The Organisation for Economic Co-operation and Development (OECD) recently announced that consensus has been reached around a modified nexus approach for intellectual property (IP) regimes as presented in its September 2014 report under Action 5 (Countering harmful tax practices more effectively, taking into account transparency and substance) of the base erosion and profit shifting (BEPS) action plan.
In its September 2014 report, the OECD discussed possible approaches to requiring substantial activities in the context of preferential regimes such as IP regimes. One of the approaches considered was the nexus approach, which allows a taxpayer to benefit from an IP regime only to the extent that the taxpayer can show that its employees incurred expenditures, such as research and development (R&D), which gave rise to IP income.
A nexus-based approach was subsequently put forward in a joint proposal of Germany and the United Kingdom.
The OECD has now announced that consensus has been reached around the underlying principle of the modified nexus approach proposed in its September 2014 report, with the following amendments:
Further work on the modified nexus approach to be concluded by June 2015 includes:
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