On June 5, 2017, the OECD began its two-day 2017 International Tax Conference in Washington, D.C., in partnership with the U.S. Council for International Business (USCIB). The OECD BEPS project was the focal point of each panel, which included discussions by government officials, OECD members, and multinational executives.
Panel 1 – Tax Reform Trends
International Tax Reform
Over time, statutory corporate income tax (CIT) rates have fallen, but this has slowed since the 2008 recession. Meanwhile, corporate tax revenues have increased, generally due to the adoption of anti-BEPS measures. Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said that there has been a consistent trend toward the use of preferential tax rates on IP-related income. See BEPS Action 5. In addition, countries are moving toward the adoption/expansion of consumption-based taxes.
U.S. Tax Reform
International tax has become a public concern. Even if Congress does not adopt the House Blueprint, the focus on a destination-based tax will not go away. According to Michael Graetz, Professor of Tax Law at Columbia Law School, the Blueprint violates WTO rules and “blows up” U.S. income tax treaties.
David Lewis, Vice President of Global Taxes and Assistant Treasurer at Eli Lilly & Co., said that the overriding expectations of the business community are that U.S. tax reform will happen in the near future and that it will allow the U.S. to be competitive in the global market.
Panel 2 – Improving Tax Certainty
Tax uncertainty negatively affects business decisions (e.g., investment, hiring). According to Saint-Amans, the March 2017 OECD Tax Certainty Report discussed the top ten tools to enhance tax certainty. Some of the recommended tools include improved tax policy and law design and effective dispute resolution mechanisms (e.g., cooperative compliance programs), among others. 26 countries that intend to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) will adopt mandatory arbitration at the signing ceremony on June 7th. Taxpayers that want to maintain anonymity can contact the OECD Secretariat to discuss mutual agreement procedures (MAP) as part of the Action 14 peer review.
Doug O’Donnell, Commissioner of the LB&I Division of the IRS, chairs the MAP Forum, which was created in 2014 to ensure that competent authorities have adequate staffing to administer MAP. In 2018, the OECD intends to publish country-specific reports from the Action 14 peer reviews that will illustrate MAP inventory, among other information. The Canada Revenue Agency (CRA) is leading a group of countries that will share insight on information in country-by-country (CbC) reports. See BEPS Action 13. The OECD is creating a pilot program for multilateral tax authority discussions on CbC report filings (known as “ICAP”). Participation in the ICAP program is voluntary.
According to Martin Kreienbaum, Chair of the OECD Committee on Fiscal Affairs and Director General of International Taxation at the German Federal Ministry of Finance, the EU Anti-Tax Avoidance Directive (ATAD) 1 will create tax certainty at the EU level. The EU Directive on Arbitration, which was recently adopted, will increase the scope of the existing EU Arbitration Convention to cover all forms of direct tax.
Louise Weingrod, VP of Global Taxation at Johnson & Johnson, said that when assessing tax certainty in a country, J&J looks for the following:
- Laws and regulations (e.g., clarity, whether arm’s-length standard is respected, and whether tax changes include meaningful public consultation.
- Effective dispute avoidance mechanisms (e.g., APAs).
Will Morris, Chairman of the BAIC Committee on Taxation and Fiscal Affairs and Deputy Global Tax Policy Leader at PwC, said that tax certainty can be broken down as follows: (1) trust of government in business; (2) trust of business in government; and (3) trust by everybody else.
Panel 3 –MLI
The MLI works alongside and modifies bilateral tax treaties. See BEPS Action 15. The MLI must be ratified by each country according to its domestic rules. The MLI Explanatory Statement discusses ongoing work on the detailed limitation on benefits (LOB) provision, which will be incorporated in an updated OECD Model Tax Convention (the “Model”) to be published after the October 2017 OECD meeting. See BEPS Action 6. The Model will likely be released this summer for comment.
According to Grace Perez-Navarro, Deputy Director of the OECD Centre for Tax Policy and Administration, on June 7th, the OECD will publish, for each country, PDFs containing BEPS MLI notifications. The U.S. will not be one of the 70 countries participating in the June 7th signing ceremony. The OECD will provide additional guidance on consolidating the BEPS MLI with affected tax treaties by each country.
Mike Williams, Director of Business and International Tax at HM Treasury, said that the MLI will include English and French versions, with countries preparing versions in additional languages. The Explanatory Statement is meant to address how the MLI will interact with existing treaties. There are elements of flexibility, such as: (1) specifying tax treaties covered; (2) alternative methods of meeting a minimum standard; (3) opting out of non-minimum standard provisions; (4) choices to apply optional and alternative provisions (e.g., arbitration).
The U.K. intends to notify the OECD of all relevant Covered Tax Agreements, which Parliament will then have to ratify. There is increasing interest among countries in adopting mandatory binding arbitration. About 26 signatories are expected to opt in for arbitration at the signing ceremony. The MLI provides flexibility to opt into arbitration provisions at a later date.
Brian Ernewein, General Director (Legislation) in the Tax Policy Branch at the Canadian Department of Finance, said that Canada will sign the MLI preamble on June 7th. Canada will likely have specific reservations to the MLI, but will sign on to the arbitration provisions. Ernewein said that other countries may want to consider Canada’s approach of creating a government committee to review the scope of specific BEPS MLI provisions.