As reported last quarter, the Organisation for Economic Co-Operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) project is now in full swing and this quarter has seen a further raft of announcements and publications. Of most significance are:

  • the 19 December 2014 publication by the OECD of a discussion paper addressing transfer pricing issues (relevant to Actions 8 to 10 of BEPS). To view the paper, click here
  • the 18 December 2014 publication by the OECD of a discussion paper on BEPS Action 14 (making dispute resolution mechanisms more effective) that puts forward options for removing barriers to full mutual agreement procedures between governments. To view the paper, click here
  • the 18 December 2014 publication by the OECD of a discussion paper on BEPS Action 4 (interest deductibility). The paper suggests the adoption of a “best practice” approach to the issue as a way of removing inconsistency of treatment as between jurisdictions, which is currently seen as facilitating abuse. As far as the UK is concerned, it will be interesting to see how this workstream impacts (if at all) on the UK’s existing debt cap regime. To view the paper, click here
  • the 16 December 2014 publication by the OECD of two discussion papers on BEPS Action 10 (transfer pricing). The first paper considers when a profit split transfer pricing method may be appropriate for multinationals. The second paper specifically considers cross-border commodity transactions. To view the papers, click here and here
  • the 3 December 2014 launch by the UK Government, as part of the Autumn Statement, of a consultation on the UK tax treatment of “hybrid mismatches” (see above)
  • the 21 November 2014 publication by the OECD of a discussion paper on BEPS Action 6 (preventing treaty abuse). Amongst other things, the paper invites comments as to how a proposed limitation of benefits clause should apply to collective investment vehicles and other ‘funds’ (for example, private equity). To view the paper, click here
  • the 11 November 2014 announcement that the UK and Germany had agreed to a joint proposal for consideration by the OECD’s “Forum in Harmful Tax Practices” in respect of the BEPS approach to preferential intellectual property regimes. The proposal includes closing the UK’s current patent box regime to new entrants from 30 June 2016. The UK Government later confirmed that the legislative process to make IP regimes such as the patent box comply with the OECD’s recommendations would begin in 2015, with a view to fully phasing out the current regime by 30 June 2021. To view the announcement, click here
  • the 3 November 2014 publication by the OECD of a discussion paper on BEPS Action 10 (transfer pricing) which proposes a simplified approach for low, value-adding, intra-group services. Under the proposal, intra-group services that are of a “supportive nature”, and are not part of the “core business” of the group could benefit from the simplified transfer pricing approach. In-house legal services, human resources activities and certain IT services are given as examples. To view the paper, click here
  • the 31 October 2014 publication by the OECD of a discussion paper on BEPS Action 7 (preventing artificial avoidance of permanent establishment status). The paper makes a  number of proposals, seemingly targeted at perceived means of artificially avoiding permanent establishment. One such proposal looks at perceived abuse using “commissionaire” or similar arrangements. Another proposal considers whether having a local warehouse to deliver goods promptly to customers in the local territory should continue to be automatically excluded from giving rise to a permanent establishment. Certain high-profile multinationals would be affected by these proposals, if adopted. To view the paper, click here.