Global Tax Alert | 2 April 2014

OECD hosts second webcast update on BEPS project

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Executive summary

On 2 April 2014, the Organisation for Economic Cooperation and Development (OECD) hosted its second webcast on the Base Erosion and Profit Shifting (BEPS) project. A replay and the slides for the webcast can be found on the OECD website []. The webcast provided an update on the current activity of the OECD with respect to its July 2013 “Action Plan on Base Erosion and Profit Shifting.” The discussion focused on progress and deliverables related to the Actions that have a September 2014 delivery date.

Detailed discussion

As in the first webcast held in January 2014, the featured speaker was Pascal Saint-Amans, who leads the OECD's tax work. Other senior members of the OECD secretariat participating in the webcast included Raffaele Russo, who is leading the BEPS project; Marlies de Ruiter, who has responsibility for the tax treaty, transfer pricing and financial transactions work; Achim Pross, who has responsibility for the international co-operation and tax administration work; and Joe Andrus, who leads the OECD's transfer pricing unit.

Saint-Amans opened the webcast by referencing the five discussion drafts that the OECD has released in the past two months on four of the Actions: Action 13 on transfer pricing and country-by-country (CbC) reporting (discussion draft released on 30 January 2014), Action 6 on treaty abuse (discussion draft released on 14 March 2014), Action 2 on hybrid mismatch arrangements (two discussion drafts released on 19 March 2014), and Action 1 on the digital economy (discussion draft released on 24 March 2014).

Saint-Amans briefly mentioned the other Actions with 2014 delivery dates, indicating that the work on both Action 5 on harmful tax practices and Action 15 on a new multilateral instrument is well underway. He noted that because these Actions involve inter-governmental matters there will not be a public consultation process with respect to them. He also reported that the work related to the Actions with 2015 delivery dates has begun and that discussion drafts in these areas are expected to be released in the second half of 2014. He emphasized the importance of stakeholders taking part in the BEPS discussion by submitting comments on OECD drafts and participating in the scheduled public consultations.

CbC reporting and transfer pricing documentation

While the OECD activity on transfer pricing documentation and CbC reporting was the last topic covered during the webcast, the developments discussed in that area are most significant. Andrus highlighted the interest in this area, noting that the OECD received more than 1300 pages of comments on the discussion draft on transfer pricing documentation and CbC reporting. He reported that the responsible OECD working group had productive meetings during the week of 24 March and had reached tentative decisions on several important modifications to the proposals in the discussion draft. The tentative decisions, which he noted are only tentative because they have not yet been reviewed by the OECD Committee on Fiscal Affairs, include the following key points regarding the CbC template and the master file/local file approach to transfer pricing:

  • The template will be modified to require reporting of aggregated information by country rather than requiring entity-based reporting.
  • The template will include a list of all group entities by country together with the business activity codes for their major activities.
  • The financial data required to be reported on the template will be carved back and will include revenue, earnings before tax, cash tax, current tax, stated capital and accumulated earnings, employee head count, and tangible assets.
  • The six columns of intercompany transaction information included on the draft template will be eliminated and this transactional information will be included only in the transfer pricing documentation local file.
  • The data used to populate the template will be permitted to be sourced from either statutory accounts or financial statement reporting packages, applied consistently across the group and from year to year.
  • The template will not be part of the master file and rather will be a standalone document.
  • Information on the 25 highest paid employees as proposed in the discussion draft to be included in the master file will be eliminated.
  • It will be clearly stated that the information in the master file is intended to be high-level information.

Andrus further noted that there are issues that remain under consideration and that will be discussed at the May meeting of the OECD working group. These issues include the process for delivery to tax authorities of the CbC template and transfer pricing master file and the language and translation requirements with respect to these documents.

Digital economy

Russo stated that the discussion draft on the digital economy reflects the current thinking of the task force. He noted that the task force believes that it is not possible to “ring-fence” the digital economy as the digital economy increasingly is the economy. The discussion draft, therefore, focuses on key features of the digital economy that are viewed as creating BEPS concerns from an income or consumption tax perspective. The discussion draft identifies features of the digital economy, including mobility, reliance on data, and network effects, that should be taken into account in developing recommendations under other Actions of the BEPS project.

Russo further stated that the tax challenges with respect to the digital economy go beyond BEPS. These issues include permanent establishment issues, data value issues, and consumption tax issues. The discussion draft summarizes options for addressing these issues that have been presented to the task force. He noted that while more work has to be done, getting input from stakeholders at this early stage was viewed as important. He stated that the final report will include a section on fundamental tax principles for the digital economy and will reflect further development of the options together with a framework for analyzing the options. Detailed examples of “BEPS structures” in the digital economy also will be included in the final report.

Hybrid Mismatch Arrangements

Pross described the OECD's objective in the work on hybrid mismatch arrangements as development of rules that are clear, automatically applicable, and comprehensive. The aim is to avoid double non-taxation without creating double taxation. The approach of the “linking rules” proposed in the discussion draft is to replicate in a cross-border setting the method that is used in the domestic context. The system of primary and secondary rules is intended to work even if all countries do not adopt the rules recommended by the OECD.

Pross noted several specific areas in which the OECD is particularly interested in receiving comments, including feedback on the practical application of the recommended linking rules. He also requested comments on the appropriate scope of such recommendations. The OECD is currently considering two mutually exclusive approaches: a broad approach that would provide specific exceptions or a more targeted approach that would apply to specific arrangements.

Treaty abuse

De Ruiter began by identifying the key objective of the work on preventing treaty abuse as ensuring that what is meant to be a bilateral treaty is not opened up to the rest of the world. She described the benefits of a limitation on benefits provision as providing objectivity and certainty, but noted that some OECD delegates are concerned about the complexity of such rules. She requested comments on stakeholders' experience with respect to limitation on benefits provisions in practice. De Ruiter also noted that there is some concern that a “derivative benefits” test may operate to grant treaty benefits inappropriately. She welcomed comments on this concern and proposals for how to address it.

De Ruiter stated that the discussion draft also includes a “main purpose” rule because the objective approach is not sufficient to address every situation. She acknowledged the uncertainties associated with such a rule and stressed the need for clarity in the supporting explanations. She requested

comments on whether the discussion draft properly addresses this need for clarity.

De Ruiter further observed that the work on treaty abuse was meant to complement domestic law provisions and at the same time to limit the override of treaties. She stressed the need for balance in this regard.


The webcast closed with a brief question and answer session. On a question related to inclusion of the developing country perspectives, Saint-Amans stated that the views of developing countries with respect to the BEPS Actions have been collected and will be reflected in the report to the G20. He further noted that the OECD may recommend new workstreams in areas, like the issue of tax incentives, that are important to developing countries.

On a question dealing with after tax hedging, which was the subject of a recent OECD report, Pross noted that this will not be included in the BEPS project, describing the OECD's earlier work on hedging as being more compliance focused while the focus of the BEPS project is on policy issues. A question on whether there will be a new chapter in the OECD transfer pricing guidelines on financial transactions was answered in the affirmative. On a question regarding the connection to the EU expert group on the digital economy, Russo indicated that the OECD and EU efforts in this area are very much linked.

In response to a question about “special measures” for transfer pricing purposes, de Ruiter reiterated that the arm's length standard works in most cases and that special measures are intended to support that standard. In response to another question, Saint-Amans stressed that there is no intent to replace the arm's length standard, noting that no other standard is possible.

With regard to the use of the CbC reporting template, Andrus noted that the template is intended to be used for tax risk assessment purposes only and not for allocation of income. He further stressed that this reporting is intended for tax administrators and that the current OECD view is that it should not be made public.


This webcast is the second in a series planned by the OECD in its effort to be transparent and allow for the participation of stakeholders in all phases of the BEPS project. In addition to an overview of the progress to date and a preview of activity to come, the webcast included discussion of important new decisions to scale back the information to be required in the CbC template. Companies should continue to monitor closely the developments with respect to the BEPS project, both in the OECD and in the countries that are relevant to their businesses.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, International Tax services, Washington, DC
  • Barbara Angus
    +1 202 327 5824
  • Yuelin Lee
    +1 202 327 6378
  • Maria Martinez
    +1 202 327 8055

EYG no. CM4321