OECD consultation on treatment of investment | KPMG | UK

OECD consultation on treatment of investment funds in tax treaties

OECD consultation on treatment of investment

The consultation requests further information on how BEPS Action 6 will apply to non-CIV funds.


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The OECD has concluded that it needs more information to progress their work on how base erosion and profit shifting (BEPS) Action 6 will apply to investment funds which do not qualify as collective investment vehicles (non-CIV funds) and has issued a consultation document. Non-CIV funds would include various categories of alternative funds including some private equity, credit, real estate and infrastructure funds.

The final version of the report on Action 6 (Preventing the granting of treaty benefits in inappropriate circumstances) recommended that treaties should contain a Principal Purpose Test (PPT’ and/or a Limitation on Benefits (LOB) article (similar to that already contained within US double taxation treaties), but indicated that the OECD would continue to examine how treaty entitlement for non-CIV funds would be addressed.

The public discussion draft, released on 24 May 2016, is entitled Treaty Entitlement of Non-CIV Funds and has been produced as part of the follow-up work required on this issue.

The document contains a number of specific questions. Some of the main headings are summarised below:

Concerns relating to the LOB provision

These questions include:

  • In response to suggestions that treaty benefits should be granted to regulated and/or widely held non-CIV funds, what the threshold for ‘widely held’ should be, and what types of regulatory frameworks would be acceptable;
  • How investors in non-CIV funds are taxed;
  • What information non-CIV funds currently have about their ultimate investors (e.g. in relation to whether they would be entitled to treaty benefits if they held their interest directly); and
  • How treaty shopping could be addressed.

Suggestion of a global streamed fund regime

The Global Streamed Fund (GSF) approach has been suggested to the OECD, where investment income would be exempt from tax when derived by a GSF but the fund would be obliged to distribute its income on a regular basis and tax would be collected upon these distributions. The tax would be determined by the treaty entitlement of the ultimate investor under the treaty between the State of residence of that ultimate investor and the State of source of the income.

Concerns related to the Principal Purpose Test (PPT) rule

There have been concerns that the PPT rule might restrict the treaty entitlement of non-CIV funds in cases where a large proportion of the investors in a non-CIV are residents of States that are different from the State of residence of the fund.

Examples of common arrangements by non-CIV funds have been requested.

The next OECD Working Party meeting is in May, and the consultation document and responses will be discussed then.

For further information contact:

Paul McCartney

Serena Bell

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