PwC interview with Organisation for Economic Co-operation and Development on Base Erosion and Profit Shifting (BEPS)

PwC UK Partner Richard Collier recently recorded an interview with Pascal Saint-Amans, the Director of the OECD's Centre for Tax Policy and Administration. The interview focuses on the Base Erosion and Profit Shifting (BEPS) project, and addresses a wide range of topical issues, such as:

  • the recent OECD Discussion Draft on country by country reporting and Transfer pricing documentation
  • the current status of the ongoing work on tax and the digital economy.

Mr Saint-Amans also discusses the topics of harmful tax and the multilateral instrument, and the role of the OECD in the post-BEPS environment.

The video and transcript are now available.

OECD Discussion draft on BEPS

On 30 January 2014, the OECD released a discussion draft for public comment: Transfer Pricing Documentation and Country-by-Country reporting. Submissions closed on 23 February 2014.

The OECD has also released an updated timetable of future discussion drafts for public comment.

G20 meeting commits to action plan on BEPS

On 23 February 2014, at the close of The Group of Twenty (G20) Finance Ministers and Central Bank Governors meeting in Sydney, the Federal Treasurer released a G20 communique, which included:

  • an endorsement of the Common Reporting Standard for automatic exchange of tax information on a reciprocal basis and a commitment to work with all relevant parties, including financial institutions, to detail an implementation plan at the September 2014 meeting, with automatic exchange of information on tax matters among G20 members expected to begin by the end of 2015 (or earlier for those jurisdictions that are able to do so); and
  • a commitment to a global response to Base Erosion and Profit Shifting (BEPS) based on sound tax policy principles.

With respect to BEPS, the communique states that “profits should be taxed where economic activities deriving the profits are performed and where value is created.”

License fees for use of software taxed as royalties

In Task Technology Pty Limited v Commissioner of Taxation [2014] FCA 38, the taxpayer sought declarations from the Federal Court that payments made to a Canadian resident entity pursuant to a software distribution agreement were not ‘royalties’ under the Double Tax Agreement (DTA) entered into by Australia and Canada (Australia/Canada DTA). If the payments were royalties, the taxpayer (Task Technology) had an obligation to deduct tax from the remittances to the Canadian resident entity (CWI).

Briefly, under the distribution agreement (DA), Task Technology was licensed by CWI to market and distribute software developed by CWI, such distribution being pursuant to ‘end user licences.’ Under the terms of the DA, Task Technology was authorised to make copies of the software for distribution to third parties (end users). As consideration for the benefits under the DA, Task Technology paid annual fees to CWI, with the fees paid including a percentage of the software and template license fees that Task Technology charged the end users.

In its submission to the Court, Task Technology argued that the payments were not royalties because they satisfied Article 12(7) of the Australia/Canada DTA which provided that Article 12 (Royalties) of that DTA did not apply ‘to payments or credits made as consideration for the supply of, or the right to use, source code in a computer program, provided that the right to use the source code is limited to such use as is necessary to enable effective operation of the program by the user.’

In refusing Task Technology’s application and finding in favour of the Commissioner of Taxation, Justice Davies held that Article 12(7) did not apply in this instance, “because the nature of the rights that Task Technology acquired under the distribution agreement, in relation to the use of software for which the payments were made, were not limited to such rights as were necessary for the effective operation of the software by Task Technology itself but for the commercial exploitation of that software by Task Technology through the right to copy the CWI software for sale to end users and the right to use the copyright for the purposes of developing its own templates to sell in conjunction with the CWI software.”

The decision is a salient reminder of the need to carefully review ‘cross border’ distribution agreements entered into, so as to determine the tax obligations of each party to the relevant agreement.

New Zealand: Tax rules for foreign superannuation funds

On 18 February 2014, the New Zealand Minister of Revenue announced an amendment to the proposed tax rules for foreign superannuation contained in the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill (the Bill). According to the Minister’s media statement, the changes provide greater choice to individuals who decide to transfer their foreign superannuation as the changes extend the availability of the ‘15 per cent option’ to those individuals whose funds have not actually been transferred to New Zealand before 1 April 2014, but who can show they have lodged an application before that date.

In explaining the ‘15 per cent option’ the Minister said that - “For transfers or withdrawals before 1 April 2014, a person can either calculate the actual amount of tax payable under the rules at the time or simply apply the 15 per cent option. People who choose the 15 per cent option can include 15 per cent of their transferred or withdrawn foreign superannuation in their 2013–14 or 2014–15 income tax return and have their tax rate applied to that amount.”

Singapore Budget

The 2014 Singapore Budget was released on Friday 21 February, 2014.