0. EBF Annual Tax Conference 2016
BEPS: impact for business and banks’ specificities
Wim Eynatten
2 February 2016

1. Enlarged taxable basis
Practically BEPS is structured around 15 actions with three main impacts for MNEs
BEPS Pillar
Actions
3 main impacts
Coherence
1. Digital economy
2. Hybrids
3. CFC rules
4. Interest deductions
5. Harmful tax practices
Enlarged taxable basis
Interest
Taxable presence
Profit allocation
Increased Compliance
TP documentation
Disclosure of tax information
Uncertainty
GAAR
MAP?
Harmful tax practices?
Abuse of tax treaties?
6. Abuse of tax treaties
7. Permanent establishment
8 – 10 : Transfer Pricing
Substance
Transparency
11. Data collection on profit shifting
12. Disclosure of tax planning arrangements
13. TP Documentation
14. Arbitration
15. Multilateral Instrument 5

2. 15 Actions around 3 main pillars Transparency and Certainty
Potential BEPS impact for banks
15 Actions around 3 main pillars
Coherence
Substance
Transparency and Certainty
Preventing Tax Treaty Abuse (6)
Hybrid Mismatch Arrangements (2)
Hybrid Mismatch Arrangements (2)
Measuring BEPS (11)
Hybrid Mismatch Arrangements (2)
Avoidance of PE Status (7)
Hybrid Mismatch Arrangements (2)
Hybrid Mismatch Arrangements (2)
CFC Rules (3)
Disclosure Rules (12)
TP Aspects of Intangibles (8)
Hybrid Mismatch Arrangements (2)
Hybrid Mismatch Arrangements (2)
Interest Deductions (4)
TP Documentation (13)
Hybrid Mismatch Arrangements (2)
TP/Risk and Capital (9)
Hybrid Mismatch Arrangements (2)
Harmful Tax Practices (5)
Dispute Resolution (14)
Hybrid Mismatch Arrangements (2)
TP/High Risk Transactions (10)
Digital Economy (1)
Multilateral Instruments (15)
Taken from OECD live webcast “The BEPS Package” – 5 October 2015

3. Preventing treaty abuse
Actions 2, 4 and 6
Key considerations
The proposals will require changes to domestic legislation and are likely to take effect from 2017 or later.
There is no grandfathering of existing arrangements, so taxpayers will need to consider whether their arrangements fall within the scope of the rules.
Jurisdictions remain free to exclude hybrid regulatory capital from their hybrid mismatch rules / apply special rules, which could lead to increased complexity.
Hybrid mismatches
Specific rules for banks and insurance companies are still awaited with final proposals to be released in 2016.
There is no exclusion for securitisation issuers or SPVs.
Interest deductions
The general proposed LOB rules broadly prevent treaty relief from applying unless an entity can show that its ultimate beneficial owner is entitled to equivalent treaty relief.
Creates pressures for fund entities – some relief measures for CIVs.
This leaves whole area of uncertainty around non-CIV, SPV’s, private funds, securitisation etc.
Implications for equity trading businesses.
Preventing treaty abuse

4. Action 7 - Permanent Establishments
Two key changes:
Updating the dependent agent definition
“habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise and, these contracts are a) in the name of the enterprise, or b) for the transfer of ownership of […] property owned by that enterprise [… or] c) for the provision of services by that enterprise ”
Independent agent exemption will not apply where the agent acts “exclusively or almost exclusively” for closely related enterprises
Tackling artificial avoidance of PE status through the specific activity exemptions
Are the activities ‘preparatory or auxiliary’ for the enterprise’s business as a whole?
Further guidance on the meaning of ‘preparatory or auxiliary’

5. Action 7 - Permanent Establishments
Examples of activities potentially caught by the widening of the PE definition
Remote booking
Asset management – marketing and distribution services
Electronic platforms
Short term visitors
Private banking
Corporate banking
M&A advisory

6. Action 7 - Permanent Establishments
Example 1: Remote booking model
Contract concluding activities
Reliance on independent agent status
Transaction booked onto BS of the UK
Booking entity UK
Hong Kong US
Trader employing entity
Sales team employing entity
Critical new words in Article 5(6)
“… Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent”

7. Action 7 - Permanent Establishments
Example 2: Short term visitor/Marketing and distribution
Principal
Third party customers
Country R
Country S
Contract concluded
STV / M&D
Example 2:
Employees of principal company resident in country R travel to country S to conclude contracts with customers in country S
Employees are only in country S on a short term basis with no fixed place of business
Not covered by existing Article 5(5) unless viewed to be habitually concluding contracts, but increased risk they will be covered by the proposed amendments
Critical new words in Article 5(5)
“or habitually concludes, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise”

8. Action 7 - Permanent Establishments
Effect of recognising new PEs:
Different approaches to profit allocation in different jurisdictions
Increased compliance costs
Accounting consequences
Regulatory position could be affected
New tax reporting obligations
Other taxes: bank levy, indirect taxes, withholding taxes, exit taxes

9. What should banks consider?

10. 4 key actions to be considered by banks
Prepare for
the new reporting requirements I
Determine the data to gather and implement data collection process
Analyse and check the data
Back-test the results on the precedent fiscal years
Anticipate the possible analyses of tax authorities and test the compliance of the TP policy with the economic substance of the Group II
Review the current tax positions
Use of hybrids
Debt / interest policy
Use of commissionaires / agents
Booking models
Short term business traveller programs
III
Adjust tax strategy
Adjust tax strategy towards business strategy (more integrated vision and anticipation)
Align profits with value creation (tax optimisation = business optimisation)
Transform the tax teams, towards a more business oriented activity
Prepare tax communication strategy IV
Define level of information to be disclosed
Define the communication packages by type of stakeholders (tax administrations, shareholders, public opinion…): annual report, specific tax report…
Brief and align the management (including business)

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