Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
This month, we review steps toward implementation of anti-B.E.P.S. provisions in various countries and the E.U. Kenneth Lobo and Nina Krauthamer look at the latest items, including French tax raids on local offices of U.S. companies, disagreement with the E.U. over the adoption of blacklists and the tax treatment of C.F.C.’s, and pushback against proposed Code §385 regulations that deal with debt and equity.
Read MorePublished in Journal of Taxation and Regulation of Financial Institutions, Volume 28, Number 4: March/April 2015. © Civic Research Institute. Authorized Reprint.
Read MoreThe busy season for the B.E.P.S. Project opened at the end of July, as O.E.C.D. Working Parties completed their assignments. Readers may wish to see how the world will look after all B.E.P.S. Actions are completed. Galia Antebi and Stanley C. Ruchelman discuss several developments.
Read MoreDetermined to eliminate so-called “double non-taxation,” as well as no or low taxation, associated with practices that are perceived to segregate taxable income from the activities that generate them, the Group of Twenty (“G20”) and the Organisation for Economic Co-operation and Development (“O.E.C.D.”) released their Action Plan on Base Erosion and Profit Shifting (“B.E.P.S. Action Plan”) in 2013. Included in the B.E.P.S. Action Plan are several provisions related to transfer pricing:
The O.E.C.D. has since delivered a number of reports and recommendations related to these actions, including revisions to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“Transfer Pricing Guidelines”), and it continues to perform additional work on deliverables scheduled for later this year.
Action 4 of the B.E.P.S. Action Plan focuses on best practices in the design of rules to prevent base erosion and profit shifting using interest and other financial payments economically equivalent to interest. Its stated goal is described in the following Action:
Develop recommendations regarding best practices in the design of rules to prevent base erosion through the use of interest expense, for example through the use of related-party and third-party debt to achieve excessive interest deductions or to finance the production of exempt or deferred income, and other financial payments that are economically equivalent to interest payments. The work will evaluate the effectiveness of different types of limitations. In connection with and in support of the foregoing work, transfer pricing guidance will also be developed regarding the pricing of related party financial transactions, including financial and performance guarantees, derivatives (including internal derivatives used in intra-bank dealings), and captive and other insurance arrangements. The work will be coordinated with the work on hybrids and CFC rules.
On December 18, 2014, the O.E.C.D. issued a discussion draft regarding Action 4 (the “Discussion Draft”). The Discussion Draft stresses the need to address base erosion and profit shifting using deductible payments such as interest that can give rise to double non-taxation in both inbound and outbound investment scenarios. It examines existing approaches to tackling these issues and sets out different options for approaches that may be included in a best practice recommendation. The identified options do not represent the consensus view of the Committee on Fiscal Affairs, but are intended to provide stakeholders with substantive options for analysis and comment. This article discusses the Discussion Draft for Action 4 of the B.E.P.S. Action Plan.
