1) The OECD presented updates on the BEPS project including progress made on transfer pricing documentation, developing a multilateral instrument, and addressing harmful tax practices. 2) Upcoming discussion drafts and public consultations were announced relating to various BEPS actions covering topics such as interest deductions, dispute resolution, VAT guidelines, and transfer pricing. 3) Attendees were invited to ask questions and provide comments to help further the BEPS project work.

1. LIVE WEBCAST
UPDATE ON BEPS PROJECT
2015 DELIVERABLES AND BEYOND
12 February 2015
3:00pm – 4:00pm (CET)

2. INTRODUCTION

3. Pascal Saint-Amans
Director, Centre for Tax Policy and Administration
Raffaele Russo
Head, BEPS Project
Achim Pross
Head, International Cooperation and Tax Administration
Marlies de Ruiter
Head, Tax Treaty, Transfer Pricing and Financial Transactions
Piet Battiau
Head, Consumption Taxes Unit
Speakers
3

4. Ask questions and comment throughout the webcast
Join the discussion
Directly: Enter your question in the space provided
Via email: CTP.BEPS@oecd.org
Via Twitter: Follow us on @OECDlive using #BEPS
4

5. PROGRESS REPORTED TO THE
G20 FINANCE MINISTERS
9-10 FEBRUARY 2015

6. 1. Implementation guidance for TP Documentation and CBC Reporting
2. Mandate of the development of Multilateral Instrument
3. Patent Boxes and Harmful Tax Practices
Agreement reported in 3 Key Areas of BEPS Project
Communiqué, G20 Finance Ministers and Central Bank Governors
11. We reiterate our full support to the G20/OECD Base Erosion and Profit Shifting (BEPS)
Project, showing our resolve to tackle cross-border tax avoidance by modernizing international tax
rules. We will finalize the deliverables under the BEPS Action Plan by year-end. We endorse the
mandate to develop a multilateral instrument to streamline the implementation of the tax treaty-
related BEPS measures. [...] We welcome the direct engagement of developing countries in the
BEPS Project ensuring that their concerns are addressed and acknowledge that their timing of
application may differ from other countries. We will closely monitor progress in preparation of
toolkits to assist developing countries in implementing the BEPS actions. We will continue to
support developing countries in strengthening their capacity. […] (Istanbul, 9-10 February)
6

7. CBC AND TP
DOCUMENTATION
IMPLEMENTATION GUIDANCE

8. Background
New transfer pricing documentation guidance was
published in September 2014 and presented to the G20
Finance Ministers at their September 2014 meeting and
to G20 Leaders at their November 2014 meeting.
Includes three types of documents:
Master file containing
standardised background
information regarding the
MNE group.
Local file analysing
specific transfer pricing
compliance for material
transactions of the
local taxpayer.
Country-by-Country (CbC)
report containing specific
information relating to the global
allocation of the MNE’s income,
taxes paid and certain indicators
of the geographic location of
economic activity within the MNE
group.
8

9. Guidance on:
• Timing of preparation and filing of CbC
report
• Which MNEs are covered by CbC reporting
• Conditions underpinning use of CbC reports
Implementation package to be
developed by April 2015 for the
use of government-to government
mechanisms for automatic
exchange of CbC reports
CbC and TP documentation implementation guidance
Master file and Local file will be filed locally >> countries agree on
the need to take consistency and confidentiality into account when
developing local legislation
9

10. Automatic exchange by the jurisdiction where the ultimate parent company is resident
Competent authority agreement(s)
Use of existing legal instruments for EoI as a basis of the Competent authority
agreement(s)
Secondary mechanisms recognised as legitimate only in a few cases
Monitoring. Outcomes monitoring taken into account in review in 2020
GtG mechanism for exchange of the CbC report
10

11. HARMFUL TAX PRACTICES

12. Overview
12
Sep. 2014 Sep. 2015 Dec. 2015
Revamp work of FHTP
with a focus on:
•Requiring substantial
activity for all preferential
regimes
•Transparency and
compulsory exchange of
information on rulings on
preferential regimes
•Review of member and
associate regimes
Strategy to expand
participation to non-
members
Consider revision to
existing criteria
12

13. Two main areas of focus:
1. Substantial activities
2. Transparency
Current work
13

14. HTP and patent boxes
• No consensus in the 2014 progress report but compromise
proposal from Germany and the UK maintaining the principle
of the nexus approach with some modifications
• Nexus approach now been agreed – agreement released on
6 February 2015
• Action 5 requires substantial activities in preferential regimes
– initially focused on requiring substantial activities in IP
regimes (patent boxes)
14

15. • Taxpayers receive benefits proportionate to the qualifying R&D
expenditures that they themselves incurred
• Agreed approach increases qualifying expenditures by 30% in
certain circumstances.
• It also sets dates for closure of existing regimes
– 30 June 2016: existing IP regimes closed to new entrants
– 30 June 2021: after this date taxpayers in existing regimes can
no longer qualify for benefits
Nexus approach
• Requires a nexus between the qualifying expenditures incurred by
the taxpayer and the income receiving benefits
15

16. Next steps for substantial activities
Ongoing work on implementation of nexus approach and
application to IP regimes:
• Details of tracking and tracing of expenditure
• Additional Safeguards re transitional provisions
• Further guidance on definition of qualifying IP asset
To be completed within next 6 months
FHTP must also determine how to require substantial activities in
preferential regimes that are not IP regimes
16

17. Transparency
Other priority in Action 5 is transparency
• Framework on compulsory spontaneous
exchange of rulings on preferential regimes
agreed
• Further work will consider:
• The exact scope of exchange of rulings
• Whether rulings regimes themselves are preferential
• Guidance on best practice in respect of rulings
17

18. • Finalise review of regimes of OECD and G20 countries
• Develop strategy for engaging with non G20/non-OECD
members
• Consider revision of existing criteria for assessing
preferential regimes
• To be included in the 2015 progress report
Other BEPS work on harmful tax practices
18

19. MANDATE FOR A
MULTILATERAL INSTRUMENT

20. • September 2014: Report concluded that a
multilateral instrument is feasible and
desirable.
• January 2015: CFA approved a draft
mandate for the negotiation of a
multilateral instrument.
Mandate for a multilateral instrument
20

21. • Scope: Limited to modifying existing DTT to
implement treaty-related measures
developed. Candidates:
– provisions on hybrid entities (Action 2)
– Provisions on treaty abuse (Action 6)
– Artificial avoidance of the PE (Action 7)
– Dispute resolution (Action 14)
– Other possible changes (Actions 8-10, etc.)
Mandate for a multilateral instrument: What
21

22. • Body: Ad hoc non-permanent Group convened
under the aegis of the OECD and the G20.
• Participation: Open to all interested States, who
participate on an equal footing. Jurisdictions,
regional and international organisations can join
as Observers.
• Timeline: Finalise work and open instrument for
signature by December 2016.
Mandate for a multilateral instrument: Who and When
22

23. INVOLVEMENT OF
DEVELOPING COUNTRIES

24. New structured dialogue process
launched in November 2014
1. Direct
participation in
the Committee
on Fiscal Affairs
and its
subsidiary
bodies
2. Regional
Networks of
tax policy and
administration
officials
3. Capacity
building
support
24

25. Upcoming Regional Network meetings
– Asia and Pacific Region: Seoul, 12 – 13 February 2015
– Latin America and the Caribbean: Lima, 26-27 February 2015, in
partnership with CIAT
– French-speaking countries: Gabon, 27 February 2015, in partnership
with CREDAF
– Eurasia: Ankara, 4 - 5 March 2015, in partnership with Turkey
– Africa: Pretoria, 20 – 21 April 2015, in partnership with ATAF (African
Tax Administration Forum)
Also open to business and civil society for
input
25

26. RECENT DISCUSSION
DRAFTS

27. Overview
Action Title Published Deadline
7 Prevent the artificial avoidance of PE Status 31 October 2014 9 January 2015
10 Transfer Pricing: Low value-adding services 3 November 2014 14 January 2015
6 Prevent treaty abuse (follow-up work) 21 November 2014 9 January 2015
10 Transfer Pricing: Profit splits 16 December 2014 6 February 2015
10 Transfer Pricing: Commodity transactions 16 December 2014 6 February 2015
4
Interest Deductions and Other Financial
Payments
18 December 2014 6 February 2015
14
Make Dispute Resolution mechanisms more
effective
18 December 2014 16 January 2015
1 VAT B2C Guidelines 18 December 2014 20 February 2015
8-10 Transfer Pricing: Risk, recharacterisation 19 December 2014 6 February 2015
Complete details: www.oecd.org/tax/previous-requests-for-input.htm

28. DISCUSSION DRAFT ON
REVISIONS TO CHAPTER 1 OF THE
TRANSFER PRICING GUIDELINES
(INCLUDING RISK,
RECHARACTERISATION, AND
SPECIAL MEASURES)

29. Risks and capital
ensure that inappropriate returns will not accrue to
an entity solely because it has contractually assumed
risks or has provided capital
clarify the circumstances in which transactions can be
recharacterised
Actions 8, 9, 10: Assure that TP outcomes are in line
with value creation
29

30. Part I
Proposed revision to Section D of Chapter
I, including new wording on functional
analysis, risks and non-recognition (new
terminology for re-characterisation)
Part II
Options for some draft special measures
Revisions to Chapter I of the TP guidelines
30

31. What do the proposals achieve?
The potential for misalignment of profits and value
creation may arise from misalignment of form
and substance, and in particular exclusive
reliance on mere contractual ownership, mere
contractual assumption of risk and provision of
capital.
31

32. Revisions to Chapter I set out
an analytical framework for:
Key first step of any TP analysis :
accurately delineating the actual
transaction
Second step of the TP analysis:
pricing the accurately delineated
actual transaction by finding
comparables and choosing a TP
method
How to determine the ‘real deal’?
32

33. Looking at the written contracts
Carefully assess the conduct of the parties in the context of their
commercial and financial relations
If the conduct of the parties contradicts or supplements the written
contracts: the conduct of the parties is used to supplement or replace
the written contractual arrangements when delineating the actual
transaction undertaken
How is the actual transaction delineated?
33

34. Risks should be identified
with specificity
The role of these risk in the
specific business
environment involved
needs to be assessed
It needs to be assured that
valuable risk management
activities are rewarded
appropriately and that a risk
can only be allocated to a
party that controls the risk
Additional guidance on risks
34

35. Business reality is priced,
not paper reality
Flexing the muscles of the
arm’s length principle,
making it work harder
Agreement on the directions
taken, resulting in more
alignment in the approaches
of countries
Illustrates that TP is not an
exact science and is heavily
reliant on facts. As a result
there is a high risk of
unilateral adjustments
leading to double taxation.
Effective dispute resolution
mechanisms are key.
35
What does the new guidance achieve?

36. Capability to make decisions to take on the risk and
Capability to make decisions on whether and how to manage the risk
including the actual performance of the decision-making functions and the functions related to
assessing, monitoring and directing the outsourced measures
Where a decision is made to outsource risk mitigation, control of the risk would require capability to
assess, monitor and direct the outsourced measures that affect risk outcomes
What is control over risk?
36

37. Delineating the actual
transaction is NOT
non –recognition or re-
characterisation, but is
aligning the form and
the substance (factual
substance)
Non-recognition
comes in when the
transaction has been
accurately delineated,
but does not make
commercial sense
because the
transaction does not
provide each of the
parties involved with
the possibility to
protect or enhance
their commercial and
financial positions
(economic substance)
Non-recognition will
only occur in (very)
exceptional
circumstances
Non-recognition
(previously re-characterisation)
37

38. New guidance makes the arm’s length principle work harder, but
may not prevent all BEPS risks.
Remaining risks mainly relate to information asymmetries and the
allocation of capital to lowly-taxed minimal functional entities.
Part II of the DD outlines some potential special measures that
could be considered as a basis to address these concerns.
Close interaction with other actions, including Action 3 on CFC
rules and Action 4 on Interest deductibility.
Do BEPS risks remain?
38

39. Finalisation Actions 8/9/10 in September 2015 and Action 4 in December 2015
Public consultation meeting early July 2015
Discussion draft on CCA’s, intangibles, profit splits and financial transactions to be released between April-June
Public consultation meeting 19/20 March 2015
Deadline for comments was February 6th. 862 pages of comments received
Follow up steps
39

40. Late Oct
2014
Dec
2014
Mar
2015
Early
Apr
2015
Early
Jun
2015
Jul
2015
Sep 2015
Low value-adding services DD PC RD Finalisation: changes to TPG
Ch VII
Risk, recharacterisation DD PC RD Finalisation: changes to Ch I,
IX
Commodity transactions DD PC RD Finalisation: changes to Ch II
Profit splits DD PC RD PC Finalisation: changes to Ch II
Cost contribution
arrangements (CCAs)
DD PC Finalisation: changes to Ch VIII
Intangibles: RD 2014
report plus DD hard to
value intangibles
RD DD PC Finalisation: changes to Ch VI
Financial transactions DD PC (Finalisation: December
2015)
Planned timetable on TP Actions
DD = discussion draft RD = revised drafts PC = public consultation 40

41. INTERNATIONAL VAT/GST GUIDELINES
GUIDELINES ON PLACE OF TAXATION
FOR BUSINESS-TO-CONSUMER
SUPPLIES OF SERVICES AND
INTANGIBLES

42. International VAT/GST Guidelines B2C supplies of
services and intangibles
Public consultation on 25 February 2015
• VAT payable in jurisdiction where customer has its usual residence
• Remote supplier to register and remit VAT in customer’s jurisdiction
• Simplified registration and compliance regime for remote suppliers
– Obligations limited to what is required to collect/remit VAT
• International administrative cooperation in VAT to be strengthened, to
support the effective collection of VAT from remote suppliers
Discussion draft released on 18 December 2014
42

43. MAKE DISPUTE RESOLUTION
MECHANISMS MORE
EFFECTIVE

44. Released on 18 December 2014
413 pages of public comments were received
Public consultation held on 23 January 2015
The discussion draft, comments received and webcast of the public
consultation meeting are available on the OECD web site: ww.oecd.org/tax
Action 14 Discussion Draft
44

45. NEXT STEPS

46. • Action 11 (Late March 2015)
• Action 12 (Late March 2015)
• Action 3 (Early April 2015)
• Actions 8-10 – Intangibles, Hard to Value
Intangibles, and Cost Contribution
Arrangements (Early April 2015)
Upcoming Discussion Drafts
46

47. • Action 4 (17 February 2015)
• VAT/GST Guidelines on B2C trade in services
and intangibles (25 February 2015)
• Actions 8-10 (19-20 March 2015)
• Action 11 (13 May 2015)
Upcoming Public Consultations
47

48. JOIN THE
DISCUSSION

49. Ask questions and comment
Join the discussion
Directly: Enter your question in the space provided
Via email: CTP.BEPS@oecd.org
Via Twitter: Follow us via @OECDlive using #BEPS
49

50. Further Information
Website: www.oecd.org/tax/beps.htm
Contact: CTP.BEPS@oecd.org
Tax email alerts: www.oecd.org/oecddirect