1. OECD-G20 work on taxation – BEPS and Automatic Exchange of Information
18th Cross Atlantic and European Tax Symposium
21 November 2014
Achim Pross, OECD

2. Automatic Exchange of Information
Outline
BEPS
Background and context
OECD BEPS Report
Action Plan against BEPS
The 2014 Deliverables
Next steps
Automatic Exchange of Information
Background, context and timeline
The Standard: basic approach and key features

3. Base Erosion and profit shifting

4. Background and context
Tax rates on foreign income – often very low / issue of double non-taxation;
Separation of place of economic activity and place where profits are reported for tax purposes;
Increasing importance of intangible assets;
Principles of international taxation often developed in the 1920s:
Less cross-border activity;
Changes to business models, e.g. globalisation of value chains, „digital economy“;
Built on the assumption that profits are taxed in the other country.

5. Background and context (cont.)
Doing nothing is not an option:
Increased possibilities for mismatches;
Increased competitive distortions;
Additional disputes and increased uncertainties for business;
Use of anti-avoidance measures may decide who will grab a part of the taxable income (“First in time, first in line.”);
Tax rates → Race to the bottom;
Danger of undermining voluntary compliance by other taxpayers.
No blaming / no finger-pointing:
Not about blaming business; if we want different results we need to look again at the system
And not about blaming particular countries either.

6. OECD BEPS Project to date
Step 1: Addressing BEPS (February 2013):
Identifies main pressure areas leading to opportunities for BEPS
Calls on governments to address these areas: if governments are not happy with the results under the laws, they must change the laws.
Welcomed by G20 Finance Ministers (16 February 2013)
Step 2: BEPS Action Plan (July 2013):
15 actions to be delivered in 2014 and 2015 based on coherence, substance and transparency
Endorsed by G20 Leaders (6 September 2013)
Step 3: First Seven Deliverables
September 16,2014, release of first seven deliverables, agreed by consensus by all OECD and G20 countries
Welcomed by G20 Finance Ministers (21 September 2014)

7. Key pressure areas Hybrid Mismatch Arrangements Transfer pricing
Delivery of digital goods and services
Availibility of
preferential regimes
Treaty abuse, Anti-avoidance measures, etc.
Group financing
Intangibles
Financing

8. Overview all actions September 2014 September 2015 December 2015
Digital Economy Report
Hybrids
Review of HTP Regimes
Preventing Treaty Abuse
Addressing TP aspects of Intangibles (Phase 1)
Addressing TP documentation
Multilateral Instrument Report
CFC Rules
Interest Deductibility
Strategy on expansion of FHTP
Addressing avoidance of PE status
Addressing TP aspects of Intangibles (Phase 2)
Addressing TP aspects of risks and capital
Addressing TP aspects of other high risk transactions
Report on Data and Economic Analyses
Mandatory Disclosure Rules
Dispute Resolution
Addressing TP Interest Deductions
Revision of HTP Criteria
Multilateral Instrument

9. 46 countries involved Chile Canada USA Iceland Australia Austria
Belgium
Czech Republic
Denmark
Estonia
Finland
France Germany
Greece
Hungary
Ireland
Israel
Italy
Latvia
Japan
Korea
Luxembourg
Netherlands
Norway
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
Russia
China
Chile
Mexico
Saudi Arabia
India
Malaysia
Singapore
Colombia
Indonesia
Brazil
Chile
South Africa
Argentina
New Zealand

10. The Deliverables

11. The 2014 Deliverables 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 practices (Action 5)
Draft Rules in 4 areas
Hybrid mismatch arrangements
Treaty abuse
TP Intangibles
TP Documentation and CBC template

12. Action 1 – Digital economy - key outcomes
Common understanding of digital economy, its business models and aspects relevant for taxation
Digital economy can not be segregated from wider economy
Does not raise unique BEPS issues, but some of its key features (especially mobility) may exacerbate BEPS risks. These features need to be taken into account in other work in BEPS, e.g. (i) artificial avoidance of PE, (ii) CFC rules, and (iii) Transfer pricing and value creation
Digital economy also raises broader challenges for direct tax (related to nexus, characterisation, and data which may overlap), and indirect tax (related to VAT collection for cross-border business-to-consumer transactions)
Task Force discussed potential options and agreed on framework for evaluation, but concluded that the fact that other work to address BEPS is ongoing makes the scope of challenges and impact of options difficult to evaluate

13. Action 1 – Digital economy - key outcomes
Work continues in order to:
Address collection of VAT in B2C transactions
Ensure that work in other areas of BEPS addresses BEPS in the digital economy
Address broader tax challenges, refine potential options, and evaluate impact of BEPS work
Consider economic incidence of VAT and CIT and impact on broader options
If further actions are necessary to address BEPS in digital economy, consider limiting application of options for broader tax challenges to situations in which BEPS concerns arise
Work will be completed by December 2015

14. Action 2 – Hybrid mismatches
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.

15. Action 2 – Overview of key features
Special rule on dividend exemption for instruments
DN/I
Instruments / entities
General rule: deny deduction
Linking rules
Indirect DN/I
Instruments / entities DD
Entities only
Rule order
Primary rule & defensive rule.
Scope
Controlled groups and structured arrangements. Related parties for instruments. 15

16. Action 2 – Where have we got to?
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 does 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. Action 5 – Harmful tax practices
2014 Progress report
Update on work on substantial activity as it would apply to IP regimes
Framework for exchanging information on taxpayer specific rulings
List of member and associate regimes under review
Next steps:
Finalise agreement on an approach to substantial activity for IP regimes in particular in light of joint UK-German proposal
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 (i.e. non-OECD/G20) on participation in FHTP
Consider revisions or amendments to the existing criteria

18. Action 6 – Treaty abuse
Agreement that treaties not to be used to generate double non-taxation
Agreement on a common minimum standard to tackle treaty abuse
Further work to be done on some technical details related to the drafting of the provisions
Further work to consider impact of anti-abuse provisions on collective investment vehicles.

19. Action 8 – Intangibles A broad definition of intangibles is introduced
Important value creating activities relating to intangibles will get appropriate remuneration
If no comparables exist, techniques to value are available
Benefits following from corporate synergies cannot be centralised in low tax locations, but must be shared among the group members which contribute to these synergies
Guidance on locational advantages
Many examples
Artificial profit shifting to “cash boxes” no longer tolerated
Some guidance interim since issues are closely related to 2015 work on treatment of risks, capital, and recharacterisation

20. Action 13 – Transfer pricing documentation
Agreement on standard TP documentation that includes Master file, local file and country-by-country reporting template
Overview of where profits, sales, employees, and assets are located and where taxes are paid and accrued on a country-by-country basis
Useful tool for risk assessment
Work ongoing on scope and filing mechanism to be completed early 2015
Post implementation review by 2020

21. Action 13 – Model Template of CbC report

22. Action 13 – Model Template of CbC report (cont.)

23. Action 15 – Multilateral Instrument
Based on precedents from various areas other than tax, a multilateral instrument to implement BEPS measures is feasible
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
Report recommends a multilateral instrument to be developed soon and to cover at least tax treaty related BEPS measures

24. Next steps
All recommendations are agreed but will remain in draft form so that the potential impact of the 2015 deliverables can be incorporated before finalising them.
Implementation and practical guidance will be developed.
The next outputs of the BEPS Project are due to be delivered in September and December 2015.

25. Standard for Automatic exchange of Financial account information

26. The OECD-Standard on Automatic Exchange of Information
G20 Summit, St Petersburg Sep ‘13
Support to OECD/G20 work on: - Presenting standard by February 2014; and - Finalizing technical modalities by mid-2014.
Asked the GFTEI to establish mechanism to monitor and review implementation of standard.
Called on the OECD, the GFTEI and others to ensure developing countries can benefit from new standard (technical assistance).
Next slide

27. The OECD-Standard on Automatic Exchange of Information
February 2014: G20 endorsement of the Common Reporting Standard for automatic exchange of tax information
September 2014: G20 endorsement of the full standard and commitment to begin exchanging information by 2017 or end-2018
November 2014: Presentation to G20 Leaders

28. 35 years of automatic exchange in 3 slides The first 20 years
‘81
‘92
‘03
‘05
‘10
Design of the Paper Standard Format
Standard
Magnetic
Format (SMF) adopted
Approval of EU Savings Directive which builds upon SMF
US enacts FATCA
Standard
Transmission
Format (STF) adopted
EU Savings Directive updates to STF

29. 35 years of automatic exchange in 3 slides The transition
Jun ‘12
Jul ‘12
Nov ‘12
Apr ‘13
FATCA Model 1 IGA includes commitment to develop a common model
In Los Cabos, G20 welcomes OECD report on AEOI
G20
Support
AEOI
G5 pilot
(early adopters)

30. 35 years of automatic exchange in 3 slides Design and implementation of the CRS
Jun ‘13
Sep ‘13
Nov ‘13
Dec ‘13
Jan ‘14
Feb ‘14
Mar ‘14
May ‘14
Jun ‘14
Jul ‘14
Sep ‘14
Oct ‘14
Oct ‘14
Nov ‘14
2017
G20 endorse AEOI as new global standard and ask OECD to develop CRS
European Council commits to adopt DAC2 in 2014
Early adopters statement (44 countries)
OECD approves full version of standard
GF Berlin: 93 jurisdictions commit to AEOI
CAA signed by 51 jurisdictions
Full version of standard endorsed by G20 Ministers
First exchange under CRS
G20 endorse CRS
OECD Ministerial Declaration (OECD Members + 14 other countries, including Singapore)
OECD Council Recommend. on AEOI
Full version of Standard presented to G20 Leaders together with overview of committed countries
OECD report to G8 on common model for AEOI
GFTEI creates AEOI group
OECD approves first part of standard
Ecofin political agreement on revised DAC2 which incorporates CRS
Ongoing business consultation

31. Jurisdictions committed to AEOI
2017
2018

32. Automatic exchange standard Basic approach: Leveraging on FATCA
Model 1 IGA reporting
Model 1 IGA exchanges
Leveraging on Model 1 IGA implementation to develop standardised automatic exchange in a multilateral context
Account Holder
Bank  
Country A  US 
Bank
Account Holder  
Country B  
Account Holder
Bank

33. AEOI standard: Building on FATCA, EU Savings Directive and FATF to have Single Standard and Reduce Cost
Similar scope of information reported
Personal data: name, address, tax residence, TIN
Financial data: account balance, investment income, sales proceeds from financial assets
Similar scope of financial institutions required to report
Banks, custodia ns, insuranc e compani es and investm ent entities (e.g. certain collectiv e investm ent vehicles)
Similar scope of account holders subject to reporting
Individuals
Entities (including trusts and foundations)
Controlling persons (i.e., beneficial owners) of entities
Similar Due diligence procedures
Distincti on pre- existing /new, individu al/entity, lower value/hi gh value accounts

34. Next Steps Country implementation
Translating the reporting and due diligence rules into domestic law
Selecting a legal basis for the exchange of information
Entering into Competent Authority Agreements
Protecting confidentiality and safeguarding data
Making effective use of the information
Putting in place the related administrative resources and required IT infrastructure
Developing secure, effective and common transmission systems
Measuring impact
Voluntary disclosure initiatives

35. Next steps for OECD
Ongoing maintenance to resolve issues and ensure consistency (in consultation with FIs)
Produce training material (CRS Implementation Handbook) and co-host training events for implementing countries (together with Global Forum)
CRS portal for both general and country-specific information on implementing the Standard (including information on TINs and residence rules)
Continued support to “operationalise” Multilateral CAA
Voluntary disclosure
Toolbox for making effective use of information
Alignment of TRACE to CRS and assist in country implementation

36. OECD-G20 work on taxation – BEPS and Automatic Exchange of Information
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