Like other countries that are both OECD and G20 members, the United States has been fully engaged in the OECD’s BEPS project.
Representatives of the US Treasury Department have actively participated in the OECD negotiations and generally expressed support for the goals of the project. Some members of the US Congress have also expressed their support for the project, but others have reserved judgment or expressed concern that the project may have unfairly focused on US multinationals.
The United States has good reason to believe its companies have been disproportionately targeted. Within Europe, much of the public and media attention relating to BEPS has focusedon the perceived tax behavior of US-based multinationals that derive profits from high-value marketing intangibles. A significant portion of the OECD Action Plan focuses on tax issues involving intangible property, and the US is home to many of the world's highest value brands.
Many of the OECD’s recommendations have been revised to address US concerns about the original proposals.
For example, early versions of the OECD’s recommendations for country-by-country reporting sought much more detailed disclosures. Due to concerns expressed by US policy officials regarding burden, misuse of information and confidentiality, which a number of other officials shared, the OECD’s final recommendations on country-by-country reporting are narrower.
The US influence is also evident in the OECD’s anti-treaty shopping recommendations. Previously, the OECD appeared set to recommend that countries adopt both a limitation on benefits article in their treaties and a domestic principal purpose test under which treaty benefits would be denied where gaining the benefit is one of an arrangement’s principal purposes. In line with the general US preference for objective tests over general anti-abuse or anti-avoidance rules, US representatives participating in the BEPS project (among others) felt the domestic principal purpose test would create too much uncertainty. The final recommendations call on countries to adopt either a principal purpose test or an objective limitation on benefits provision coupled with targeted domestic anti-abuse rules, such as anti-conduit rules.
The US Treasury Department and the Internal RevenueService issued final regulations requiring annual country-by-country reporting by US persons that are the ultimate parententity of an MNE group that has annual revenue for the preceding annual accounting period of 850 million US dollars(USD) or more for taxable years of the ultimate parent entity beginning on or after 30 June 2016.
The first reportable period for calendar-year MNE groups is thus 2017, which is 1 year later than the OECD’s recommended first reporting period. However, the US will allow voluntary filing for periods beginning on or after 1 January 2016. US voluntary filing by a US tax-resident ultimate parent entity should suffice to prevent secondary filing obligations in other jurisdictions, provided that a qualifying competent authority agreement is in effect between the US and the other jurisdictions by the firstcountry-by-country report’s filing deadline.
The US Treasury Department released a revised US modelincome tax treaty on 17 February 2016. The revisions aredesigned to respond to changes in US treaty partners’ tax regimes that the Treasury Department believes may encourage BEPS. The changes include provisions aimed atinversion transactions, ‘special tax regimes’, and so-called‘exempt permanent establishments’. The new model includesprovisions requiring mandatory binding arbitration to resolve disputes between tax authorities.
US companies and policy-makers have been emphasizing the need for reform of the US tax rules for many years. Past tax reform proposals have included provisions to discourage profit shifting and protect the US tax base. For example, both former House Ways and Means Chairman Dave Camp and former Senate Finance Committee Chairman Max Baucus had previously introduced proposals for international tax reform that include provisions targeted at base erosion. The former Administration’s 2017 budget also included several international tax reform proposals designed to address BEPS concerns.
Regardless of whether the US enacts major tax reform or other statutory or regulatory changes, US-based companies with foreign operations must comply with BEPS-related changes in the local tax laws of the countries in which they operate. In particular, US-based companies may be required to file a country-by-country report locally in jurisdictions in which they operate or designate a surrogate filing jurisdiction to the extent the US does not exchange country-by-country reports with those jurisdictions.
US-based companies also need to:
These are just a few of the BEPS-related changes that US companies should begin preparing for regardless of whether or not the US adopts them domestically. Other potential effects may result from new limitations on interest deductibility, European Commission state aid cases, evolving views on the digital economy and changes in dispute resolution.