The IFA Congress 2019, held 8-12 September in London, brought together leading international tax and transfer pricing experts from around the world.
As a part of a four-day scientific programme, the experts presented and debated on two main subjects, interest deductibility and the taxation of investments funds, and on a wide range of other topics, including the latest tax court cases from around the globe, the interaction of tax treaties with domestic measures, and the future of taxation in general.
There was also a heavy focus on the implementation of the measures arising from the OECD/G20 base erosion profit shifting (BEPS) action plan as well as current OECD tax initiatives still in the works.
Among others, Pascal Saint Amans (Director, Centre for Tax Policy and Administration, OECD), Richard Collier (Senior Tax Adviser, OECD, who is taking the lead on the pillar one digital tax solution) and Achim Pross (Head of the International Co-operation and Tax Administration Division, OECD) shared their insights and thoughts during a number of panel discussions.
Here are some of the highlights of this discussion:
- Taxation of Digital Economy OECD officials noted that after sharing the programme of work for consensus on taxation of digital economy in May, they have been working hard in determining how exactly a unified approach under pillar one (revised nexus and profit allocation rules) could work. They noted that all three proposals under pillar one have their advantages and drawbacks and the goal is to combine the best elements of those to come up with a consensus solution. There is a momentum building for pillar two (global anti-base erosion, minimum tax rate proposal). However, OECD officials stressed the importance of a multilateral solution to avoid over-taxation. It is expected that a paper on taxation of the digital economy will be completed in one month.
- Transfer pricing of financial transactions: It was stated again that the transfer pricing guidelines for financial transactions had been agreed. The consensus was hard to reach and although these guidelines will provide certain recommendations on the qualification of debt and equity, they will allow different qualification approaches by individual jurisdictions. The guidelines will recognise that the company’s credit rating is one of the key measures of creditworthiness. However, the group credit rating will be still presented as an option for jurisdictions to consider in certain circumstances.
- Taxation of debt/equity: it was noted by OECD officials that debt and equity are frequently arbitraged. This tax planning relies on the different tax treatment of debt and equity and the ease of structuring financial instruments to replicate the economics of the two. In the long run, this puts pressure on the reliance on legal form in the tax system.
- Country-by-country reporting: Country-by-country reporting provided a lot of data to the tax authorities (approximately 7,000 MNEs submitted CbC reports to their respective jurisdictions). Country-by-country reporting also resulted in 2,000 exchange agreements between jurisdictions. So far, tax authorities find it difficult to interpret this data, OECD officials said. These comments were echoed by representatives from various tax administrations. The OECD is developing an analytical software tool to assist the tax authorities in interpreting the data for risk assessment. OECD officials stressed that country-by-country reporting initiative was always subject to review in 2020. This review will address all aspects of this programme, including but not limited to, the data requested and the revenue threshold at which MNEs need to submit the country-by-country report.
- The International Compliance Assurance Programme (ICAP): The ICAP pilot program was noted as a particularly successful initiative resulting from country-by-country reporting. Several tax authorities invited selected global MNEs for joint risk assessment discussions. The MNEs had a chance to present their value chains and explain the financials in the country-by-country reports to the participating tax authorities. The tax authorities were able to ask questions about any elements they were not sure about in real-time. Following the positive feedback, ICAP is being expanded for another round in 2019/2020 with 18 tax authorities participating. MNEs and tax authorities stressed a preference for proactive risk assessment to increase tax certainty and avoiding going into MAPs.