Tax Transparency and the OECD Action Plan on Base Erosion ... · 2 Speakers Hank Gutman, director of the Tax Governance Institute and principal in charge of KPMG LLP’s Tax Legislative

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Tax Transparency and the OECD Action Plan on Base Erosion and Profit Shifting: The U.S. Government's PerspectiveGovernment s Perspective

KPMG Tax Governance Institute Webcast

August 22, 2013

Tax

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© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Speakers

Hank Gutman, director of the Tax Governance Institute and principal in charge of KPMG LLP’s Tax Legislative and Regulatory Services— Washington National Tax

Bob Stack deputy assistant secretary for International Tax Affairs in the Bob Stack, deputy assistant secretary for International Tax Affairs in the Office of Tax Policy at the U.S. Department of the Treasury

Ray Beeman, tax counsel and special advisor for tax reform for the U.S. House Ways and Means Committee

Manal Corwin, International Corporate Services national leader and principal in charge of International Tax Policy—Washington National Tax, KPMG LLP; former deputy assistant secretary for International Tax


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Affairs in the Office of Tax Policy at the U.S. Department of the Treasury, and U.S. delegate and vice chair to the Committee on Fiscal Affairs in the OECD

Brett Weaver, partner in charge of KPMG LLP’s Tax Transparency Services

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Agenda

• Background

• BEPS v. Tax Morality v. Tax Transparency

• Context of Debate and Potential Implications for ActionContext of Debate and Potential Implications for Action

• U.S. Policy Perspective

• Administration

• Congress

• Likelihood of Achieving Consensus on Specific OECD Action Items

• Short Term and Long Term Prognosis


S o t e a d o g e og os s

• Implications for U.S. Regulatory and Legislative Reform

• Implications for U.S. Multinationals: Practical Considerations

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BEPS v. Tax Morality v. Tax Transparency

I. Base Erosion & Profit Shifting (BEPS)

OECD-coordinated initiative motivated by high level political interest of key jurisdictions to collaborate to help address aspects of the international rules that are perceived to facilitate profit shifting, allow “double non-taxation” and contribute to the erosion of domestic tax basescontribute to the erosion of domestic tax bases

Focus is on reform, not enforcement

II. Tax Morality

Public naming and shaming

Politically charged (public hearings in the UK and the US)

Public conversation has converted into a “tax morality debate”


y

III. Tax Transparency

Demanded as part of public debate

Being evaluated as a potential solution for addressing technical BEPS concerns in the OECD process

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Context

Factors Driving Public Debate and Political Call to Action

• Post-Global Financial Crises—Governments are looking to raise revenues to cover deficits. The U.S. public to some extent often blames banks and large corporates for the crises and may look to them to shoulder the burden of increased tax revenues

• Modern Business Models—Globalization, complex supply chains, internet, digital commerce, and cloud computing.

• Rise of Media Focus—Senate Permanent Subcommittee on Investigations of tax abuses, UK Parliament’s Public Accounts Committee, and investigative reporting

Themes Driving OECD Initiative and Proposals for Action

• Greater Transparency—Governments, regulators and the pubic are demanding more t i t t tt


transparency in corporate tax matters

• Antiquated Tax Systems—Growing consensus that the global tax system is outdated in light of modern business models and global supply chains

• Abusive Tax Structures—Global focus on identifying and curtailing aggressive tax planning and structures

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Context: OECD’s BEPS Initiative

History and Relevance of OECD involvement

• The policy conversation underlying the BEPS work is not new to the OECD or to domestic policy makers.

• OECD working groups and committees have focused on concerns relating to• OECD working groups and committees have focused on concerns relating to arbitrage opportunities and the possibility of double non taxation that can result form conflicts in laws for years: 1998 OECD report on “Harmful Tax Competition”; work on business restructuring; work on aggressive tax planning; work on transparency and information exchange; revisions to intangibles guidelines.

Current BEPS Initiative

• February 2013 – G-20 endorsed OECD work on BEPS and commissioned a


yspecific action plan

• July 19, 2013 – OECD presented BEPS action plan to the G-20 finance ministers and released to the public

• The Action Plan was endorsed and supported by finance heads immediately following the meeting including by US Treasury Secretary Jack Lew

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• Administration

– BEPS v. Tax Morality v. Tax Transparency

– What are the Administration’s priorities/concerns?

U.S. Policy Perspective on the Debate

What are the Administration s priorities/concerns?

• Congress

– BEPS v. Tax Morality v. Tax Transparency

– What are Congress’s priorities/concerns?


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Likelihood of Achieving Consensus in the OECD on Specific Actions• Short-term focus:

– Treaty based rules and domestic consensus to deal with hybrid mismatches (instruments and entities)

– Potential treaty based rules to deal with perceived abusive structures such as conduit financing rules

– Anti-treaty shopping rules and other anti-abuse rules

– Solutions to counter harmful preferential tax regimes

– Reporting rules to foster greater transparency

Country-by-country reporting

Reporting of aggressive transactions

– Possible changes to transfer pricing guidelines relating to intangibles

• Longer term focus:Ch ll f th di it l


– Challenges of the digital economy

– The need to address aspects of the arm’s length principle and the methods used to implement that are viewed as currently inadequate

– Modifications to the PE standard

– Changes to CFC rules (might see unilaterally, collective action is difficult)

– Changes to Related Party Financing rules (might see unilaterally, collective action is difficult)

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We will return in a moment.

• Prospects for regulatory changes in connection with OECD Action Plan

• Prospects for treaty changes/multilateral convention in

Potential Implications for U.S. Regulatory and Legislative Reform

connection with OECD Action Plan

• Relationship to and implications for tax reform

• The President’s Framework for Business Tax Reform

• The FY13 Budget

• The Camp Territorial Tax Draft


• The Senate Subcommittee on Permanent Investigations

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Potential Implications for U.S. Multinationals

• Practical considerations/impacts: Tax Morality Public Debate and Political call for action

• Information and awareness

• Reputational risk and exposure

• Defensive or offensive posture• Defensive or offensive posture

• Benchmarking – what are similar companies doing?

• Increased IRS audit risk and exposure

• Practical considerations/impacts: BEPS and OECD proposed actions

• Tax liability

• Financial statements

• Business organization


Business organization

• Business operations

• Future planning

• Constructive engagement with the OECD and key policy makers

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Actions to Consider

Four Principal Areas of Focus:

• Communication and Messaging: (1) Know your facts and (2) Develop a communication approach (internally and externally)pp ( y y)

• Documentation: Identify areas for additional or enhanced documentation of existing tax planning/structures

• Governance: (1) Review existing tax risk governance processes and (2) Consider the adoption of a Tax Code of Conduct

• Planning: (1) Determine the extent (if any) to which to engage in the


Planning: (1) Determine the extent (if any) to which to engage in the process, (2) Evaluate need to modify existing tax planning/structures, (3) longer term need to react to changes in law as they are implemented

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Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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© 2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMGnetwork of independent member firms affiliated with KPMG International Cooperative ( KPMG International”), a Swiss entity. All rights reserved.

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Tax Transparency and the OECD Action Plan on Base Erosion ... · 2 Speakers Hank Gutman, director of the Tax Governance Institute and principal in charge of KPMG LLP’s Tax Legislative