In your view, how has BEPS impacted on the government’s tax policies?
Tax (4th edition)
No impact so far.
Brazilian governmental and tax authorities are currently putting strong efforts to align local policies to several global standards, and especially OECD standards, since our country has indicated its willingness to join the entity in the near future as an effective participant. Such measures should foster the country’s adhesion to the modernization and transparency trends the world has been facing and, most importantly, provide a sort of new “accreditation seal” for investors who are still a bit skeptical after the country has been downgraded by the rating agencies. Therefore, Brazilian IRS and legislators have already adopted some of the BEPS guidelines (e.g., disclosure of final beneficiary, agreement to the CRS, friendly resolution procedures in disputes involving DTAs, etc.) and the implementation of many others is being carefully prepared.
The BEPS project identified treaty shopping, as one of not the most important sources of concerns. Separate from the OECD developments on measures to prevent treaty shopping, Canada had proposed adopting a domestic principal purpose test that would have denied treaty benefits where the principal purpose of a transaction was to obtain those benefits.
The Government of Canada has otherwise confirmed its commitment to address treaty abuse in accordance with the minimum standard. Going forward, Canada will consider either minimum standard approach, depending on the particular circumstances and discussions with Canada's tax treaty partners.
BEPS have impacted government’s tax policies and the role of tax authorities. As part of the commitment of Colombia with OECD, the country has gradually adopted BEPS actions.
The policy of successive Cyprus governments over the years has been to provide a competitive tax environment that is fully compliant with international best practice, and Cyprus has always been an early complier with OECD and other international initiatives. We expect that policy to continue.
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, the CFC regime, treaty abuse (in particular treaty shopping) 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), ex-change of information and several specific changes to the German tax laws. In 2017, Ger-many also introduced a license barrier rule (see also 18.). Due to EU directive 2018/1822, Germany is obliged to introduce an obligation of intermediaries to report certain potentially aggressive cross-border tax-planning arrangements, implementing BEPS action 12. Even though the directive does not have to be implemented before 1 July 2020, the related legislation has to be applied retroactively as of 25 June 2018. Furthermore, some amendments to the legislation regarding hybrid mismatches with third countries are expected to (further) implement BEPS action 2.
While Germany has many features of the BEPS project already in place, it is still reviewing its existing laws for specific additional changes necessary to be in line with the BEPS project. Specifically, the German CFC regime is expected to be amended in the near future. However, so far no draft legislation is available.
The policy of successive Gibraltar governments has been to provide a competitive tax environment that is fully compliant with international best practice, and Gibraltar has always been an early complier with OECD and other international initiatives. We expect that policy to continue.
During the last five years, Greece has implemented several measures targeting BEPS, also in an effort to being aligned with international developments. Application and interpretation of BEPS-inspired rules has not however been observed in practice, due to the focus of tax authorities in auditing years prior to 2014, when most of these rules were not in force. That being said, transfer pricing has been a key point for scrutiny in recent years. Also, the IAPR has engaged more personnel to deal with transfer pricing, dispute resolution and APA matters and is expected to follow international paradigms when applying BEPS-inspired rules.
India has introduced slew of restrictive measure under the IT Act with a view of prevent BEPS by the entities within the international group. This has resulted in tax authorities scrutinizing transaction to ensure that there is no BEPS.
Ireland has long been an active participator and supporter of the BEPS project, recognizing the importance of transparency on tax matters and the need for greater co-ordination of international tax rules to ensure there are no gaps open to exploitation. Ireland is likely to continue to be involved in this process at an EU and OECD level.
The cornerstone of Irish tax policy remains the 12.5% corporation tax rate, which is not going to change. Otherwise tax policy is focused on ensuring a transparent tax system with a broad base, which is designed for businesses that want to innovate and create employment. By adopting and sticking to a corporation tax system that is sustainable and which meets the highest international standards, Ireland should be in a position to offer certainty to businesses.
We expect to see amendments to domestic legislation, adoption of regulations and the publication of guidance and ITA positions as well as entering into treaty discussions with Israel’s treaty partners, aimed at implementing the OECD recommendations. As noted, Israel has ratified the MLI the implementation of which has begun. Proposed legislation to implement transfer pricing master and local filings has already been published.
In addition, the ITA has independently been taking steps in this direction. For example, in 2016 the ITA published guidance addressing income taxation of non-Israeli Internet companies selling goods or providing services to the Israeli market through the Internet as well as the VAT liability of Internet services companies. The guidance generally provides new and broader interpretations to the definitions of a permanent establishment through dependent agents and fixed places of business and expands the VAT registration obligation of non-Israeli companies active in the Israeli market. In addition, and consistent with the OECD’s so-called “nexus approach” relating to intellectual property preferential tax regimes, recently enacted legislation provides for preferential tax rates to technology and hi-tech companies with respect to income derived from intellectual property development activities carried out in Israel (see more below).
Italy participated to the works of the OECD on the BEPS initiative and is likely to implement BEPS related measures. From an international perspective, Italy signed the OECD Multilateral Convention and included some of the measures recommended by the OECD in some of its most recent tax treaties (such as the treaty with Chile).
Although not every BEPS related issue has been addressed by the Austrian government so far, BEPS led to substantive changes in Austrian tax policies and therefore to numerous amendments in the Austrian tax law (for details see answer to question 11).
For example already the governmental program of December 2017 provided for the intention of addressing the issue of digital PEs. Further examples of BEPS related policies are the adaption of the Austrian domestic GAAR provision, or the amendment of some of the Austrian double tax conventions regarding the principal purpose test stipulated in the MLI.
Whereas an example of non-confirmatory BEPS indicated policies would be the reservation to the MLI made by Austria as regards the provisions relating to the creation of a PE by commissionaire structures, as suggested by BEPS Action 7, as the Austrian government is of the opinion that its interpretation of the existing treaties already allowed such interpretation in some cases. Whether this will be accepted by the courts remains to be seen.
The BEPS has significantly impacted the Japanese government’s tax policies. As we explained in 11 above, Japan has already implemented most of the BEPS recommendations by amendments to the domestic tax law. Japan has become a party to the MLI. Recent amendments to the Japanese international tax law have been mainly driven by the BEPS recommendations.
As mentioned above, Luxembourg has made significant efforts to comply with the OECD recommendations in its BEPS Action Plan, as long as these become mandatory measures from the EU parliament initiative. However, as a competitive jurisdiction it does not plan to impose measures that would go beyond of the recommendations of the BEPS report. The interesting exception to that is the introduction of the mandatory binding arbitration, which is not required under the MLI instrument. Also, it is worth noting that the Luxembourg law on transfer pricing expressly makes reference to the OECD transfer pricing guidelines, when interpreting the national law.
Participation in the BEPS Framework has propelled Malaysia’s drive to adhere to the global commitment to improve global transparency, identify the movement of global wealth and eliminate tax avoidance.
Through legislation, Malaysia has enacted various provisions setting out the information to be collected and reported by financial institutions of participating jurisdictions, such as financial account information, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions in order to promote and encourage disclosure.
The BEPS Action Plan has had a considerable impact on Mexican tax authorities and on the local set of laws. Accordingly, more stringent criterions concerning the applicability of tax benefits, such as the use of tax treaties, the conditions necessary to acquire (avoid) a permanent establishment status, the deductibility of certain expenses, transfer pricing rules, amongst other concepts, have been driving the government’s tax policies for the past few years. What is more, the Mexican government has been actively participating in the development and application of multilateral international instruments and broadening its network of tax information exchange agreements.
The outcome of the BEPS project has significant impact on government policy as can be observed by the answer to question 11.
While Peru has not yet become a member of the OECD, its tax authorities have been participating actively in the discussions on the post-BEPS world and have been keen to propose legislation that suits the recommendations coming from the OECD. One can say, therefore, that BEPS has impacted greatly on our tax policies and that is more likely than not that any updates to the BEPS’s action plans will be followed by amendments into our tax law to put that in line with the new recommendations that can come from the OECD.
The Tax Reform for Acceleration and Inclusion (TRAIN) is comprehensive tax reform package that is now pending with the Philippine Congress. The TRAIN is composed of five (5) packages dealing with different areas of taxation. The first package covering individual income taxation, passive income for both individuals and corporations, estate tax, donor’s tax, value-added tax, excise tax and documentary stamp tax took effect January 1, 2018. However, as none of the packages contain proposals on the adoption of any of the BEPS Action Plan points in the Tax Code, it seems that adoption of the BEPS Action Plan is not an immediate priority in the government’s tax policies.
Since 2016 the Polish government’s tax policy conforms with current global trends and it is definitely focused on closing remaining loophole in Polish tax system by changing the existing provisions and the introduction of various regulations such as exit tax or other as more stringent controlled foreign corporation (CFC) rules, new transfer pricing documentation requirements or reporting tax schemes (MDR). This measures are taken to prevent base erosion and profit shifting, aggressive tax optimization, indirect tax fraud and tax leakage caused by all the above.
It worth stressing that the Polish tax administration is more focused on TP issues than in the past by challenging the arm’s length character of the transaction. Also large multinational corporations are under scrutiny of the Polish tax authorities who identify harmful tax schemes with their participation. The BEPS project does have a substantial impact on the Polish government’s tax policies.
Priorities of the BEPS project in Portugal must be placed in the context of Portugal’s membership of international organizations and their tax policies.
Because Portugal is an OECD member country, its tax policy has complied with the OECD recommendations on tax transparency and measures aimed at aggressive tax planning and abuse.
These are some current impacts on Portuguese tax policy:
- Higher taxation of outbound investment in non-cooperative jurisdictions;
- Anti-abuse rules such as CFC rules; and
- Limitations on interest deductibility, through the implementation of Earnings Stripping Rules.
In the future, it is expected that Portugal will continue to be guided by OECD standards, in particular through the implementation of the BEPS Actions that have not yet been completely transposed into the Portuguese tax system.
Given that South Africa already had a comprehensive BEPS package in place prior to the OECD's BEPs Action Plan initiative, the impact has been limited. Amendments to tax legislation have been undertaken on an ad hoc basis as opposed to wholesale changes in tax policy.
The Davis Tax Committee has released various reports on BEPs in order to provide recommendations on how South Africa can incorporate the OECD BEPS minimum standards, best practice guidelines and international standards into its international tax framework.
BEPS have influenced the Spanish Tax Agency application and interpretation of the tax law.
Under a dynamic interpretation of the laws and even when there is not a direct modification the law, principles resulting from BEPS have been directly adopted for scrutinizing situations that occurred even before BEPS actions plan were initiated.
Not too many additionally changes are expected in this respect.
That said, Spain has yet to implement ATAD Directive in those aspects where there was not a previous regulation in line with ATAD.
As previously stated (see 11 above), the Swiss government has taken BEPS recommendations very seriously and is actively working on implementing them into Swiss law.
However, it should be kept in mind that Swiss voters have the power to oppose changes to legislation through a referendum. This means that the government’s plans are sometimes thwarted by popular vote, like with the Corporate Tax Reform Act III.
While not adopting the BEPS action items relating to transfer pricing, the IRS has at times taken positions in transfer pricing examinations that are similar to the principles of the BEPS project. Transfer pricing regulations adopted by the previous administration (TD 9738, Sept. 2015) provide for aggregation of related transactions to ensure “full value” is captured by a transfer pricing method. As noted above, TCJA also amended Code Section 482 to provide for the aggregation of related transactions where necessary to achieve appropriate results.
The US’s adoption of the new worldwide tax system for GILTI addresses the concerns of the BEPS project by providing for a global minimum tax of 10.5% on most foreign profits of US multinationals.
It has resulted in the introduction of Transfer Pricing Regulations and introduction of the Thin Capitalisation Variation Rules.
The UK Government considers it is ahead of the curve. There is therefore unlikely to be any change in existing policies.
It is expected that Belgium will continue to implement BEPS items into its national tax legislation.
Panama has acquired a short-term commitment to implement the minimum requirements under BEPS, this has led to various implementation changes such as, creation of tools for CRS reports, internal regulations for the exchange of information under CRS, modification in the transfer pricing form according to action 13 of BEPS.
In accordance with BEPS implementation, by the end of 2018 Panama has change some of its special tax regime, such as, Panama Pacific and Multinational Headquarters regime. Companies that were registered in these regimes were mainly exempt of income tax among other taxes, with changes in 2018, there are now obliged to pay income tax at a reduce tax rate and are subject to transfer pricing regulations.
Tax policies adopted for Panamanian Government is to comply with and accept the guidelines of the BEPS as part of the local legal system with ways to support the elimination of tax evasion.