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Our interview with Pascal Saint-Amans, leader of the OECD’s Centre for Tax Policy and Administration, reflects much of this change.
Contemplating the OECD’s tax certainty project, Saint-Amans issues a real call to action to taxpayers, inviting them to get more involved in helping build the trust relationship between taxpayer and tax authority in a way that could boost tax certainty:
“If you are not happy with all the aspects of the relationship with the tax administrations that relates to [mutual agreement procedures] and the elimination of double taxation, let us know, because this will be taken into consideration,” he says.
That is a welcome message and shows that there is a concrete role here for all of us to play.
One of the most impactful developments since our last edition was the early June signing by 68 jurisdictions – followed by others, such as Mauritius and Cameroon – of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI).
The MLI is designed to quickly and efficiently (when compared to bilateral processes) update the world’s 3,400 double tax treaties and enable governments to incorporate the BEPS changes, in particular the minimum standards. While one might hope that a speedy implementation of such changes might drive higher levels of consistency (and thus increase tax certainty), the sheer complexity of the options and reservations that each country is able to make is already demonstrating just how hard it is (and will be) to decipher the impacts in each country.
As Marlies de Ruiter points out on page 11, some elements of the MLI – in particular the broad-based adoption of a purpose test – have the potential to deliver a spectrum of outcomes to companies, including increased scrutiny of income flows, the possibility that different funding models may need to be assessed, and even the need to completely restructure supply chains or operations.
A second MLI signing ceremony is expected sometime later this year, with another 20 to 25 jurisdictions believed to be ready to join. That will significantly expand the 1,100 or so treaties that are so far forecast for change, starting in 2018 and really kicking into high gear in 2019.
Since our May edition, we also saw the G20 leaders gather in Hamburg for their annual summit. While it was clear in the run-up to the summit that the key focal points would be trade and climate change, the final summit communiqué showed sustained support for the direction already taken in the tax area, particularly the OECD’s renewed activity in the area of tax “blacklists,” (an area where the European Commission is also active) and the sharing of beneficial ownership information, potentially via a central registry.
While mentioned only briefly in the communiqué, an OECD report to G20 leaders (prepared in advance of the summit) noted that an interim report on the implications of digitalization for taxation will be delivered by April 2018, and a final report in 2020. We are sure all stakeholders will be hoping for some concrete progress in this challenging area.
Underlying all of this change is one constant – tax transparency. However, while the overall trend for more disclosure to tax authorities remains steady, the issue of public disclosure is heating up. In early July, the European Parliament voted in favor of public country-by-country reporting in a first reading of a European Parliament proposal.
The matter has now been referred back to the committees responsible for interinstitutional negotiations (the so-called ”trilogue”), who will report to the European Parliament within four months. As we note in our article on page 17, we hope that both the G20 and the European Commission will take the time to see how the BEPS reforms play out, with all stakeholders using the time following the recrafting of international tax rules to hold a substantive discussion of what information is needed and what is not.
The fact that more information can be provided does not necessarily mean that it should be. Moreover, the exchange of taxpayer data requires robust safeguards, and so any plan to demand more information should be carefully considered.
While the dust from the BEPS changes still seems to be a long way from settling, some longer-term trends do seem to be emerging already. As Craig Frabotta argues on page 20, tax incentives — both those supporting R&D activity as well as broader business investments (such as capital allowances or more generous tax depreciation) — are becoming more popular with governments, in what may be viewed as a “BEPS effect.”
Craig argues that some countries may be finding their competitive instincts constrained by the new collective agreements to fight base erosion and are now looking for tried-and-tested (and acceptable) ways to secure foreign direct investment. In a similar fashion, our article on page 23 explores the possibility that newly enacted limits to the deductibility of interest expenses may be starting to impact the ways in which business funds itself. And while these are two early trends, we have little doubt that there will be more to follow as the BEPS agenda plays out.
The globally coordinated efforts to reshape the international tax framework will no doubt continue, but tax, of course, remains a sovereign activity at heart. With the French presidential election now settled, Jean-Pierre Lieb provides an outlook for tax policies in France, while Hermann Gauss and Roland Nonnenmacher provide some fascinating insights into how the upcoming German election may impact taxation.
“No time for BEPS fatigue” reads the title of our MLI article; but in fact, BEPS or not, this is no time for fatigue in any area of tax.
As always, we hope you find this publication to be of interest and value. And our standing offer remains — please do let us know if you would like us to cover specific issues in the future.