BEPS - ילארשי טבמו תינכדע בצמ תנומת€¦ · Brightman Almagor Zohar & Co. (Deloitte Israel) is the member firm of Deloitte Touche Tohmatsu Limited in Israel

© 2017 Brightman Almagor Zohar & Co. מחלקת מיסוי בינלאומי, מנהל בכיר, משה בינה ,Deloitte

BEPS -ישראלי תמונת מצב עדכנית ומבט

© 2017 Brightman Almagor Zohar & Co.

• BEPS Background

• Treaty Related Action Plans

• Harmful Tax Practices

• Transfer Pricing

• Others

• Next Steps

Agenda

© 2017. For information, contact Deloitte Touche Tohmatsu Limited. 2

BEPSBackground

3


Cross Border Income Shift

Intercompany Loans, Licensing, Provision of Services, Production and Sale of Products.

Is Each Country Engaged in these Transactions

Receiving Their Fair Share of Revenue?

High Taxed CountriesInterest

Royalties

Products

Services

Low Taxed Countries

Belgium France Germany

Italy

Argentina

Mexico Colombia

BrazilJapanSpain

Ireland Malta

Hong KongSingapore

BermudaSwitzerland

Cayman Islands

Luxembourg

What is the debate all about?


1. Digital economy

2. Neutralising hybrids3. Strengthen CFC rules4. Limit interest / finance deductions5. Counter harmful tax practices – substance

6. Prevent treaty abuse 7. Prevent PE avoidance 8. Value creation – intangibles9. Value creation – risk & capital10. Value creation – high-risk transactions

11. Data collection / analysis12. Disclosure (aggressive tax planning)13. Transfer pricing documentation14. Dispute resolution

15. Multilateral instrument

Establishing international coherence of corporate income taxation

Restoring the full effects and benefits of international standards

Ensuring transparency while promoting increased certaintyand predictability

From agreed policies to tax rules: the need for a swift implementation of the measures

BEPS’s Agenda


November 2012

Feb 2013

May 2013

June 2013

July 2013

G20 leaders met

OECD released

“Addressing Base

Erosion and Profit

Shifting”

European

council meeting

Forum of Tax

Administration

meeting

OECD’s

Committee on

Fiscal Affairs to

agree action

plan

OECD’s action

plan delivered to

G20 Finance

Ministers

G8 Summit

September 2014 September 2015 December 2015

Delivery of:

• Report on digital environment

• Changes to model tax convention

• Recommendations for domestic rules

• Review of member country tax

regimes

• Changes to Transfer Pricing

Guidelines

• Report on international law and

multilateral instrument

Delivery of:

• Further recommendations for

domestic rules

• Strategy to expand participation to

non-OECD members

• Further changes to the model tax

convention

• Changes to the transfer pricing

guidelines

• Recommendations regarding data

to be collected

Delivery of:

• Further changes to the

transfer pricing guidelines (re:

interest deductions)

• Revision of existing criteria

regarding harmful tax regimes

• A multilateral instrument

BEPS history and timeline


Recommendations

• CFC rules

• Disclosure rules

BEPS output for legislationThree distinct groups

Multilateral Instrument to speed implementation during 2017

Minimum Standard

• Permanent establishment

• Treaty abuse

• Transfer pricing

• Country-by-country reporting

• Dispute resolution

• Harmful tax practices

Best Practice

• Interest restrictions

• Hybrid mismatches

• Transfer pricing documentation

• VAT on business to customers digital services


BEPS Timetable

Countries sign Multilateral Convention

Review of country-by-country reporting

20168 Oct 2015

Nov 2015

21-22 Sept 2015 2017 2020

Committee on Fiscal Affairs approves Actions

G20 Finance Ministers

G20 Leaders

Release of updated OECD model treaty

Countries implement agreed actions –2016- 18?

Review of digital economy

Treaty Related Action PlansActions:1, 2, 6, 7, 14, & 15

3


Treaty Related Action Plans

Follow up work

Multi-Lateral Convention

Domestic legislation

The Multilateral Convention

18


# Title Article Rule type

I Scope and interpretation of terms 1 and 2

II Hybrid mismatches• Transparent entities• Dual resident entities• Elimination of double taxation

3 to 5

Substantive BEPS changes

+

Specific implementation rules to modify existing treaties

III Treaty abuse• Purpose of tax treaties*• Prevention of treaty abuse*• Dividend transfer transactions• Capital gains on interests in land rich

entities• Third country PEs• Taxation of own residents

6 to 11

IV Avoidance of PE status• Commissionaires & similar arrangements• Specific activity exemptions• Splitting-up of contracts

12 to 15

V Improving dispute resolution* 16 and 17

VI Arbitration 18 to 26

VII Final provisions 27 to 36 Generalimplementation rules

* BEPS minimum standards

Multilateral implementation of specific BEPS recommendations

BEPS Action 15: The Multilateral Convention (MLC)


General structure of main operative provisions

Multilateral Convention

Substantive rule

Compatibility clause

Reservations

Notifications


Next steps

Multilateral Convention

• Key issues for governments

o Sign?

o Decide which treaties to cover

o Determine positions on options and reservations, make notifications, and determine position regarding binding arbitration

o Domestic law ratification processes

• OECD to act as Depositary

• “Speed dating” event held March 2017

• Planned signing from June 2017

Domestic Legislation


Domestic LegislationAction 7

• DPT

• MAAL

• DPT

• MAAL & DPT – DPT Ruled unconstitutional

• DPT +

• Digital Economy Circular + VAT

United Kingdome

17

Australia

France

New Zealand

Israel


Domestic Legislation DPT / MAAL Situation

Sales / services

Sales / services

Sales promotion

Sales / services

Sales promotion

Non-residentRelated party Related party

CustomerThird party channel provider

Customer

Non-resident

Follow Up Work


Action 7 Discussion draft: Attribution of profits to PEs

• Disagreement as to the status of the authorized OECD Approach to the Attribution of Profits (AOA)

Increase of PE situations however, no increase in the scope of Pes

The key lessons from the examples in the discussion draft are

• Profits attributable to the dependent agency PE might fall (even to zero)

• Profit attribution to a warehouse might be relatively small

Was it worthwhile?


Other discussion drafts

BEPS Action Updates

2Hybrid mismatches

• Discussion draft on branch mismatches (August 2016)

• Addresses D/NI and DD outcomes that can result from differences in treatment between branch and head office countries

4Interest deductions

• Discussion drafts (July 2016)

o Design and operation of group ratio rule (option that can override fixed ratio)

o Banking and insurance sector-specific issues

• Updated Action 4 Report released in December 2016 to include guidance fromthese discussion drafts

6Treaty abuse

• Discussion draft (January 2017) on entitlement to treaty benefits for non-CIV funds, comprising three examples of when PPT should be met

o Regional investment platform (established by a third country fund)

o Securitisation company (established by a third country bank, entitled to equivalent treaty benefits)

o Real estate fund (whose investors are entitled to equivalent treaty benefits)

Harmful Tax Practices


Action 5 – Harmful Tax Practices

Change of Rules Worldwide

Stay Attractive

Nexus Approach

Transfer Pricing

27


Transfer Pricing

Action 13Actions 8-10


Action 8 – 10 Substantive Rules

• New OECD guidance

• Slow adoption


Action 13: Transfer Pricing Documentation

Broadly accepted

Parent company country filing and information exchange and less so on direct filing

notification requirements

“gap year”

CbC Multilateral Competent Authority Agreement (MCAA)

Harm

on

izati

on

wit

h O

EC

D 3

Sta

nd

ard

s

Low

Medium

High

Documentation reforms

Low Medium High

U.S.

Taiwan

Malaysia

UK

Japan

China

Australia

Singapore

India

Korea

Country by Country Report Master File / Local File

Others


Others

Hybrids

Interest Limitation

CFC

Local / MLCEU ATAD

Local / MLCEU ATAD

Local / MLCEU ATAD

BEPS - Next Steps


BEPS – Next Steps

30

Understand

Prepare

Consider

Implement

Monitor

31© 2017 Brightman Almagor Zohar & Co.

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BEPS - ילארשי טבמו תינכדע בצמ תנומת€¦ · Brightman Almagor Zohar & Co. (Deloitte Israel) is the member firm of Deloitte Touche Tohmatsu Limited in Israel