEPS collapses, leaving room for a fierce competition on the
global tax pie and the aim of self-protection of each player’s MNEs vis-à-vis
foreign MNEs
•A significant defection appears unlikely now, but might become more certain
as the BEPS Plan approaches the implementation stage
15
16. • Last but not least, technically misaligned, premature and unilateral
BEPS-oriented actions by the States might end up in international tax
chaos, and the risk of jurisdictional overlapping would certainly maximize
and become out of control
• Let’s take as an example the controversial taxation of the digital economy
(DE) and a potential unilateral initiative to tax DE outputs in the market
jurisdiction by a radically different taxation paradigm from that followed
thus far by Actions 1 and 7 of the BEPS Plan
• It is undoubtedly true that --beyond its conceptual merits– the coexistence
of any alternate paradigm aimed at taxing those outcomes in the market
jurisdiction outside the PE concept (e.g., destination based corporate
taxation or formulae allocation), to the extent adopted on a unilateral basis,
will produce grave distortions in the international scene
16
17. • Although it is a fact that some countries have begun to advance unilaterally,
particularly beyond our region, I strongly believe it would be sound for
governments to wait so that they can act on a OECD-output consensual
basis, avoiding distortions in the international scene
• National time constraints and domestic political pressures do not get along
well with the OECD holistic approach to BEPS, and the need to harmonize
the outcomes of the different Actions, something that it still at half-way and
will require further work to avoid overlaps, missed cross-references, and
mismatches
17
18. Looking at the interactions of the BEPS Plan and LATAM Tax
Developments, I find three different venues
•Early adoptions of BEPS outcomes/DD proposals at the domestic
legislative or tax agencies’ levels in the region
•In the apposite direction, prior legislative tax developments in LATAM
taken by OECD CFA to provide widespread solutions under the BEPS
Plan
•Use (or misuse) of BEPS brand at national levels
18
19. • Against all odds, the first mentioned trend (inbound influence) has not
materialized in the domestic LATAM legislations, through recent tax
amendments concerning MNEs in LATAM addressed longstanding base erosion or
shifting issues
• For instance, none of 2014 Chilean tax amendments traced back to BEPS
proposals or suggestions, though some awaiting substance related domestic
changes (GAARs, CFC rules, thin-cap rules, indirect capital gain taxation) are
similarly oriented at avoiding the erosion of the national tax basis.
• The same can be said on the “substance over form” and “business purpose test”
currently applied in Brazil, the Colombian SAARs (overreaching thin-cap rules)
introduced in 2013, and the Peruvian 2012 reform which included inter alia, a
deemed or constructive dividend distribution upon reduction of capital, new GAARs
not yet fully implemented, and indirect capital gains taxation (a rule enacted in
2011)
19
20. • The Mexican Tax Reform for 2014 also included anti-erosion rules
aimed at protecting the national tax basis, including: a) a defensive rule
against double deduction of outbound payments by Mexican corporations
to their foreign controlling parents; b) denial of the deduction of interest,
royalties and technical assistance paid to foreign beneficiaries which are
non-taxable on these benefits in their home jurisdictions; and c) a subject-
to-tax rule that conditions the granting of benefits to treaty-partner residents
• All in all, LATAM countries are (and have always been) capital importing
countries whose economics are mostly dependable on MNEs operating in
the region. It is for this very reason that tax rules have been traditionally
aimed at protecting the national tax basis against base eroding and shifting
schemes by the global company, and that would continue to be a core of
attention of tax policy-makers even after the BEPS mood passes by in the
central economies
20
21. • LOB provisions are not usual in LATAM DTTs but application of GAARs in a
treaty setting is increasingly widespread
• As an exception comprehensive LOB provisions are provided for in the
Mexican DTT network, including DTTs with Barbados, Colombia, China, UAE,
USA, India, Israel; Kuwait, Panama, South Africa and Ukraine. Treaty anti-abuse
more limited provisions are additionally contemplated in the Mexican DTTs
with Austria, Bahrein, Brazil, Canada, Hungary, Lithuania, The Netherlands, Peru,
Qatar; United Kingdom, Check Republic, Slovenia, Russia and Singapore. A third
group of Mexican DTTs contemplates limited provision applicable to interest
and royalties
• Mexican tax treaty policy has been consistently applied even before the
appearance of the BEPS Action 5, 2014 deliverable and, hence, it is not
influenced by the latter
21
22. Let’s now discuss the LATAM tax legislation’s potential or actual
influence on BEPS outcomes (outbound influence)
• There are many aspects on which LATAM tax legislation may
influence BEPS outcomes, particularly concerning outbound payments
by MNEs. Our region has long contained a variety of defensive source
rules concerning interest, IP royalties, dividends, technical assistance,
and service fees in general, deduction limitations or exclusions
concerning the same type of payments made intragroup, and application
of GAARs and SAARs in an international context to recharacterize
intercompany agreements and/or payments, or to redefine the
beneficiary, including in a treaty setting
22
23. • But there are some particular concerns where BEPS is literally
copying previously developed LATAM solutions, namely
− the adoption of the so-called Sixth Method to value commodity export
transactions
− the adoption of indirect capital gain taxation to cope with loss of revenue in
low-income countries
− possibly, although not yet expressly suggested, Brazilian catch-all CFC
system
23
24. • LATAM use (or misuse) of the BEPS brand
• Reference is made to the increasing use of the BEPS Brand by
national tax agencies in the region to articulate and justify over-
aggressive press-oriented measures/auditings against MNEs which
at times end up in a tax nothing with no direct revenue effect and huge
reputational damage to the affected taxpayer
• In Argentina, there have been lately at least three noteworthy cases: the
Despegar.com, Procter & Gamble and HSBC cases. I will limit my
comments to the P&G case
24
25. • In October 2014, P&G was accused of overpricing imports from Brazil, invoiced through a Swiss affiliated
company; according to a public statement from AFIP (Argentina Tax Agency), the imports resulted in an unlawful
outflow of US dollars which could qualify as aggravated contraband. AFIP suspended P&G’s tax registration
number and its registration in the importers and exporters registry. While these measures were in place, P&G was
unable to operate
• AFIP Chief said that multinationals could no longer expect to use “harmful tax planning in foreign trade” and
referred to P&G’s behavior as a harmful triangulation of imports
• It was apparent that the goods were sold in Brazil (port of origin) at a price which was lower than that charged by
the Swiss company to the Argentine subsidiary. But the issue of whether the difference in price was justified by
risks and functions undertaken by the Swiss company, or whether the triangulation and the higher price lack
substance, was not publicly discussed at the time
• So we might be facing the largest tax scandal ever affecting MNEs in Argentina or simply a tax nothing. AFIP
announced then that would be holding daily meetings with high level P&G officials to come to an agreement. P&G
was keen to solve the issue as soon as possible in order to avoid negative repercussions for the pricing of its shares
in NYSE
• A couple of weeks later, AFIP decided to withdraw P&G suspensions and the scandal shortly diluted in technical
discussions. AFIP justified its decision to lift the suspensions on P&G’s commitment to apply GATT rules to value
its import transaction (sic)
25
26. Comments on selected BEPS Actions from a LATAM perspective
A. The shortcomings of Actions 1&7
Action 1 Address the tax challenges of the digital economy
The September 2014 deliverable contains some interesting definitions, but
process deemed recognized to be on-going
•Because digital economy is increasingly becoming the economy itself, it
would be difficult to ring-fence it from the rest of the economy for tax
purposes
•But recognized that DE business models present key features which might
exacerbate BEPS
26
27. • As regards solutions, the DE report is a fantastic “Veronica pass,” as in
bullfighting language, since it said that: it delegates addressing the tax
issues posed by the digital economy to other working groups
• According to the Report:
– Taxation in the market jurisdiction should be restored by preventing treaty
abuse and artificial avoidance of PE status
– Taxation in the ultimate residence jurisdiction should be restored by
strengthening CFC rules
– And both market and residence taxation should be further restore by
neutralizing the effect of hybrid mismatch arrangements, limiting base erosion
through interest and other financial payment, and assuring that TP outcomes are
in line with value creation
27
28. • The Report recognizes that options were discussed concerning nexus and
PE definition, particularly a new nexus based on a “significant presence”
in a market, as well as a WHT on sales of digital goods and services, but
none of these initiatives was adopted
• It is a 198-page long report that falls short in solutions to BEPS and
other challenges posed by DE
• It prevents itself, by one of its initial definitions (taking DE as the economy
in general), from coming out with tailored-made and effective outcomes
28
29. LATAM concerns
•The tax treatment of income as well as VAT/GST impact on DE proceeds is
becoming increasingly significant for LATAM countries concerning B2B
services and B2C sales of goods and services
•A market-oriented newly designed nexus, a formulary apportionment scheme
of taxation, or any other scheme that better attends inter-nation equity
from the perspective of market countries, would have then been more
welcome in the region than current --not yet fully developed-- approaches
•In some LATAM countries unilateral responses have already started, e.g., the
Netflix (GST) tax in the city of Buenos Aires, a 3% tax withheld on foreign
providers of digital media. More legislative activity could certainly be expected
in the region unless the BEPS Project comes to a more satisfactory outcome for
source (market) countries
29
30. Action 7 Prevent the artificial avoidance of PE Status
•The DD released in October 2014 includes
• A proposal that purchases of goods and maintenance of goods for
delivery be excluded from the negative list
• A proposal to avoid fragmentation of activities among PEs,
including PEs of related companies
• A proposal to avoid base erosion by the use of subsidiaries acting as
commissioners in connection with business restructuring (it
provides an option between the use of a limited force of attraction,
or an exclusive independent agent clause)
30
31. LATAM perspective
• Changes are of a very limited scope
• DE business models are not even addressed
• Changes to the negative list (in line with UN Model) are welcome in
LATAM countries, which are mostly dependable on inbound business
activities by MNEs
• But changes suggested to incorporate limited force of attraction and
expand the notion of dependent agent to include independent
exclusive agents should have been proposed even outside the limited
scope of business restructurings (e.g., in line with UN Model)
31
32. B. Implementation difficulties concerning hybrid mismatch solutions
Action 2 Neutralize the effect of hybrid mismatch arrangement
The September 2014 Instrument consists of two parts:
Part I provides recommendation for domestic rules while Part II sets out
recommended changes to the OECD MC to neutralize the effect of Hybrid
mismatch arrangements
32
33. • Part I Hybrid mismatch rules, various cases
‐ Deduction / non inclusion outcomes
a. Primary response: denial of deductions in the payer's jurisdiction
b. Defensive rule: If deduction is not denied, payment to be included
in income in the recipient’s jurisdiction
‐ Double deduction outcomes
a. Primary response: deny the duplicate deduction in the parent's
jurisdiction
b. Defensive rule (if primary response is not adopted) deduction to be
denied in the payer’s jurisdiction (Mexican domestic rule type
response)
33
34. • Part II Changes to OECD MC
‐ Dual residence entities: to be resolved on a case-by-case basis rather
than on the basis of the current tie-breaker rule (place of management)
‐ Transparent entities: propose to apply the principles of the OECD
Partnership Report of 1999 to all transparent entities
34
35. Additional comments from LATAM perspective
• Part I measures
• Difficult to reach broad acceptance because it depends on domestic law
implementation
• Domestic rules in LATAM countries should be adapted but administration of these
rules might be troublesome
• Application of defensive rules would be difficult to be monitored in practice, even
if automatic exchange of information and aggressive tax planning reporting were widely
implemented
• Part II measures:
• Addressing dual residence entities under a treaty setting would require to resort to
MAPs with a doubtful and lengthy outcome, unless arbitration is contemplated;
arbitration is seldom included in LATAM DTTs and mass adoption of compulsory
arbitration under BEPS in a short period is unlikely
35
36. C. Where are we headed concerning CFC regimes?
Action 3 Strengthen CFC rules
• The deadline is September 2015, so that we have no even a clue yet
• Though traditional transparency regimes (for tainted income) should be
maintained, low income countries might wish CFC rules to apply to all types of
income, including business income obtained in non-preferential jurisdictions by
foreign related or controlled entities (Brazilian Model), a trend that for a variety
of reasons is not advisable. A decision by the Brazilian Superior Court of
Justice issued in April 2014 deemed CFC legislation incompatible with Brazil
DTTs
• Discussion draft due by early April 2015 and public consultation by May 2015
36
37. D. Affecting the cost of Licensed IP to the region
Action 5 Counter harmful tax practices more effectively, taking into
account transparency and substance
Interim Report issued September 2014 describes the progress made on the substantial
activity requirement for any preferential regime, and contains the agreed framework for
imposing transparency, including compulsory spontaneous exchange of rulings related
to preferential regimes
• On November 11, 2014 Germany and UK agreed on a joint proposal for rules on preferential IP regimes
and in accordance with OECD requirements for substance conditioned the benefits to the existence of R&D
actual expenditures
• Patent box regimes in line with BEPs Project (substance) have been announced by Switzerland and Ireland;
the Netherlands had already adopted substance requirements in its domestic legislation
• Substance requirements will greatly impact EU patent box regimes, thus squeezing the expected
after-tax return to MNEs coming from IP licensed to LATAM
37
38. E. Altering investment patterns through LATAM DTTs
Action 6 Prevent treaty abuse
September 2014 instrument
•Recommended that DTTs include in the title and preamble a clear
statement that treaties are not aimed at creating opportunities for non-
taxation or reduced taxation, including treaty shopping
•Also recommended to include a general treaty anti-abuse rule (U.K. style)
aimed at arrangements one of the principal purposes (the principal purpose
test) is to obtain treaty benefits, and/or specific LOB provisions patterned
after the LOB provision of the US Model Convention
•Public consultation took place last January, and OECD is expected to issue a
revised DD for further comments before year end
38
39. Application of LOB clauses in LATAM DTTs might change dramatically
investment patterns in the region through the use of regional holding
companies in treaty partner countries. So far, except for Mexico, LATAM
is an LOB-free area
Example: How does the regional holding company operate?
Relevant data
•RCo is a company resident of State R, a State that has concluded no tax treaties with LATAM countries. RCo
is the top holding company of a MNE with subsidiaries in several countries
•In order to take advantage of the extensive treaty network that State I has with LATAM, RCo establishes
HOLDCo, a wholly-owned subsidiary resident of State I, as its regional holding for the region
•State I grants participation exemption on dividends and capital gains received, and levies no WHT on outbound
dividends
•HOLDCo acquires subsidiaries in LATAM and receives dividends, which are either reinvested in the
activities of the MNE or repatriated to Rco
39
40. 40
RCo
HOLDCo
Sub 1 Sub 2 Sub 3
State R (no treaty with
LATAM)
State I
Receives dividends
Different LATAM countries
41. • Whether HOLDCo is the effective beneficiary of dividends and has
substance under domestic GAARS in subs’ treaty countries could
be not longer the decisive element. This has been the approach in a
series of Argentine administrative and judicial cases, including in re
Molinos Río de la Plata, decided by the Tax Court in 2013, and in the
MOU annexed to the New DTT with Spain in relation to Spanish
ETVEs
• Under the proposed US-style LOB provision, there would be rather an
objective analysis: HOLDCo will not get treaty benefits because more
than 50% of its capital belong to shareholders which are not resident in
country I. Besides, HOLDCo is not listed in the stock exchange nor
meets the LOB business purpose exception
41
42. E. What Sixth Method are we talking about?
•Actions 8/10 TP outcomes
•So far OECD has released
• A report with revised standards for TP of intangibles (September 2014)
• DDs on risk recharacterization, low-value adding intra-group services, cross-
border commodity transaction, and use of profit-splits in the context of global
value chains (November/December 2014)
•As regards commodity transactions, the so-called sixth Method is
recommended
42
43. Commodity export transactions and the Sixth Method
•The OECD TP Guidelines contains a discussion of the five transfer pricing methods
which are the comparable uncontrolled price method (CUP), the resale price method,
the cost plus method the transactional net margin method, and the transactional profit
split method
•A Sixth (non-OECD originated) method has been gaining momentum at G20.
Reference to this additional Sixth method is found in the OECD Report on the impact
of BEPS on low income countries and more recently, in the DD addressing the transfer
pricing aspects of cross border commodity transactions
43
44. • The Sixth Method is clearly a LATAM creation that has significant variances among LATAM
countries. It spread over LATAM as from its inclusion in the Argentine income Tax Law back
in 2003. Under ITL, it applies to the export of commodities quoted in a transparent
market, whenever they are exported to related final purchasers through a foreign
trading entity which is not the final purchaser of the goods; in these cases, the transactions
are not deemed made at arm’s length conditions and, hence, are to be adjusted by applying the
quoted price of the goods in the transparent relevant market as of the date of loading,
regardless of the price agreed upon at the execution date, and unless the latter is higher
• In a bull market the adjustment functions as follows: i) agreed upon price (U$S/ton) 99; ii)
quoted price at loading (U$S/ton) 108; iii) difference per ton. U$S 9; iv) quantity 100, v)
export price adjustment (U$S) 900
• The Argentine Sixth method consists of imputing to the exporter a notional income added on
account of the market price difference occurred as from the date in which the export
transaction takes place, and up to the date of loading. Therefore, the Argentine Sixth method
is not a TP adjustment but a fictional SAAR which, by its very nature, should not be adopted
by OECD TP Guidelines
44
45. • The attribution of such notional income to the exporter under the
Argentine Sixth Method is aimed at enlarging the domestic tax basis,
ignoring the business design of the transaction as a two-segment deal and
where the risk for the price differential is undertaken and hedged (the
foreign trader’s level according to business practice in the sector)
• Moreover the Argentine Sixth Method applied whenever export
transactions are made using a triangular structure and regardless of
whether the intermediary trading is organized in a foreign preferred-tax
jurisdiction. Under DTTs the adding of such notional income to the
exporter contravenes article 9 (associated enterprises), creating potential
double taxation which might not be remedied by otherwise available
correlative adjustments provided for under that article.
45
46. • The Uruguayan Sixth method, as well as similar legislation in the Dominican
Republic, Ecuador, and Paraguay also mandates using the market price at loading,
unless the foreign trader meets certain specified conditions excluding the
application of the method
• The Peruvian regulations are more flexible since they allow taking the market
price at loading as one among other alternatives. Moreover, the method does not
apply on hedged transactions, or transactions entered into with international traders
meeting certain statutorily specified conditions
• The Brazilian’s TP system of adjustments on the export of commodities appear to
be the best option. It mandates to apply the quoted price in the relevant
transparent market as of the date of the transaction, whenever exports are
made to foreign related counterparties or purchasers subject to a preferential
tax regime. This is a variation of CUP much more in line with OECD TP
Guidelines
46
47. • The recent DD under BEPS Action 10 takes the best of the LATAM statutory
experiments, and comes out with a proposal which is conceptually coherent with
the OECD TP guidelines principles, while avoiding instances of double taxation.
• Main proposals consist of (i) making clear that quoted or publicly available
prices at the actual pricing date (e.g., upon execution of the contract) can be
used as reference to determine the arm’s length price for the controlled
commodity transaction, and ii) suggesting the adoption of a deemed pricing date
for transactions between associated enterprises, but only in cases where the pricing
date actually agreed by the associated enterprises is inconsistent with other facts of
the case, or in absence of evidence of the actual pricing date agreed by the parties
to the transactions
47
48. F. Indirect transfer of Assets: straight taxing rules or GAARs?
Impact of BEPS on Low Income Countries
•G20 Development Working Group (DWG) Report
‐ Part I, July 2014
‐ Part II, August 2014
48
49. Part I is aimed at identifying main sources of BEPS in developing
countries and how they relate to OECD-G20 BEPS Action Plan
•Key BEPS issues of most relevance to developing countries include, inter
alia tax losses caused by techniques used to avoid tax at source when
assets in the jurisdiction are sold
49
50. Part II Section 3 and 4 identity high priority BEPS issues and Potential
Actions to assist developing countries
•Again, tax losses from indirect transfer of assets are identified. Although it
is recognized that further work is needed to address this issue under domestic
and international tax rules, Peruvian and Chilean systems of indirect capital
gain taxation (patterned after the Vodafone taxation in India) might be used for
this purpose. In fact, indirect taxation in these countries originated as a
response to the loss of revenues in connection with the transfer of mineral
interest held through foreign holdings, the shares of which were transferred
outside the relevant country between nonresident sellers and buyers. Absent a
sham, query whether this rule is an ultra vires application of the State’s tax
jurisdiction
50
