On February 1, 2017 the OECD released a key document which will form the basis of the peer review of BEPS Action 5 Counter harmful tax practices more effectively, taking into account transparency and substance (Transparency Framework). The final report on BEPS Action 5 is one of the four BEPS minimum standards. There are two aspects to the Action 5 minimum standard: a process for reviewing preferential tax regimes to ensure they are not harmful, and a transparency framework that applies to tax rulings (“the transparency framework”).
Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the Action 5 minimum standard, and commit to participating in the peer review.
The peer review of the Action 5 minimum standard will be undertaken by the Forum on Harmful Tax Practices (“FHTP”).
The purpose of a peer review is to ensure the effective implementation of an agreed standard. The peer review will evaluate the implementation of the standard against an agreed set of criteria. These criteria are set out in terms of reference, which include each of the elements that a jurisdiction needs to demonstrate it has fulfilled in order to show proper implementation of the standard.
The note as released by the OECD on February 1, 2017 contains the key documents to be used for the peer review, which reflect the agreed approach:
(1) the terms of reference; and
(2) the methodology for the conduct of peer reviews of the Action 5 transparency framework.
The Action 5 Report (OECD, 2015) sets out the agreed framework for the transparency framework. This includes six categories of taxpayer-specific rulings which in the absence of compulsory spontaneous exchange of information could give rise to BEPS concerns. These six categories are
(i) rulings relating to preferential regimes;
(ii) unilateral advance pricing agreements (APAs) or other cross-border unilateral rulings in respect of transfer pricing;
(iii) cross-border rulings providing for a downward adjustment of taxable profits;
(iv) permanent establishment (PE) rulings;
(v) related party conduit rulings; and
(vi) any other type of ruling agreed by the FHTP that in the absence of spontaneous information exchange gives rise to BEPS concerns.
The transparency framework applies to these categories of rulings provided they were issued within a certain period of time, as defined in the Action 5 Report (OECD, 2015) as “past rulings” and “future rulings”.
The terms of reference are broken down into four elements, which capture the key elements of the transparency framework:
A. the information gathering process;
B. the exchange of information;
C. confidentiality of information received; and
D. statistics
Methodology for the conduct of the peer reviews of the Action 5 transparency framework
The methodology sets out the process for undertaking the reviews.
All members of the Inclusive Framework on BEPS will be assessed for compliance with the transparency framework on an annual basis. All members will be assessed using the terms of reference as the basis for the assessment. However, where a member of the Inclusive Framework does not issue rulings within the scope of the transparency framework, they will be asked to certify this and will not be required to complete the rest of the review process.
The first review will take place in 2017, with respect to the implementation of the transparency framework by OECD countries, OECD accession countries and G20 countries only during the January 1, 2016 – December 31, 2016 period.
The second review will take place in 2018 with respect to the implementation of the transparency framework during the January 1, 2017 – December 31, 2017 period. For OECD countries, OECD accession countries and G20 countries that were reviewed in 2017, this will be an update report, such that only changes in implementation, action taken to address any recommendations and an update of statistics will be provided. With respect to new members that joined the Inclusive Framework on BEPS in 2016, the 2018 annual review will be their first review.
The third review will take place in 2019 with respect to the implementation of the transparency framework during the January 1, 2018 – December 31, 2018 period. For OECD countries, OECD accession countries and G20 countries and new members of the Inclusive Framework on BEPS that were reviewed in 2018, this will be an update report, such that only changes in implementation, action taken to address any recommendations and an update of statistics will be provided. With respect to non-G20 non-financial centre developing countries that had informed the FHTP in 2017 that they require additional time to implement the transparency framework, the 2019 annual review will be their first review.
The fourth review will take place in 2020 with respect to the implementation of the transparency framework during the January 1, 2019 – December 31, 2019 period. This should be an update report only, other than in respect to any FHTP member that has not previously been reviewed. As the current mandate for the Inclusive Framework on BEPS ends in 2020, the carrying out of any subsequent reviews after 2020 will be subject to the agreement of the Inclusive Framework on BEPS.
In this document a.o. the following subjects are discussed:
· Data collection process
· Outline of annual report
· Approval of report
· Amendments and interpretation
· Confidentiality of peer review documents
Click here to be forwarded to BEPS Action 5 on Harmful Tax Practices: Transparency Framework - PEER REVIEW DOCUMENTS as available on the website of the OECD, which will open in a new window.
Copyright – internationaltaxplaza.info
and
Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!