On March 24, 2016 the OECD released a consultation document on the treaty entitlement of non-Collective Investment Vehicle (CIV) Funds. The release is a follow-up to the Final Report on Action 6 of the OECD’s BEPS project (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6: 2015 Final Report) that was released on October 5, 2015.
In Paragraph 14 of the Introduction under the paragraph “Further work to be done” of this Final Report on Action 6 the following was stated:
“As regards the broader question of the treaty entitlement of non-CIV funds, the OECD recognises the economic importance of these funds and the need to ensure that treaty benefits be granted where appropriate. The new treaty provision on transparent entities that is included in Part 2 of the Report on Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements, OECD, 2015a) will be beneficial for non-CIV funds that use entities that one or the two Contracting States treat as fiscally transparent since income derived through such entities that will be taxed in the hands of the investors in these entities will generally receive treaty entitlement at the level of these investors even if these investors are residents of third States. Also, the possible inclusion of a derivative benefits provision in the LOB rule to be finalised in the first part of 2016 will likely also address some of the concerns regarding the treaty entitlement of non-CIV funds in which there are non-resident investors. Notwithstanding this, however, there is a need to continue to examine issues related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions that are being considered adequately address the treaty entitlement of non-CIVs. The continued examination of these issues would also address two general concerns that governments have about granting treaty benefits with respect to non-CIVs: that non-CIVs may be used to provide treaty benefits to investors that are not themselves entitled to treaty benefits and that investors may defer recognition of income on which treaty benefits have been granted. This work, which will also benefit from consultation with stakeholders, will need to be completed in the first part of 2016 in order to be relevant for the negotiation of the multilateral instrument.”
As follow-up on March 24, 2016 the OECD has released “BEPS CONSULTATION DOCUMENT ON THE TREATY ENTITLEMENT OF NON-CIV FUNDS”. The consultation document has been produced as part of the follow-up work on this issue. It includes a number of specific questions (which appear in boxes) related to concerns, identified in comments received on previous discussion drafts related to the Report on Action 6, as to how the new provisions included in the Report on Action 6 could affect the treaty entitlement of non-CIV funds as well as to possible ways of addressing these concerns that were suggested in these comments or subsequently. Commentators are invited to respond to these specific questions in order to facilitate the Working Party’s analysis of these concerns and suggestions. Commentators may also offer additional suggestions as indicated in the box appearing at the end of this document.
Interested parties are invited to send their responses to the questions included in the consultation document.
Responses to the consultation document should be sent by April 22, 2016 at the latest by email.
Topics discussed in the consultation document include a.o.:
· Concerns related to the LOB provision
o Suggestion that treaty benefits be granted to regulated and/or widely-held non-CIV funds
o Non-CIV funds set up as transparent entities
o Suggestion that certain non-CIV funds be granted treaty benefits where a large proportion of the investors would be entitled to the same or better benefits
o Suggestion that the LOB should not deny benefits to a non-CIV resident of a State with which the non-CIV has a sufficiently substantial connection
o Suggestion of a “Global Streamed Fund” regime
· Concerns related to the PPT rule
· Concerns related to “anti-conduit rules”
· Concerns related to the “special tax regimes” proposal
· Other suggestions
Click here to be forwarded to the Consultation document.
Like many other BEPS documents the Final Report on BEPS Action 6 as issued by the OECD on October 5, 2015 can be very efficiently found via our BEPS LIBRARY.
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