Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?

Tax (2nd Edition)

Romania Small Flag Romania

Yes, Romania signed the multilateral instrument (‘MLI”) which will implement BEPS treaty measures. For instance, Romania is going to implement: (i) the principal purpose test for applicability of double tax treaties, (ii) it opted to include the treaty measures related to “avoidance of permanent establishment status” and (iii) the provisions related to mandatory mutual agreement procedure. Separately, at the level of EU, the BEPS measures were centralized in the provisions of ATAD. Thus, Romania will be significantly affected by BEPS, mainly starting 2019, when all these changes will be in force.

Specifically on the TP side, as the Romanian TP regulations make reference to OECD TP Guidelines to be considered for local TP purposes, any amendments of these guidelines resulting from the BEPS project would be considered for Romanian purposes as well.

Australia Small Flag Australia

Australia has publicly announced its commitment to the OECD’s BEPS regime. The table below summarises, as at September 2017, Australia’s response to the BEPS Action items.

Action item

BEPS Action item

Australian response

1

Digital economy

Australia introduced amendments to its GST laws to ensure GST is payable on international sales of services and digital products provided to Australian consumers from 1 July 2017.

2

Hybrids

Australia has committed to implementation of BEPS Action Item 2 as well as measures to address hybrids more generally. The government announced in May 2017 specific rules to eliminate hybrid mismatches in relation to Additional Tier 1 regulatory capital, which is issued by entities such as banks and insurers. Legislation is currently being drafted and the rules are scheduled to apply from the later of 1 January 2018 or 6 months after royal assent.

5

Harmful tax practices

The ATO has implemented the BEPS transparency recommendation through the exchange of private ruling information. The ATO announced that it began exchanging future rulings information on 1 April 2016 and past rulings in December 2016.

6

Treaty Abuse

Australia has begun incorporating this recommendation into its treaty practices. For example, the BEPS changes were incorporated into the Australia-Germany tax treaty that came into force on 7 December 2016.

7

Permanent Establishment status

Australia introduced the MAAL from 1 January 2016. This was contrary to the view of the OECD, which maintained it did not want countries taking unilateral action outside the BEPS regime.

Despite, and in addition to, the introduction of the MAAL, Australia has begun adopting the BEPS suggested wording changes to the definition of “permanent establishment” in its treaties (for example, see the Australia-Germany tax treaty that came into force on 7 December 2016).

8 – 10

Transfer Pricing – intangibles, risks & capital, high-risk transactions

Australia’s transfer pricing laws in Division 815 of the ITAA97 were amended to ensure the recommendations made under these action items are considered when interpreting Australia’s laws. The changes commenced on 1 July 2016.

12

Disclosure of aggressive tax planning

The ATO is working with Treasury to design a framework for mandatory disclosure rules under this action item.

13

Transfer pricing documentation

From 1 January 2016, Australia has implemented laws requiring SGEs to provide to the ATO a country by country report, a Master file and a Local file within 12 months of the end of their income tax year.

14

Dispute resolution

The ATO has reviewed its current mutual agreement procedure processes.

15

Multilateral instrument

Australia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting on 7 June 2017.

 

France Small Flag France

The Directive UE/2016/1164 dated July 12, 2016 called 'ATAD I' provides for five anti-avoidance measures relating to the interest limitation, the exit taxation, the general anti-abuse rules (GAAR), the controlled foreign companies (CFC) and the hybrid mismatches, all derived from the OECD BEPs recommendations. This Directive shall be transposed by the end of 2018 for an application as from 1 January 2019, except for the interest limitation that should be enforced no later than 1 January 2024.

France has already implemented similar tax measures but will have to amend the existing provisions (here above thin cap) in order to comply with the Directive's requirements.

The Directive UE/2017/952 dated May 29, 2017 called 'ATAD II' amends the Directive ATAD I and provides for the implementation of Action 2 of the BEPS' recommendations which is related to the hybrids mismatches. As the French rules only tend to remedy to double deeps (i.e. double non-taxation) situations, the European requirements will have to be transposed by the end of 2019 in order to strengthen this limitation.

Canada Small Flag Canada

Canada is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. To date, Canada has only agreed to adopt the minimum standards relating to anti-treaty shopping (BEPS Action 6) and the optional provision related to binding arbitration (BEPS Action 14). With respect to treaty shopping, Canada has confirmed that it will adopt the principal purpose test rather than the comprehensive limitation of benefits rule. However, it has indicated that it plans to negotiate LOB provisions in new tax treaties, to the extent possible.

Canada has also enacted country-by-country reporting (BEPS Action 13).

In addition, Canada has indicated that it will follow the revised OECD transfer pricing guidelines (BEPS Actions 8-10).

Belgium Small Flag Belgium

Belgium generally supports the BEPS action plan and has already implemented certain recommendations, such as the ones related to transfer pricing documentation (Action 13) and harmful tax practices (Action 5 - introduction of a new IP regime based on a nexus approach). Certain anti-hybrid measures have also been transposed (Action 2 - Hybrids) as an implementation of the amended EU parent-subsidiary directive.

In its July Agreement, the Belgian government has confirmed its intention to transpose other BEPs items that also fall under the ATAD Directive (e.g. introduction of a CFC regime - Action 3; new interest deduction rules - Action 4; and further implementation of anti-hybrid measures - Action 2).

On 7 June 2017, Belgium signed the multilateral convention to implement tax treaty related measures to prevent BEPS.

Bulgaria Small Flag Bulgaria

All OECD BEPs recommendations will be implemented in Bulgaria.

United States Small Flag United States

Many of the BEPS recommendations are embodied by the rules already in effect in the United States. For example, Treasury has stated that the BEPS recommendations on transfer pricing (Actions 8-10) as being consistent with the arm’s length standard under the existing section 482 regulations. However, many would argue the BEPS recommendations go beyond existing law.

The United States released proposed revisions to the U.S. Model Income Tax Convention to reflect the BEPS project, which included changes to the Limitations of Benefits article (Action 6), to special tax regimes (Action 5), and to certain aspects of permanent establishments (Action 7).

The United States has also taken steps to implement country-by –country (“CbC”) reporting (Action 13) by requiring under final regulation (T.D. 9773) that the ultimate parent entity of a multinational enterprise (MNE) group that has annual revenue for the preceding annual accounting period of $850 million or more file a CbC report (IRS Form 8975). However, other aspects of Action 13 including the “Master File” requirement have not been adopted.

With respect to interest deductions (Action 4), the United States took a decidedly different direction than the BEPS recommendations by issuing new recharacterization rules and documentation requirements, which is different than the fixed ratio approach contemplated by Action 4.

Ukraine Small Flag Ukraine

Ukraine became a member of the inclusive framework for BEPS implementation on the 1st of January 2017. Some recommendations were implementing during the tax reform of 2016 as part of transfer pricing rules. In May 2017, the Ministry of Finance of Ukraine adopted the Implementation Guidance Action Plan on BEPS. It contains four actions that are the minimum standards to implement the Plan on BEPS: the Action 5 is “countering harmful tax practices more effectively, taking into account transparency and substance”; Action 6 is “preventing the granting of treaty benefits in inappropriate circumstances”; Action 13 is “guidance on transfer pricing documentation and country-by-country reporting”; Action 14 is “making dispute resolution mechanisms more effective”. It is planned that these actions will be completed by 2019.

Cyprus Small Flag Cyprus

For many years Cyprus tax policy has been based on offering an internationally competitive tax environment that is fully compliant with international best practice and the highest standards of transparency and fairness. In line with this commitment Cyprus revised its intellectual box regime in 2016 to comply with the modified nexus approach put forward by the OECD.

Cyprus is also one of the initial 68 signatories to the Multilateral Convention on Tax Treaty Related Measures to Prevent BEPS (the MLI).

Ecuador Small Flag Ecuador

Ecuador over the years has implement OECD recommendations. Below, the status of implementation:

Action 3. Even though Ecuador does not have CFC regime in place, the tax administration combats tax deferral by applying the concept of economic substance to recognize or disregard foreign entities.

Action 4. Thin capitalization rules are in force. Deductibility of interest on foreign loans is limited to loans from financial institutions.

Action 5. Disincentives to tax haven jurisdictions include: i) a higher corporate income tax rate to entities with shareholders located such jurisdictions, and ii) higher withholding rate applicable to payments and distributions of dividends made to such jurisdictions.

Action 6. Automatic access to treaty benefits has been significantly reduced. Any benefit in excess of the limitation requires submitting a refund. New treaties include antitreaty shopping provision.

Action 8-10. Ecuador does have transfer pricing regime.

United Kingdom Small Flag United Kingdom

In March 2016, the UK government confirmed the implementation of hybrid mismatches (Action 2), interest deductibility (Action 4), intellectual property (Action 5), transfer pricing (Actions 8-10), and country-by-country reporting measures. In September 2016, UK rules on hybrid mismatches and patent box have been enacted. In April 2017, the UK government implemented rules on interest deductibility.

The UK already follows the transfer pricing guidelines Actions 8-10 as well as the disclosure of aggressive tax planning (Action 12). The UK has signed a multilateral competent authority agreement for the automatic exchange of CbC reports and is one of the countries committed to binding arbitration. Regarding CFCs, the UK considers that its CFC rules are compliant with the BEPS Action 3.

Switzerland Small Flag Switzerland

Switzerland is a signatory to the CRS MCAA (see 6. above), as well as to the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (‘CbC MCAA’). As a result, multinationals in Switzerland may have to draw up a country-by-country report starting from 2018, and the first automatic exchanges of country-by-country reports could take place starting from 2020.

Switzerland is also a signatory to the MLI (see 10. above).

In addition, Switzerland had elaborated the Corporate Tax Reform Act III. The reform aimed to adapt the Swiss tax system to the standards of the OECD and the EU, by repealing special tax regimes. However, the Reform project was rejected by Swiss voters on February 12, 2017. A replacement project, called ‘Projet fiscal 17’, is currently under development.

Israel Small Flag Israel

The ITA has indicated that it intends to follow and implement the OECD’s recommendations in the BEPS reports. The ITA has not signaled out any of the OECD BEPS recommendations as irrelevant to Israel. We note that Israel has already begun to implement certain of these recommendations (see more below) and we expect this will continue gradually.

Italy Small Flag Italy

No specific plans to implement the BEPS Recommendations have been designed. However, it shall be considered that Italian tax legislation already includes provisions broadly in line with the OECD BEPS Recommendation (such as the limits on the deduction of interest) and will implement the provision of the anti-tax avoidance Directives (ATAD I and II).

Portugal Small Flag Portugal

As an OECD member country, Portugal has progressively implemented BEPS recommendations. Each of the BEPS Actions has been implemented according to the following schedule and measures:

  • Action 1: Implementation of VAT on business to customers digital service - Already implemented;
  • Action 2: Portugal already contained anti-hybrids provisions before BEPS recommendations, which have now been strengthened with the Council Directive (EU) 2016/1164 of 12 July 2016 - Already implemented;
  • Action 3: Portugal already contained CFC’s legislation - Already implemented;
  • Action 4: Existing legislation already has limitations on deductibility of financing costs, through the implementation of Earnings Stripping Rules, in line with the equivalent provision of the Council Directive (EU) 2016/1164 of 12 July 2016 - Already implemented;
  • Action 5: Portugal enacted its 2016 Budget via Law No. 7-A/2016, which amends its existing Patent Box regime to be compliant with the OECD BEPS Action 5 recommendations;
  • Action 6: Portugal has several Limitation of Benefits Clauses (LOB) in the network of Double Taxation Conventions, in particular focused on treaty-shopping and abuse of residence;

This framework was reinforced by Portugal's signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. The Multilateral Convention offers solutions for Governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide;

  • Action 7: Review has not yet occurred;
  • Actions 8-9-10: Provisions related to intra-group transactions are being reviewed, in line with the recent publication of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations – In progress.
  • Action 12: Disclosure obligations relating to aggressive tax planning structures have already been implemented – Already implemented;
  • Action 13: Portugal’s Budget Law for 2016 introduced a Country-by-Country reporting obligation for multinational enterprises (MNE’s) that is intended to provide the Portuguese Tax Authorities additional information of the MNE’s activities for risk assessment purposes.
    Portugal is one of the countries that signed a multilateral competent authority agreement for the automatic exchange of Country-by-Country reports – In progress;
  • Action 14: Waiting for the implementation of binding arbitration procedure, to which Portugal is bound – in progress.

Kenya Small Flag Kenya

Kenya is a participant in the inclusive framework of BEPS. Kenya has also signed the Amended Convention on Mutual Administrative Assistance in Tax Matters (the Convention) and is in the process of ratifying the Convention in accordance with the domestic law. Some of the OECD BEPS recommendations for example, the 2015 amendments to the definition of a permanent establishment to include “dependent agents” and the introduction of the limitation of benefit provisions.

Kenya plans to implement the OECD BEPS recommendations through amendments to domestic legislation. Currently, the review of the Income Tax Act which has been in place since 1973 is underway. It is expected that by 2018, a new Income Tax Act will be in place and it will reflect some of the BEPS recommendations especially on anti-treaty abuse and deductibility of interest.

Poland Small Flag Poland

Poland has already implemented a number of OECD BEPS recommendations. A number of which were included into Polish law even before the BEPS Actions were announced in 2015. Poland has already implemented: VAT on digital services rendered to customers, hybrid regulations provided by EU Parent-Subsidiary Directive, CFC rules (the draft amendments to these rules are currently being processed), limitation of interest deductions through thin capitalization (further amendments in this case have been proposed in the 2017 draft amendments to the CIT Law), harmful tax practices (the GAAR implemented in July 2016, and the exchange of tax information in May 2017), prevention of treaty abuse (anti- avoidance rule for dividend implemented in January 2016, beneficial owner concept in January 2017), and significant amendments to transfer pricing documentation requirements. There are also plans for implementing the remaining BEPS Actions.

Japan Small Flag Japan

Yes, Japan is very active in following the BEPS Action Plans so far published, as the country that chaired the relevant OECD Committee.

To date, Japan has implemented or will implement the following BEPS Action Plans by amending its domestic tax law or tax treaties:

(i) Action Plan 1: Japan has amended the consumption tax law to tax upon digital or electronic services transactions conducted by foreign enterprises having no base in Japan.

(ii) Action Plan 2: Japan has amended the corporation tax law so that Japan’s foreign dividend exemption system does not apply to dividends that are deductible under the local tax law of the jurisdiction of the foreign subsidiary (e.g., Brazil), in order to prevent double exemption.

(iii) Action Plan 3: Japan has overhauled its current CFC regime by amending the income tax law and the corporation tax law by the 2017 annual tax reform, in line with the BEPS Action Plan 3, to give more focus upon the substance of the business conducted by the CFC, as explained above.

(iv) Action Plan 4: As explained above, Japan is now reviewing whether the earnings stripping rules should be more tightened, in response to the BEPS Action Plan 4, by lowering the threshold percentage rate from 50% to some 10-30%.

(v) Action Plan 6: Japan has incorporated in its tax treaties particularly with advanced countries (such as the U.S., the U.K., the Netherlands, Switzerland and Germany) various anti-abuse measures suggested by the BEPS Action Plan 6, such as the limitation on benefits (LOB), the principal purpose test (PPT) and the beneficial owner concept.

(vi) Action Plans 8-10: Japan is reviewing whether it should incorporate the so-called “commensurate with income” standard as to certain hard-to-value intangibles, by amending its transfer pricing regulations, in line with the BEPS Action Plans 8-10.

(vii) Action Plan 13: Japan has amended its transfer pricing documentation rules to introduce the master file, the country-by-country reporting and the local file, in line with the BEPS Action Plan 13.

In addition, Japan will continue its review of whether it is necessary, and if so, by what measures the action plans should be implemented, as to the other action plans.

The Netherlands Small Flag The Netherlands

The EU adopted the anti-tax avoidance directive (“ATAD 1”) inspired by the BEPS Project final reports. With the proposed ATAD 1 package, the EU hopes to ensure that BEPS Project recommendations are implemented by Member States in accordance with EU law and that taxes paid in the Member States correspond to the locations where value is created. Subsequently, the EU adopted an amendment to the anti-tax avoidance directive ("ATAD 2"). ATAD 2 extends the scope of ATAD 1 to hybrid mismatches involving third countries (i.e., non-EU countries) and encompasses forms of hybrid mismatches not covered by ATAD 1. The main goal of ATAD 1 and 2 is to provide a minimum level of protection for the internal market and strengthen the level of protection against aggressive tax planning. ATAD 1 and 2 are in addition to the proposed changes to the EU Parent Subsidiary Directive (regarding GAAR and anti-hybrid financing rules). In July of this year the following measures were published by the MoF in a consultation document.

Earning stripping rule (should be in force January 1st, 2019)
The interest deductibility limitation rule ("Earnings Stripping Rule") stipulates that interest expenses of a taxpayer that belongs to a group are non-deductible if the so-called 'excess interest expenses' (net difference between deductible interest expenses and taxable interest income) exceed the higher of €3,000,000 or 30% of the EBITDA for tax purposes (namely the taxable profit including excess interest expenses and amortization). Insofar taxable interest income and interest expenses are allocable to a foreign permanent establishment, these will not be taken into account. Non-deductible interest as a result of this measure may be carried forward to future financial years for an indefinite period of time.

The consultation document differs from ATAD 1 in the sense that no grandfathering rule applies to loans concluded before June 17th, 2016 and no exceptions are made for financial institutions or public infrastructure projects. It is also unclear whether the Netherlands will amend or forfeit its existing interest deductibility limitations.

CFC (should be in force January 1st, 2019)
A CFC is defined as an entity in which the taxpayer has, solely or jointly with an affiliated entity or individual (capital/profit/controlling interest of 25% as threshold for affiliation), directly or indirectly an interest of more than 50% of the nominal paid-up capital, voting rights or profit. The taxpayer should include non-distributed types of passive income received by its CFC (interest, royalties, dividends) in its Dutch taxable income. An exception applies when the CFC carries on a substantive economic activity, which is supported by personnel, equipment, assets and immovable property. Local corporate income tax that was due by the CFC on its qualifying passive income can be credited by the Dutch taxpayer against its Dutch corporate income tax due on the CFC-income.

Exit taxation (should be in force January 1st, 2019)
The Netherlands already has an exit tax in place in Dutch tax law and therefore no legislation is proposed for the exit tax as introduced in ATAD 1. The Dutch exit tax currently provides for a deferral of the taxes due for a period of 10 years, whereas ATAD 1 stipulates a period of at minimum 5 years. In this light, the consultation document provides for a shortened deferral of 5 years for corporate income tax purposes.

Hybrid mismatches (should be inforce January 1st, 2020 and January 1st, 2022 for the implementation of reverse hybrid mismatches)
Measures regarding hybrid mismatches that are also addressed in ATAD were not included in the consultation document.

Mexico Small Flag Mexico

Mexico participated actively in the development of the Base Erosion and Profit Shifting (BEPS) Action Plan. Consequently, since the tax reform of 2014, the local set of laws have been amended to abide by the standards set forth therein. In this regard, more stringent conditions and requirements have been established relating to hybrid mismatches (Action 2), controlled foreign corporation rules (Action 3), treaty abuse (Action 6), transfer pricing rules (Actions 8 through 10) and reporting obligations (Action 13).

Norway Small Flag Norway

Norway has already implemented a lot of the recommendations from OECD’s BEPS Project. For example, Norway has adopted country-by-country reporting regulations and necessary legislation for the exchange of tax rulings. In relation to Actions 8-10 on transfer pricing, Norway’s transfer pricing rules generally follow the OECD guidelines. Changes made to the guidelines are immediately adopted into Norwegian legislation.

The Norwegian Tax Act already contains interest deduction limitation rules. The Ministry of Finance has proposed amendments so that the rules will be more consistent with the recommendations in Action 4. Also, the Ministry of Finance has announced that the CFC rules will be revised.

Germany Small Flag Germany

Germany had already implemented many rules which are part of the OECD BEPs recommendations prior to the recommendations, like the ones relating to transfer pricing and the interest barrier rule. Moreover, Germany has introduced several new measurements in its recent BEPS-Transformation Act in 2016, such as a country-by-country reporting (see above 9), exchange of information and several specific changes to the German tax laws. In 2017, Germany also introduced a license barrier rule.

Updated: October 18, 2017