The Organisation for Economic Co-operation and Development (OECD) hosted its seventh webcast earlier this week, to update the global tax community on the status of its base erosion and profit shifting (BEPS) project.
OECD officials, during the 8 June webcast, reported that the OECD is on track to deliver a complete package on the project, which will include an explanatory paper and 15 reports (although the three transfer pricing-related action items may be addressed in a single report), to the OECD’s Committee on Fiscal Affairs for its approval at its meeting on 22-23 September 2015. The package may then be formally approved by the OECD counsel and G20 Finance Ministers at their meeting on 8 October 2015, and by the G20 leaders at their meeting in November 2015.
With respect to progress on specific action items, the OECD first noted that it had just released that morning the final country-by-country (CbC) implementation package, which constitutes the final piece of guidance on CbC reporting.
In addition to providing a brief summary of the newly released guidance, the OECD’s presentation included a helpful schematic explaining the timing of exchange between countries of taxpayers’ CbC reports clarifying that while reports filed at the end of 2017 would not be exchanged until June 2018, reports filed at the end of 2018 could be exchanged after just three months, or in March 2019.
Turning to its work on transfer pricing issues, the OECD discussed its recently released discussion drafts on hard to value intangibles (HTV IP) and cost contribution arrangements. The OECD specifically noted that its draft on HTV IP contemplates that a taxpayer must take into account the “known unknowns,” but not the “unknown unknowns,” at the time of an IP transfer.
The OECD also stated later in the presentation that its discussion draft on risk and recharacterization will be incorporated into its work on intangibles, and no additional discussion draft on risk and recharacterization will be released. Additional information on the OECD’s work in these areas will be provided at the public consultation on transfer pricing issues scheduled for July 2015.
The OECD also made several interesting comments with respect to its continuing work on certain other action items. Specifically, with respect to its work on harmful tax practices, the OECD stated that it is considering a system under which countries will not exchange rulings themselves, but rather will exchange information about the rulings using a standardized template. Tax administrators may then request the actual rulings themselves if they wish.
The OECD also noted that there has been significant redrafting of its report on CFC rules around the definition of income and that different approaches are being considered, including a categorical and substantive analysis, mechanical rules, and excess profits analysis.
In any event, the OECD officials said that they are striving to closely coordinate the CFC rules with the proposed transfer pricing and hybrid rules.
With respect to their work on interest deductibility, the OECD reported that they are considering an optional de minimis threshold to except low-risk entities, as well as optional disallowed interest carryforward rules.