BEPS Action Research Articles

Anti-abuse Rules In Tax Treaty Under BEPS Action 6------Based on China

Anti-abuse Rules In Tax Treaty Under BEPS Action 6------Based on China

Value Added Tax: A Suitable Alternative for Taxing The Digital Economy? (Indonesian Context)

This study explores the appropriateness of using VAT to tax the digital economy in Indonesia, concentrating on the issues highlighted in the OECD's BEPS Action 1 report. Among the key challenges are the exemptions for low-value imports and remote digital services. The paper assesses these issues to gauge the effectiveness of VAT in addressing the taxation of Indonesia's digital economy. The study adopts a qualitative research methodology, utilizing OECD guidelines, Indonesian tax law, policy papers, and scholarly works to analyze the relevant tax challenges. Additionally, it considers VAT as both an alternative and a potential future supplement to Pillar One in the Indonesian context. The findings indicate that while Indonesia's VAT framework tackles certain digital economy challenges, concerns such as collection costs, system complexity, fairness, legal certainty, compliance, and enforcement persist. VAT is viewed as a practical temporary solution and a prospective complement to direct taxes under Pillar One, particularly in addressing gaps not covered by Amount A.

Proposed Interest Deduction Limitations and Applying the Arm’s Length Standard to the Quantum of Intra-Group Debt

Following the work of the OECD and G20, the Australian government is seeking to realign its thin capitalization and interest deductibility rules in accordance with the recommendations arising from BEPS Action 4, including shifting the focus from assets-based testing to profits-based testing for most entities. This is likely to be supplemented with a requirement to evaluate the arm’s length nature of the quantum of an Australian taxpayer’s intra-group borrowings and a unique integrity measure which seeks to deny debt deductions associated with borrowings that are connected with certain related-party asset acquisitions and payments. These measures represent a continued tightening by countries on tax deductions associated with high levels of debt.

Is There an International Minimum Standard on Tax Treaty Shopping after BEPS Action 6? Some Recent Divergent Trends

BEPS Action 6 established a “minimum international standard” to fight against tax treaty shopping, in particular by proposing to add article 29(9) of the OECD Model (2017) (the so-called principal purpose test, PPT) to tax treaties. This article explains why the PPT is susceptible to be interpreted differently across the world and, especially, shows that this outcome is very likely to materialize in view of some administrative and judicial decisions in different countries in 2021 in very relevant tax treaty shopping cases. Further tensions are added by the recent proposal for a directive by the European Commission against the use of shell companies since it is not in line with the BEPS Action 6 minimum standard. In essence, it is argued that the BEPS Action 6 minimum standard needs to be complemented with some further actions if the goal is to have a real and homogeneous anti-tax treaty shopping international standard and more legal certainty.

BEPS Action Plan 8-10: Its Impact on Transfer Pricing and the Way Forward

BEPS Action Plan 8-10: Its Impact on Transfer Pricing and the Way Forward

Формування умов для аналізу BEPS в Україні

The article reveals the problems related to the formation of conditions for analyzing the transfer of profits between countries according to the OECD indicators of Action 11 of the OECD Recommendations on preventing the Base Erosion and Profit Shifting (BEPS Action Plan) in Ukraine. It is established that the calculation of OECD indicators with data on Ukraine may be complicated due to the lack of relevant statistical information, as well as due to the establishment of the process of processing, aggregation and analysis of information from companies (including new reporting – Notification of participation in an international group of companies and transfer pricing reporting according to the “three-tier model”, which includes Сountry-by-country report). It is determined: 1) what information needed to calculate OECD indicators for BEPS analysis is already available in statistical sources and financial statements of companies; 2) what data for these purposes can be obtained by government agencies from new reporting for international groups of companies and their members in Ukraine, which will be submitted by them from 2021 and later; 3) what economic figures will not be available for BEPS analysis according to OECD indicators after the start of these new reporting forms. The necessity of forming organizational bases for collecting and processing domestic data at macroeconomic and microeconomic levels is substantiated in order to include them in global calculations of OECD indicators and use them in determining the effectiveness of BEPS countering measures in Ukraine.

The (Absence of) Member State Autonomy in the Interpretation of DAC6: A Call for EU Guidance

DAC6 concerns the spontaneous exchange of information on potentially aggressive tax arrangements. With the implementation of DAC6 into the national laws of the Member States comes a lot of uncertainty, along with diverging interpretations among Member States. In this article, the authors analyze the autonomy of Member States in the definition and interpretation of the concepts used in DAC6. The authors also analyze the relevant sources of the interpretation of DAC6, such as the relevant BEPS reports. The authors argue that DAC6 lays down a uniform framework for the spontaneous exchange of information of potentially aggressive tax arrangements. Member States do not have a margin of discretion regarding the interpretation of the concepts that are essential to the uniform framework. Other concepts may leave a margin of discretion for the Member States, such as several concepts used in the Hallmarks. In their margin of discretion, the Member States must ensure the full effectiveness of Union law. On the basis of that, the concepts must be defined (and interpreted) in line with the object and purpose of the Directive. Member States should use BEPS Action 12 as a source of interpretation and illustration insofar DAC6 is based on this report. DAC6, Directive 2018/822, Main Benefit Test, Reporting, BEPS, Union concepts, quasi-Union concepts, autonomy of Member States, Interpretation of Directives, EU Guidance.

Звітування в розрізі країн: забезпечення конфіденційності та захисту інформації міжнародних груп компаній

Introduction. Confidentiality and protection of information contained in Country-by-Country Reports is one of the most important aspects of implementation of provisions of Action 13 of the Base erosion and Profit Shifting Action Plan (BEPS Action Plan) into national legislation of countries around the world. Problem statement. Considering Ukraine`s commitments to Organization for Economic Cooperation and Development (ОЕСD) in frames of combating against tax evasion by multinational groups of companies, a particular relevance receives the study of model legislation on confidentiality and protection of information, which is the subject of voluntary automatic exchange between countries, and approaches to its implementation into national legislation. Purpose. Complementary analysis of institutional basis for ensuring confidentiality and protection of information that is the subject of exchange between OECD member countries in frames of the BEPS Action Plan. Materials and methods. The research is based on a combination of general scientific methods, methods of comparison and empirical approach. Results. The need for harmonization of domestic legislation with OECD regulatory requirements that regulate confidentiality of information on taxpayers (including information exchanged in accordance with international agreements) has been substantiated. Conclusions. Based on the results of the conducted research it has been proved that there is the need for further improvement of institutional provision of protection and confidentiality of tax information, including information exchanged in accordance with international agreements.

The BEPS Action 5 Standard: Compliance Review Results

In this article, the author discusses the implications of the OECD Action Plan targeting harmful tax measures on Kazakhstan’s independent tax-free zone, the Astana International Financial Centre, in light of Kazakhstan’s need to diversify its economy and attract foreign investment to ensure economic stability and growth in the post-pandemic period.

Special Economic Zones Facing the Challenges of International Taxation: BEPS Action 5, EU Code of Conduct, and the Future

ABSTRACT Corporate taxation and particularly corporate tax incentives that jurisdictions introduce in special economic zones have not, until recently, been subject to extensive international regulation. Only in the last decade has a regime of soft law standards and European Union measures with extraterritorial effect been constructed. This article explains how the Base Erosion and Profit Shifting Action Plan developed by the Organisation for Economic Co-operation and Development (OECD) and the European Union Code of Conduct for Business Taxation interact with corporate tax incentives in special economic zones. Empirical evidence from Latin American and Caribbean jurisdictions shows that this emerging international regime began having an impact on special economic zone laws beyond the OECD and European Union Member States. An analysis of ongoing negotiations on the further developments of the international tax regime permits the cautious conclusion that the regulation of SEZs may in the future be affected in a more fundamental manner by international norms. Thereby, the article shows that special economic zones’ unilateralism in corporate taxation may be slowly receding in contrast to other areas of international economic governance.

BEPS Action 2 and the Non-Discrimination Rule Under the GATS

This article is intended to analyse whether Recommendations 1.1. and 1.2. of the Final Report of Base Erosion and Profit Shifting Action Plan 2 – which makes a number of proposals to design domestic tax rules in order to tackle mismatch arrangements caused by the use of hybrid financial instruments – would harm the non-discrimination rules of the General Agreement on Trade in Service. Base Erosion and Profit Shifting Action 2, non-discrimination rules, General Agreement on Trade in Service, hybrid instruments, mismatch arrangements.

Analysing Value Creation and the Value Chain of Data Businesses

The notion of value creation is gaining traction. Even the OECD emphasized aligning profit taxation with economic activity and value creation in the BEPS Actions 8-10 Final Reports. OECD/G20, Aligning Transfer Pricing Outcomes with Value Creation – Actions 8-10: 2015 Final Reports , Executive summary (OECD 2015), Primary Sources IBFD [hereinafter Actions 8-10 Final Reports]. Further, the modern innovative business models in this era of the digital/data economy are giving rise to highly integrated value chains. The question arises as to (i) how to accurately describe these value chains in a manner that makes the value creation and value-capturing of data and digital business transparent for tax purposes; and (ii) how to analyse modern businesses acting in their very own and unique data ecosystems. Therefore, this article discusses the value creation and value chain aspects of data-driven businesses. Considering the above, this article first discusses the background of value chain analysis and its commonly used methods for transfer pricing purposes. Second, it attempts to establish a link between the concept of value creation in the data economy and the evolving data-driven business models and examines possible value chain analyses that might be able to describe these models properly. As an interim conclusion, the authors express the need for an adjustment of the current value chain analysis for digital/data-driven businesses, as it fails to integrate the ways in which the digital data ecosystem works. Therefore, for business models that rely heavily on data and for transactions that are data-intense/data-driven, the authors propose a quantitative approach, whereby the residual profit is attributed not only to profit and investment centres, but also to data function. As it is crucial for such a value chain analysis to appropriately reflect value creation, the authors also propose a framework of digital documentation tools to understand the economic reasoning behind those businesses.

Common features of video games and social networks: importance for international taxation

In the last decade, significant review and change have been done regarding the taxation of profits from multinational companies. The OECD BEPS Action 1 is focused on granting additional taxing rights to jurisdictions where the customers of the service are located. This is because consumers add to the value creation process (prosumers), together with the company itself. Many enterprises do not have a physical presence at market jurisdictions because of the worldwide digitalization of the business process. With distant sales, they avoid sufficient taxation at the source countries. Multiple jurisdictions, businesses, and individuals provided various taxing rights allocation proposals. OECD considered some of them as possible ways to address the issue of under-taxation at market jurisdiction. This article evaluates the applicability of the OECD analysis of the value creation to the video games industry under the angle of differences and similarities between single-player and multi-player video games with social networks. This work is focused on the differences related to user participation and network effects for the value creation process. It explores the importance of the user participation and network effects for the value creation process of single-player and multi-player video games, to find if that respective taxing rights allocation should be different for these types of video game. It also analyses main proposals on taxing rights allocation, their applicability to the industry, and if these proposals acknowledge the differences in value creation based on the network effects of the video game. It was found that the existing proposals are not always consistent with the preparatory work on value creation analysis performed by the OECD and do not consider the named differences. The results of this work support the position that the proposals, including the most recent one, meet the existing urge for the taxing rights reallocation, but are mainly politically-driven and not always in line with the existing principles of international tax law.

Análisis de la Acción 1 BEPS en la legislación fiscal federal mexicana a partir de 2020: Aspectos legislativos pendientes.

Como resultado de las acciones propuestas por la Organización para la Cooperación y el Desarrollo Económico (ocde) en materia de “erosión de la base imponible y traslado de beneficios”, o identificadas en inglés como Base erosion and profit shifting, conocidas por sus siglas como beps, México, y otros países de Europa han integrado a su legislación fiscal diversas disposiciones jurídicas. Las acciones beps son 15 y enfocadas en proporcionar a los países instrumentos nacionales e internacionales que alineen mejor la potestad tributaria de los países miembros de la ocde y del G-20 con las actividades económicas que realizan las empresas a fin de garantizar que los beneficios, empresariales, se graven donde se realizan las actividades económicas que les generan y crean valor. Así mismo señalan plazos para implementar estas acciones y establecen los recursos y la metodología inherente. Entre las acciones que sugiere la ocde se encuentra la referente a cómo abordar los retos de la imposición de la economía digital. Precisamente, la Acción 1 beps se ocupa de esta cuestión. El artículo analiza el cumplimiento de la Acción 1 beps en la legislación fiscal federal mexicana a partir de 2020, y muestrando aspectos que deben legislarse para considerarla cumplida.

The Saving Clause and Hybrid Entities

A treaty practice followed for a long time in the US, the saving clause was raised in the context of the OECD discussions related to hybrid entities and treaty abuse and ended up being adopted in both the MLI and the 2017 OECD Model. It plays a significant role concerning the tax treatment (and treaty entitlement) of hybrid entities. Accordingly, the saving clause was discussed under BEPS Action 2 to address an inconsistency between the general principle embraced by the Partnership Report and the solution chosen by the same report to some cases. However, by bringing an inconsistency from the Partnership Report to its model convention, the OECD included an incoherence therein, resulting from the transparent entities provision under Article 1(2) not being excepted from the saving clause under Article 1(3) of the OECD Model and leading to unrelieved double taxation.

Treatment of Funding Risk and Capital – Financial Services versus Non-Financial Services: Never the Twain Shall Meet?

Functions, assets and risks in transfer pricing mirror the classical economic factors of land, labour and capital. Famously, Thomas Piketty has written about the dominant role of capital in income equality in our age. However, from significant people’s functions in 2010 to DEMPE in BEPS Actions 8-10, the recent evolution of thinking around transfer pricing has increasingly emphasized functions, i.e. labour, while relegating capital to a supporting or secondary role in the attribution of profits. The authors examine the treatment of capital in transfer pricing, comparing and contrasting between the financial services and non-financial services sectors, with the hope of contributing to a more balanced appreciation of the role of capital and the need for future guidance in this area.

Analysis of Indonesian Tax Authority Readiness in Taxation of Digital Economy in accordance with the OECD BEPS Action Plan 1 Recommendations

Analysis of Indonesian Tax Authority Readiness in Taxation of Digital Economy in accordance with the OECD BEPS Action Plan 1 Recommendations

GloBE Proposal and Possible Carve-Outs: Is There a Future for Preferential Tax Regimes?

The GloBE proposal intends to comprehensively address the remaining BEPS challenges and tax competition issues ensuring that the profits of multinational enterprises are subject to a minimum effective tax rate. Nonetheless, the public consultation held in November 2019 gave evidence of different views among the stakeholders around the scope of the new rules. The aim of this article is to explore the idea of carve-outs to exclude the preferential tax regimes in compliance with BEPS Action 5 from the new measures. The analysis of the GloBE proposal involves not only the interplay with BEPS Action 5 and tax competition, but also other variables of the international tax framework, including tax neutrality, tax equity, and tax sovereignty. The results provide serious arguments to support the possibility of carve-outs to limit the scope of the new rules for some preferential tax regimes that comply with the standards developed by the Forum on Harmful Tax Practices. Based on the fact that the future of such regimes should be preserved for fundamental policy reasons, it is suggested to redefine the path towards the minimum effective tax on the ground of new balancing elements: the parameter of the fiscal residue and the principle of proportionality.

Impact of OECD Beps Action 7 Proposals on Modification of Articles 5(4), 5(5) and 5(6) of OECD Model Convention - An Evaluation of Action 7 on the Future of Intra-Group Transactions and Business Models of MNEs in their Cross-Border Investments

The notion of permanent establishment (PE) is one of the most important issues in treaty-based international fiscal law; it is perhaps the single most important and dynamic one, too. With openness in economies, globalisation and rapid development of e-commerce business models, there is a complete change in the way business is carried out throughout the world by multinational companies (MNE). Traditional ways of doing business have given way to modern and rather flexible ways of operating globally. Naturally, taxing rules need to keep up the pace at which businesses are evolving. It is extremely crucial that taxes are paid at the place where substantial activity and operations of multinationals effectively take place. To achieve this, the Organisation of Economic Co-Operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Project identifies Action 7 to prevent the issues of artificial avoidance of PE status. This Action seeks to revamp the definition and scope of PE as is currently existing in Article 5 of the OECD Model Convention on Income and on Capital. Whilst examining the recommendations of BEPS Action 7, the authors will analyse how the existing rules of Article 5(4) (dealing with preparatory and auxiliary activities), Article 5(5) (dealing with Agency PE rule) and Article 5(6) (dealing with exclusion for Independent Agents) are likely to be modified. The authors will also evaluate how these changes are likely to have an impact on Singapore’s existing treaties (if these changes are re-negotiated in existing treaties, whether bilaterally or through the BEPS Multilateral Instrument (MLI)). The paper will also shed light on how these changes could impact business models and supply chains in a post-BEPS world. It must be noted that BEPS Action 7 recommendations are proposed to give effect to the PE Article in existing treaties by way of the MLI, under development by the OECD as per BEPS Action 15 (Developing a Multilateral Instrument to Modify Bilateral Tax Treaties).

Related Parties as Used in Transfer Pricing

The paper examines the scope of related party transactions falling under the OECD Transfer Pricing Guidelines (TPG) and the transfer pricing regimes of selected tax jurisdictions. The OECD TPG does not deal with the concept of associated enterprises as used in Article 9 of the OECD Multilateral Tax Convention (MTC), while Article 9 of the OECD MTC does not define the terms used to describe associated enterprises. This gives rise to the question of what exactly was intended for under the scope of Article 9 and its consequent applicability. At the same time, many jurisdictions define related party transactions for transfer pricing purposes using the concept of “control”, but countries may perceive “control” from different perspectives. The paper discusses the practical implications arising from such differences in specific scenarios, e.g. joint ventures, family owned companies, comparability and country-by-country reporting. The “closely related” concept proposed under BEPS Action 7 is also discussed. Finally, the paper concludes with some recommendations to resolve these issues. Given the increasing focus on transfer pricing, more transfer pricing disputes are expected and correspondingly a greater use of Article 9 to eliminate economic double taxation. This intensifies the need for clarity on the scope of Article 9. It would also be timely to review the scope in light of the changes that are being made to the OECD TPG.