OECD – Recent Developments – An Update

In this issue, we have
covered major developments in the field of International Taxation in the
Calendar year 2018 till date and work being done at OECD in various other
related fields. It is in continuation of our endeavour to update the readers on
major developments at OECD at regular intervals. Various news items included
here are sourced from various OECD Newsletters as available on its website.

In this write-up, we have
classified the developments into 6 major categories viz.:

1)   Tax Treaties

2)   BEPS Action Plans

3)   Transfer Pricing 

4)   Common Reporting Standard (CRS)

5)   Multilateral Convention on Mutual
Administrative Assistance in Tax Matters

6)   Others

1) Tax Treaties

(i) Major step forward in international tax
co-operation as additional countries sign landmark agreement to strengthen tax
treaties

24/01/2018 – Ministers and
high-level officials from Barbados, Jamaica, Malaysia, Panama and Tunisia have
today signed the BEPS Multilateral Convention bringing the total number
of signatories to 78.

In addition to those
signing today, Algeria, Kazakhstan, Oman and Swaziland have expressed their
intent to sign the Convention, and a number of other jurisdictions are actively
working towards signature by June 2018. So far, four jurisdictions – Austria,
the Isle of Man, Jersey and Poland – have ratified the Convention, which will
enter into force three months after a fifth jurisdiction deposits its
instrument of ratification.

The text of the Convention,
the explanatory statement, background information, database, and position of
each signatory are available at http://oe.cd/mli.

2) 
BEPS Action Plans

(i) OECD releases decisions on 11 preferential
regimes of BEPS Inclusive Framework Members

17/05/2018 – Governments
are continuing to make swift progress in bringing their preferential tax
regimes in compliance with the OECD/G20 BEPS standards to improve the
international tax framework.

Today, the Inclusive
Framework released the updates to the results for preferential regime reviews
conducted by the Forum on Harmful Tax Practices (FHTP) in connection with BEPS
Action 5:

–  Four new regimes were
designed to comply with FHTP standards, meeting all aspects of transparency, exchange of information, ring fencing and
substantial activities and are found to be not harmful (Lithuania, Luxembourg,
Singapore, Slovak Republic).

– Four regimes were abolished or amended to remove harmful features
(Chile, Malaysia, Turkey and Uruguay).

–  A further three regimes do not relate to geographically mobile
income and/or are not concerned with business taxation, as such posing no BEPS
Action 5 risks and have therefore been found to be out of scope (Kenya and two
Viet Nam regimes).

Eleven new preferential
regimes are identified since the last update, bringing the total to 175 regimes
in over 50 jurisdictions considered by the FHTP since the creation of the
Inclusive Framework. Of the 175, 31 regimes have been changed; 81 regimes
require legislative changes which are in progress; 47 regimes have been
determined to not pose a BEPS risk; 4 have harmful or potentially harmful
features and 12 regimes are still under review.

This update shows the
determination of the Inclusive Framework to comply with the international
standards. For the updated table of regime results, see www.oecd.org/tax/beps/update-harmful-tax-practices-2017-progress-report-on-preferential-regimes.pdf.

(ii) The United Arab Emirates and Bahrain joins the
Inclusive Framework on BEPS.

(iii) OECD releases additional guidance on the
attribution of profits to a permanent establishment under BEPS Action 7

22/03/2018 – Today, the
OECD released the report Additional Guidance on the Attribution of
Profits to Permanent Establishments (BEPS Action 7).

In October 2015, as part of
the final BEPS package, the OECD/G20 published the report on Preventing
the Artificial Avoidance of Permanent Establishment Status. The Report
recommended changes to the definition of permanent establishment (PE) in
Article 5 of the OECD Model Tax Convention, which is crucial in determining whether
a non-resident enterprise must pay income tax in another State. In particular,
the Report recommended changes aimed at preventing the use of certain common
tax avoidance strategies that have been used to circumvent the existing PE
definition.

(iv) OECD and IGF invite comments on a draft
practice note that will help developing countries address profit shifting from
their mining sectors via excessive interest deductions

18/04/2018 – For many
resource-rich developing countries, mineral resources present an unparalleled
economic opportunity to increase government revenue. Tax base erosion and
profit shifting (BEPS), combined with gaps in the capabilities of tax
authorities in developing countries, threaten this prospect. One of the avenues
for international profit shifting by multinational enterprises is the use of
excessive interest deductions.

Building on BEPS Action
4, this practice note has been prepared by the OECD Centre for Tax
Policy and Administration under a programme of co-operation with the
Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development
(IGF), to help guide tax officials on how to strengthen their defences against
BEPS.

It is part of wider efforts
to address some of the challenges developing countries are facing in raising
revenue from their mining sectors. This work also complements action by the Platform
for Collaboration on Tax and others to produce toolkits on top priority tax
issues facing developing countries.

(v) OECD releases third round of peer reviews on
implementation of BEPS minimum standards on improving tax dispute resolution
mechanisms and calls for taxpayer input for the fifth round

12/03/2018 – As the BEPS
Action 14 continues its efforts to make dispute resolution more timely,
effective and efficient, eight more peer review reports have been released
today. These eight reports highlight how well jurisdictions are implementing
the Action 14 minimum standard as agreed to in the OECD/G20 BEPS Project.

The third round reports
released today relate to implementation by the Czech Republic, Denmark,
Finland, Korea, Norway, Poland, Singapore and Spain. A document addressing
the implementation of best practices is also available on each jurisdiction
that chose to opt to have such best practices assessed. These eight reports
contain over 215 specific recommendations relating to the minimum standard. In
stage 2 of the peer review process, each jurisdiction’s effort to address the
recommendations identified in its stage 1 peer review report will be assessed.

3) Transfer Pricing 

(i)      OECD
and Brazil launch project to examine differences in cross-border tax rules

 28/02/2018 – The OECD and Brazil today
launched a joint project to examine the similarities and gaps between the
Brazilian and OECD approaches to valuing cross-border transactions between
associated firms for tax purposes. The project will also assess the potential
for Brazil to move closer to the OECD’s transfer pricing rules, which are a
critical benchmark for OECD member countries and followed by countries around
the world.

(ii) OECD invites public comments on the scope of
the future revision of Chapter IV (administrative approaches) and Chapter VII
(intra-group services) of the Transfer Pricing Guidelines

09/05/2018 – The OECD is
considering starting two new projects to revise the guidance in Chapter IV
(administrative approaches) and Chapter VII (intra-group services) of the
Transfer Pricing Guidelines.

Public comments are invited
on:

– the future revision of Chapter IV, “Administrative Approaches to
Avoiding and Resolving Transfer Pricing Disputes” of the Transfer Pricing
Guidelines, and

– the future revision of Chapter VII, “Special Considerations for
Intra-Group Services”, of the Transfer Pricing Guidelines.

(iii) OECD releases 14 additional country profiles
containing key aspects of transfer pricing legislation

09/04/2018 – The OECD has published
new transfer pricing country profiles for Australia, China (People’s
Republic of), Estonia, France, Georgia, Hungary, India, Israel, Liechtenstein,
Norway, Poland, Portugal, Sweden and Uruguay respectively. These new
profiles reflect the current transfer pricing legislation and practices of each
country. The profiles of Belgium and the Russian Federation have also been
updated. The country profiles are now available for 45 countries.

4) Common Reporting Standard (CRS)

(i) OECD addresses the misuse of
residence/citizenship by investment schemes

19/04/2018 – Today’s
revelations from the “Daphne Project” on the Maltese residence and
citizenship by investment schemes underline the crucial importance of the
OECD’s work to ensure that the integrity of the OECD/G20 Common Reporting
Standard (CRS) is preserved and that any circumvention is detected and
addressed.

Over the last months, the
OECD has been taking a set of actions to ensure that all taxpayers maintaining
financial assets abroad are effectively reported under the CRS, including by:

–  issuing new model disclosure rules that require lawyers,
accountants, financial advisors, banks and other service providers to inform
tax authorities of any schemes they put in place for their clients to avoid
reporting under the CRS. The adoption of such model mandatory disclosure rules
will have a deterrent effect on the promotion of CBI/RBI schemes for
circumventing the CRS and provide tax authorities with intelligence on the
misuse of such schemes as CRS avoidance arrangements. The EU Member States have
already agreed to implement these rules as part of a wider directive on
mandatory disclosures;

–  reaching out to individual jurisdictions, including Malta, to
make them aware of the risk of abuse of their CBI/RBI schemes and offer
assistance in adopting mitigating measures; and

–  establishing a list of high risk schemes in order to further
raise awareness amongst stakeholders of the potential of such schemes to
undermine the CRS due diligence and reporting requirements.

In addition, on 19^th
February 2018, the OECD issued a consultation document, outlining potential
situations where the misuse of CBI/RBI schemes poses a high risk to accurate
CRS reporting and seeking public input both to obtain evidence on the misuse of
CBI/RBI schemes and on effective ways for preventing such abuse.

The substantial amount of
input received in response to the consultation further underlines the
importance of the OECD’s actions in this field. It also contains a wide range
of proposals for further addressing the misuse of RBI/CBI schemes, including:
1) comprehensive due diligence checks to be carried out as part of the RBI/CBI
application process, 2) the spontaneous exchange of information about
individuals that have obtained residence/citizenship through such a CBI/RBI
scheme with their original jurisdiction(s) of tax residence; and 3)
strengthened CRS due diligence procedures on financial institutions with
respect to high risk accounts. 

(ii)     Global
network for the automatic exchange of offshore account information continues to
grow; OECD releases new edition of the CRS Implementation Handbook

05/04/2018 – Today, the
OECD published a new set of bilateral exchange relationships established under
the Common Reporting Standard Multilateral Competent Authority Agreement (CRS
MCAA) which for the first time includes activations by Panama.

In total, there are now
over 2700 bilateral relationships for the automatic exchange of offshore
financial account information under the CRS in place across the globe. The full
list of automatic exchange relationships that are currently in place under the CRS
MCAA is available online.

The OECD today also
released the second edition of the Common Reporting Standard Implementation
Handbook.

The Handbook provides
practical guidance to assist government officials and financial institutions in
the implementation of the CRS and to provide a practical overview of the CRS to
both the financial sector and the public at-large.

(iii)    Game
over for CRS avoidance! OECD adopts tax disclosure rules for advisors

09/03/2018 – Responding to
a request of the G7, today, the OECD has issued new model disclosure rules
that require lawyers, accountants, financial advisors, banks and other service
providers to inform tax authorities of any schemes they put in place for their
clients to avoid reporting under the OECD/G20 Common Reporting Standard (CRS)
or prevent the identification of the beneficial owners of entities or trusts.

As the reporting and
automatic exchange on offshore financial accounts pursuant to the CRS becomes a
reality in over 100 jurisdictions this year, many taxpayers that held
undeclared financial assets offshore have come clean to their tax authorities
in recent years, which has already led to over 85 billion of additional tax
revenue.

At the same time, there are
still persons that, often with the help of advisors and financial
intermediaries, continue to try hiding their offshore assets and fly under the
radar of CRS reporting. The new rules released today target these persons and
their advisers, by introducing an obligation on a wide range of intermediaries
to disclose the schemes to circumvent CRS reporting to the tax authorities. The
new rules also require the reporting of structures that hide beneficial owners
of offshore assets, companies and trusts.

These model disclosure
rules will be submitted to the G7 presidency and are part of a wider strategy
of the OECD to monitor and act upon tendencies in the market that try to avoid
CRS reporting and hide assets offshore. As part of this work the OECD is also
addressing cases of abuse of golden visas and similar schemes to circumvent CRS
reporting.

(iv) OECD releases consultation document on misuse
of residence by investment schemes to circumvent the Common Reporting Standard

19/02/2018 – More and more
jurisdictions are offering “residence by investment” (RBI)
or “citizenship by investment” (CBI) schemes, which
allow foreign individuals to obtain citizenship or temporary or permanent
residence rights in exchange for local investments or against a flat fee.
Individuals may be interested in these schemes for a number of legitimate
reasons, including greater mobility thanks to visa-free travel, better
education and job opportunities for children, or the right to live in a country
with political stability. At the same time, information released in the market
place and obtained through the OECD’s CRS public disclosure facility,
highlights the misuse of RBI and CBI schemes to circumvent reporting under the
Common Reporting Standard (CRS).

 As part of its CRS loophole strategy, the OECD
is releasing a consultation document that (1) assesses how these schemes are
used in an attempt to circumvent the CRS; (2) identifies the types of schemes
that present a high risk of abuse; (3) reminds stakeholders of the importance
of correctly applying relevant CRS due diligence procedures in order to help
prevent such abuse; and (4) explains next steps the OECD will undertake to
further address the issue, assisted by public input.

(v) Panama joins international tax co-operation
efforts to end bank secrecy

15/01/2018 – Today, at the
OECD Headquarters in Paris, the Director-General of Revenue and the delegated
Competent Authority of Panama, Publio Ricardo Cortés, has signed the CRS Multilateral Competent Authority Agreement?
(CRS MCAA), in presence of OECD Deputy Secretary-General Masamichi Kono. Panama
is the 98^th jurisdiction to join the CRS MCAA, which is the prime
international agreement for implementing the automatic exchange of financial
account information under the Multilateral Convention on Mutual Administrative
Assistance. 

5) Convention on Mutual Administrative
Assistance in Tax Matters

The Convention on Mutual
Administrative Assistance in Tax Matters (“the Convention”) was
developed jointly by the OECD and the Council of Europe in 1988 and amended by
Protocol in 2010. The Convention is the most comprehensive multilateral
instrument available for all forms of tax co-operation to tackle tax evasion
and avoidance, a top priority for all countries.

The Convention was amended
to respond to the call of the G20 at its 2009 London Summit to align it to the
international standard on exchange of information on request and to open it to
all countries, in particular to ensure that developing countries could benefit
from the new more transparent environment. The amended Convention was opened
for signature on 1^st June 2011.

122 jurisdictions currently
participate in the Convention, including 17 jurisdictions covered by territorial
extension*. This represents a wide range of countries including all G20
countries, all BRIICS, all OECD countries, major financial centres and an
increasing number of developing countries.

* In May 2018, the People’s
Republic of China extended the territorial scope of the Convention to the Hong
Kong and Macau Special Administrative Regions pursuant to Article 29. As such,
The Convention will enter into force for  
both   Hong Kong (China)   and  
Macau  (China)  on 1^st September
2018.

6) Others

(i) Global Forum issues tax transparency compliance
ratings for nine jurisdictions as membership rises to 150

04/04/2018 – The Global
Forum on Transparency and Exchange of Information for Tax Purposes (the Global
Forum) published today nine peer review reports assessing compliance with international
standards on tax transparency.

Eight of these reports
assess countries against the updated standards which incorporate beneficial
ownership information of all legal entities and arrangements, in line with the
Financial Action Task Force international definition.

Four jurisdictions – Estonia,
France, Monaco and New Zealand – received an overall rating of “Compliant.”
Three others – The Bahamas, Belgium and Hungary were rated “Largely
Compliant.” Ghana was rated “Partially Compliant.”

Progress for Jamaica
were recognised through a Supplementary Report
which attributes a “Largely Compliant” rating.

The Global Forum now
includes 150 members on an equal footing as Montenegro has just joined the
international fight against tax evasion. Members of the Global Forum already
include all G20 and OECD countries, all international financial centres and
many developing countries.

The Global Forum also runs
an extensive technical assistance programme to provide support to its members
in implementing the standards and helping tax authorities to make the best use
of cross-border information sharing channels.

(ii) Governments should make better use of energy
taxation to address climate change

14/02/2018 – Taxing
Energy Use 2018 describes patterns of energy taxation in 42 OECD and G20
countries (representing approximately 80% of global energy use), by fuels and
sectors over the 2012-2015 period.

New data shows that energy
taxes remain poorly aligned with the negative side effects of energy use. Taxes
provide only limited incentives to reduce energy use, improve energy efficiency
and drive a shift towards less harmful forms of energy. Emissions trading
systems, which are not discussed in this publication, but are included in the
OECD’s Effective Carbon Rates, are having little impact on this broad picture.

Meaningful tax rate
increases have largely been limited to the road sector. Fuel tax reforms in
some large low-to-middle income economies have increased the share of emissions
taxed above climate costs from 46% in 2012 to 50% in 2015. Encouragingly, some
countries are removing lower tax rates on diesel compared to gasoline. However,
fuel tax rates remain well below the levels needed to cover non-climate
external costs in nearly all countries.

Coal, characterised by high
levels of harmful emissions and accounting for almost half of carbon emissions
from energy use in the 42 countries, is taxed at the lowest rates or fully
untaxed in almost all countries.

While
the intense debate on carbon taxation has sparked action in some countries,
actual carbon tax rates remain low. Carbon tax coverage increased from 1% to 6%
in 2015, but carbon taxes reflect climate costs for just 0.3% of emissions.
Excise taxes dominate overall tax rates by far.

Note:
The reader may visit the OECD website and download various reports referred to
in this article for his further studies.