1. LIVE WEBCAST
UPDATE ON BEPS PROJECT
2014 DELIVERABLES AND BEYOND
16 September 2014
4:00pm – 5:00pm (CEST)

2. Pascal Saint-Amans
Director, Centre for Tax Policy and Administration
Raffaele Russo
Head of BEPS Project
Achim Pross
Head of International Cooperation and Tax Administration Division
Marlies de Ruiter
Head of Tax Treaty, Transfer Pricing and Financial Transactions
2
Speakers

3. Ask questions and comment throughout the webcast
3
Join the discussion
Directly: Enter your question in the space provided
Via email: CTP.BEPS@oecd.org
Via Twitter: Send a tweet with the hashtag #BEPS

4. OVERVIEW

5. 5
The BEPS Project
Coherence
Hybrid Mismatch
Arrangements (2)
Interest
Deductions (4)
CFC Rules (3)
Harmful Tax
Practices (5)
Substance
Preventing Tax Treaty
Abuse (6)
Avoidance of
PE Status (7)
TP Aspects of
Intangibles (8)
TP/Risk and
Capital (9)
TP/High Risk
Transactions (10)
Transparency
Methodologies and
Data Analysis (11)
Disclosure
Rules (12)
TP Documentation
(13)
Dispute
Resolution (14)
Digital Economy (1)
Multilateral Instrument (15)

6.  After 12 months of work, committee meetings, online
collaboration, engagement with developing countries,
discussion drafts, stakeholders input, and public
consultations …
 … The seven 2014 deliverables have been agreed by
consensus by OECD and G20 countries, together with
a statement that explains their content and nature.
 With this first set of deliverables, the OECD/G20 Project
has gone a long way in achieving consensus on key
measures to address BEPS.
6
Where are we
in the process?

7. THE 2014
DELIVERABLES

8.  Explanatory Statement
 3 Reports:
• two final reports on the Digital Economy (Action 1) and the
Feasibility of a Multilateral Instrument (Action 15)
• one interim report on harmful tax competition (Action 5)
 4 Instruments
• Hybrid Mismatch Arrangements
• Treaty Abuse
• TP Intangibles
• TP Documentation and CBC template
8
The 2014 Deliverables

9. ACTION 1:
ADDRESSING THE TAX CHALLENGES
OF THE DIGITAL ECONOMY

10. DE and BEPS:
Key conclusions
• Not possible to ring-fence digital economy for tax purposes
• Key features and “new” business models that exacerbate
BEPS risks identified
• Those BEPS risks will be addressed by other work in BEPS
project, which will need to consider specific issues linked to
digital economy, notably:
– Action 3 (CFC rules)
– Action 7 (Artificial Avoidance of PE)
– Actions 8-10 (Transfer Pricing)
10

11. DE and broader tax challenges
Key conclusions (1)
• Digital economy also raises broader direct tax
challenges (nexus, characterisation, and data) as
well as indirect tax (VAT collection in destination
country for cross-border B2C transactions)
• Options discussed (including modifications to
nexus rules and withholding tax on digital
goods/services) and agreement on framework for
evaluation re direct tax challenges
11

12. • Collection of VAT in B2C transactions shall be addressed by end of
2015 through work of WP9
• Refine potential options re direct tax challenges, and evaluate
impact of BEPS work on them
• Consider economic incidence of VAT and CIT and impact on
potential options
• If further actions are necessary to address BEPS concerns in digital
economy, consider limiting application of options for broader
challenges to situations in which BEPS concerns arise
• Work will be completed by December 2015
12
DE and broader tax challenges
Key conclusions (2)

13. ACTION 2:
NEUTRALISING THE EFFECTS OF
HYBRID MISMATCH ARRANGEMENTS

14. • 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
• 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.
14
Hybrid mismatches

15. 15
Overview of key features
Linking rules
DN/I
Instruments /
entities
Indirect DN/I
Instruments /
entities
DD Entities only
Special rule on
dividend exemption
for instruments
General rule:
deny deduction
Rule order
Scope
Primary rule & defensive rule.
Controlled groups and structured arrangements.
Related parties for instruments.

16. 16
Next steps
Substantive issues
1. Application of hybrid instrument rule to :
• intragroup hybrid regulatory capital
• certain on-market stock-lending and repos
2. Further consideration of application of imported
mismatch rule
3. Further consideration of whether CFC inclusion
should be treated as inclusion under rule
Implementation issues
Transitional rules and guidance on implementation
and operation of rules
Resolution of
substantive issues
Finalise
September 2015
Develop
commentary and
transitional rules

17. • We have consensus on:
- Linking rules as a concept and their detailed application.
- Scope to ensure rules are comprehensive but still administrable by taxpayers and tax
administrations.
- Rules that neutralise hybrid mismatches even if counterparty jurisdiction does not
have them.
- Rules that ensure application do not lead to double taxation.
• Rules both reduce transaction costs and tax risks for cross-border investment
when compared with uncoordinated action.
• Ongoing work to ensure co-ordination with other Actions
• Commitment to a second phase of work with a focus on implementation issues.
17
Where have we got to?

18. ACTION 5:
COUNTERING HARMFUL TAX
PRACTICES MORE EFFECTIVELY,
TAKING INTO ACCOUNT
TRANSPARENCY AND SUBSTANCE

19. 19
Overview
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

20. • Update on work on substantial activity as it would apply
to IP regimes
– Primary focus on nexus approach
• Framework for exchanging information on taxpayer
specific rulings
– Rulings broadly defined, also cover pre and post
transaction
• List of member and associate regimes under review
20
Progress report on
work of FHTP

21. • Finalise agreement on an approach to substantial
activity for IP regimes
• Agree how to apply elaborated substantial activity
criteria to other, non IP regimes
• Apply framework on rulings and start to exchange
information
• Engage with third countries on participation in FHTP
• Consider revisions or amendments to the existing
criteria applied to preferential regimes
21
Next steps

22. ACTION 6:
PREVENTING THE GRANTING OF
TREATY BENEFITS IN
INAPPROPRIATE CIRCUMSTANCES

23. How does the report
deal with treaty abuse?
• Clear statement that treaties should avoid creating opportunities
for non-taxation or reduced taxation through tax evasion or
avoidance, including treaty shopping
• A general treaty anti-abuse rule aimed at arrangements one of
the principal purposes of which is to obtain treaty benefits
• A number of specific treaty anti-abuse rules
• Clarification of the interaction of tax treaties and domestic anti-abuse
rules
• Tax policy considerations to be considered before entering into a
treaty 23

24. How does the report
deal with treaty abuse?
• Specific treaty anti-abuse rules proposed in the report
– Limitation-on-benefits (LOB) rule to address a large number of treaty
shopping situations based on the legal nature, ownership in, and general
activities of, residents of a Contracting State
– Minimum shareholding period to prevent dividend transfer transactions
– Changes to Article 13(4) to prevent transactions that circumvent the
application of that rule dealing with capital gains on shares of immovable
property companies
– Changes to the tie-breaker rule for determining the treaty residence of
dual-resident entities
– Anti-abuse rule for permanent establishments situated in third States
24

25. A minimum standard to
prevent treaty shopping
• A key outcome of the report is agreement of a minimum level
of protection against treaty shopping
• At a minimum countries should agree to include in their tax
treaties
– An express statement that their common intention is to eliminate
double taxation without creating opportunities for treaty
shopping, and
– Either
• The general treaty anti-abuse rule
• The LOB rule supplemented by a mechanism that would deal with
conduit arrangements not already dealt with in tax treaties
• Both the general treaty anti-abuse rule and the LOB rule 25

26. Tax policy considerations
to be considered...
…before entering into a treaty
• Report also provides that the OECD Model Tax
Convention will include a description of key tax
policy considerations that countries should
consider before deciding to conclude a treaty
with another country or when considering
whether to modify, replace or, as a last resort,
terminate a treaty
26

27. • Model provisions and related Commentary included in the
report, in particular the LOB rule, are in draft form and need to
be refined
• Further work is also needed with respect to
– the implementation of the minimum standard adopted to address
treaty shopping and
– the treaty entitlement of various investment funds
• It will also be necessary to take account of the interaction
between tax treaties and the recommendations for the design
of new domestic anti-abuse rules that may result from the
work on other parts of the Action Plan
27
Action 6:
Follow-up work

28. ACTION 8:
GUIDANCE ON TRANSFER PRICING
ASPECTS OF INTANGIBLES

29. • Final guidance:
– Chapter I of the Transfer Pricing Guidelines expanded to discuss
• Location savings and other local market features
• Assembled workforce
• Group synergies
– New Chapter VI contains guidance on identifying intangibles and
on determining arm’s length conditions
• Comparability in intangibles transactions
• Transfer pricing methods and use of valuation techniques for intangibles
transactions
• Numerous examples
29
TP of intangibles:
Phase 1

30. • Interim guidance on allocation of returns derived from
intangibles
– Legal ownership and contractual arrangements are the starting
point for the transfer pricing analysis
– But parties contributing to the development, enhancement,
maintenance, protection, and exploitation of the intangible must
be appropriately remunerated. This includes parties performing
functions, using assets, bearing risks, as well as parties
controlling such activities.
30
TP of intangibles:
Phase 2

31. • Guidance is interim because of strong links between
section on returns derived from intangibles and 2015
work on risk, recharacterisation, capital and possible
special measures (Actions 8-10)
• Guidance will be finalised taking into consideration
issues such as excessive capitalisation, ‘cash-box’
owners of intangibles with low functionality, mere
contractual allocation of risk, dealing with hard to value
intangibles
31
TP of intangibles:
Phase 2

32. ACTION 13:
GUIDANCE ON TRANSFER PRICING
DOCUMENTATION AND COUNTRY-BY-COUNTRY
REPORTING

33. 33
3-Tiered Approach
• Master file
– High-level overview of the MNE group business
• Local file
– Detailed information on specific group transactions
• Country by country report
– Aggregate, jurisdiction-wide information on global allocation of
income, taxes paid, indicators of economic activity
– Useful for transfer pricing risk assessment and for evaluating other
BEPS-related risks

34. 34
Content:
CbC reporting template
By jurisdiction:
• Revenues (related party / unrelated)
• Profit (loss) before income tax
• Income tax paid (cash basis) and accrued
• Stated capital and accumulated earnings
• Number of employees
• Tangible assets other than cash/ cash equivalents
By constituent entity :
• Country of organisation / incorporation (if it differs)
• Main business activity

35. • Content of reports finalised, but implementation and especially filing
and dissemination mechanisms for master file and CbC report to be
addressed over coming months
• Options include direct filing to all tax administrations, central filing,
treaty exchange, technological solutions
• Major considerations cover:
– Confidentiality
– Timeliness
– Consistency
– Appropriate usage
– Phase-in rules?
35
Implementation Report

36. ACTION 15: DEVELOPING A
MULTILATERAL INSTRUMENT TO
MODIFY BILATERAL TAX TREATIES

37. Action 15 report
Focus on feasibility of use of a multilateral
instrument to implement BEPS measures
and modify bilateral tax treaties
Report drafted with help of experts
Approved by government representatives
in CFA
37

38.  Based on precedents from various areas other
than tax, a multilateral instrument is feasible
 Annex contains a number of examples
 It is also desirable to ensure the sustainability of
the consensual framework to eliminate double
taxation
 Goal is to expedite and streamline the
implementation of the measures developed to
address BEPS and amend tax treaties
38
Key Conclusions

39.  In January 2015, the CFA will consider a draft
mandate for the negotiation of a multilateral
instrument (who / what / when / how)
39
Next steps

40. DEVELOPING
COUNTRIES
ENGAGEMENT

41.  BEPS is of major significance due to heavy reliance on
CIT, but issues may differ
 Regional consultations, Global Fora and UN facilitated
input into technical work and informed two-part report
sent to the G20 Development Working Group
highlighting priorities
 Global Forum on Tax Treaties and meeting with the
UN in Paris next week
 Plans to strengthen and institutionalise the
engagement
41
Developing countries
and BEPS

42. STAKEHOLDERS’
INPUT

43.  462 Comments, 5 Public Consultations, more than
10.000 webcast viewers, conferences, seminars and
workshops
 Consultation will continue in 2014 and 2015
• First discussion drafts out in Nov/Dec
• Public consultations in Jan/Feb/March
 Check the updated stakeholders’ calendar online
43
Stakeholders’ input
very valuable

44. WHAT’S NEXT?

45. Work in 2014 and 2015
 2014 deliverables agreed by consensus, but remain in
draft form so that outstanding technical issues and
impact of the 2015 deliverables can be incorporated
before finalising them.
 Work on 2015 under way at the level of the subsidiary
bodies
45

46. JOIN THE
DISCUSSION

47. Ask questions and comment
47
Join the discussion
Directly: Enter your question in the space provided
Via email: CTP.BEPS@oecd.org
Via Twitter: Send a tweet with the hashtag #BEPS

48. Further Information
Website: www.oecd.org/tax/beps-2014-deliverables.htm
Contact: CTP.BEPS@oecd.org
Tax email alerts: www.oecd.org/oecddirect