The BEPS project is progressing with several discussion drafts and deliverables planned for 2014, focusing on country-by-country reporting, tax treaty abuse, hybrid mismatches, and the digital economy. Public consultations are scheduled to gather stakeholder feedback on various aspects of the project, including tax challenges specific to the digital economy and anti-abuse rules in tax treaties. Key priorities identified include interest deductibility, treaty abuse, and capacity building for developing countries.

1. LIVE WEBCAST
UPDATE ON BEPS PROJECT
2 April 2014
3:00pm – 4:00pm (CEST)

2. WELCOME
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3. Overview
• The BEPS project is proceeding on track
• 4 Discussion Drafts
- Country by Country Reporting: 30 January 2014
- Tax Treaty Abuse: 14 March 2014
- Hybrid Mismatch Arrangements: 19 March 2014
- Digital Economy: 24 March 2014
• 3 other 2014 deliverables
- Action 5: Harmful Tax Practices
- Action 8: TP Aspects of Intangibles
- Action 15: The Multilateral Instrument
• Work on 2015 deliverables is also ongoing
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4. Engagement with
Stakeholders
• Planned Public Consultations:
– Preventing Treaty Abuse: 14-15 April 2014
– Digital Economy: 23 April 2014
– Hybrid Mismatch Arrangements: 15May 2014
– TP Documentation and CbC Reporting: 19 May 2014
• Engagement with NOEs
– Global Forum on Transfer Pricing (111 countries, 300 delegates)
– 4 Regional Meetings (South Korea, Colombia, South Africa, France)
• Australia G20 Symposium: 9-10 May 2014
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5. Review of Consultation
with Developing Countries
• Key Priorities: Interest deductibility, other base eroding
payments, treaty abuse and transfer pricing actions
• Other issues: tax incentives, capacity building and
awareness raising
• IMF contribution: indirect transfer of interest
• Report to the G20 Development Working Group
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6. Update
• Digital Economy
• Hybrid Mismatch Arrangements
• Tax Treaty Abuse
• Transfer Pricing aspects of Intangibles
• Transfer Pricing and Country by Country
Reporting
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7. DIGITAL ECONOMY
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8. The Digital Economy
• Overview of developments in ICT over time
• Not possible nor useful to ring-fence the digital economy
• Some key features of the digital economy warrant attention
– Mobility
– Reliance on data
– Multi-sided businesses
– Network effects
– Tendency to mono/oligopoly and
– Volatility
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9. The Digital Economy
and BEPS
• Focus on BEPS structures:
– No unique BEPS issue related to the digital economy but
– Some of the key features of the digital economy do exacerbate these
issues
– For both income and consumption tax purposes
• BEPS Project expected to address these BEPS issues in a
comprehensive manner
• Draft identifies features of the digital economy that should be taken
into account when doing the work on other actions
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10. The Digital Economy and
broader tax challenges
• Tax challenges that go beyond BEPS and that can be seen as more
systemic:
– possibility of doing business in a country without being physically
present there
– whether and how to attribute value to data
– tax characterisation issues related to payments for cloud services
– certain consumption tax aspects
• Short description of the options that so far have been considered -
more work to be done
• Stakeholders input very important in this respect
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11. Digital Economy
Next steps
• Consultation:
– Comments due by 14 April 2014
– Public consultation on 23 April 2014
• Next steps on report:
– Add a chapter on fundamental tax principles
– Further development of the options
– Framework for analysing options
– More detailed examples of BEPS structures in the digital
economy
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12. HYBRID MISMATCHES
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13. Hybrids
• What is a hybrid mismatch arrangement?
– An arrangement that exploits the different tax treatment in two jurisdictions to produce
a mismatch in tax outcomes
– Mismatch is either two deductions for the same payment or a deductible payment that
is not included in income by the recipient
• Where are we on the Action Item (Action Item 2)?
– Early release of Public Consultation Draft on 19 March 2014
– Comments due by 2 May 2014 and Public Consultation on 15 May 2014
• What are we trying to achieve?
– Recommendations for domestic law changes and changes to OECD Model
Convention to deal with hybrids.
– Clear, automatic and comprehensive rules that neutralise the tax mismatch without
disturbing the commercial or regulatory consequences.
http://www.oecd.org/tax/discussion-drafts-action-2-hybrid-mismatch-arrangements.htm 13

14. What is in the report?
• Domestic recommendations cover 3 areas:
– Hybrid financial instruments (including transfers)
– Payments made by a hybrid entity that give rise to duplicate deductions
or deduction / no-inclusion outcomes
– Imported mismatch structures.
• Linking rules that base the tax treatment of hybrid on tax treatment
in the other state.
• Deny a deduction for payment or require for it to be included in
income.
• Primary / secondary rule ordering to determine which jurisdiction
applies its rules first.
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15. Questions for consultation
• Questions for public consultation set out in document
• Interested in feedback on whether the rules proposed in the
report will give rise to unanticipated difficulties for taxpayers or
industries
• Scope of the rules (particularly for hybrid financial
instruments):
– Applies to related parties, parties acting in concert and
structured arrangements
– Approach to definition of scope still under consideration
– What is perceived impact of approach to scope on tax
compliance and administration?
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16. PREVENTING TREATY
ABUSE
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17. Treaty Abuse (1)
Three elements:
A. Prevent the granting of treaty benefits in inappropriate
circumstances
– Circumventing the limitations of the treaty itself
– Circumventing application of domestic tax law by using
treaties
B. Clarify that Tax Treaties are not intended to generate double
non-taxation
C. Tax policy considerations to consider before entering into a
treaty
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18. Treaty Abuse (2)
• Discussion draft: 14 March 2014
• Comments deadline: 9 April 2014
• Public consultation meeting: 14-15 April 2014
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19. 1. Specific treaty anti-abuse rules targeted at circumventing the
limitations provided by the treaty itself:
“Treaty shopping”: Limitation-on-benefits (LOB)
- Question: inclusion of a “derivative benefits” clause in the LOB
rule?
Other specific anti abuse rules:
– Minimum holding period dividend transfer transactions
– Transactions that circumvent the application of Art. 13 (4)
– Tie breaker rule dual residence entities: MAP
– Anti-abuse rule for permanent establishments situated in third
States
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Prevent the granting of treaty benefits in
inappropriate circumstances

20. Prevent the granting of treaty benefits in
inappropriate circumstances
2. Main purpose test rule
– Incorporates in the Articles the guidance
already found in the Commentary on Art. 1
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21. Prevent the granting of treaty benefits in
inappropriate circumstances
3. Abuse targeted at circumventing domestic
tax law by using treaties (relationship
treaties and domestic anti- abuse rules)
– Refine the analysis in Commentary (clearer
distinction between specific and general anti
abuse rules)
– Case-by-case analysis for specific rules
– Saving clause
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22. TRANSFER PRICING
ASPECTS OF INTANGIBLES
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23. Transfer Pricing Aspects
of Intangibles
• WP6 had productive meetings the previous weeks
• Tentative agreements were reached on most
aspects of the 30 July 2013 Revised Discussion
Draft
• Issue to be further discussed in May: Integration and
correlation of Section B of Chapter VI with 2015
BEPS work on risk, re-characterisation and capital
(funding)
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24. TRANSFER PRICING
DOCUMENTATION AND
COUNTRY BY COUNTRY
REPORTING
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25. TP Documentation and
CbyC Reporting
• BEPS Action 13 requires development of
improved TP documentation standards
including a country – by – country reporting
template.
• Discussion Draft 30 January 2014
• 150+ comment letters / 1300 + pages
• Two days of WP6 discussions last week
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26. WP6 Discussions
• Tentative decisions taken by WP6
– Eliminate transactional reporting in C by C template – limit
transactional reporting to local file
– Retain reporting of activity measures on a country basis –
number of employees, tangible assets, capital and
retained earnings
– Require country level financial data for all countries but
not entity-by-entity reporting
– Include a list of entities and PE’s included in each country
with numbers / activity codes for each
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27. WP6 Discussions
• Tentative decisions taken by WP6 (cont.)
– Provide flexibility regarding sources financial data provided
a consistent approach followed for entire group and from
year to year
– C by C template a separate document / not part of master
file
– Clarify that the master file is supposed to be a high level
overview
– Flexibility as to whether master file should be prepared
on a group – wide basis or by line of business
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28. WP6 Discussions
• Issues still under discussion
– Filing and sharing process for C by C
template and for master file
– Guidance on language
– Meeting again in May
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29. QUESTIONS AND ANSWERS
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30. Stay tuned!
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Further Information
http://www.oecd.org/tax/beps.htm
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