13 July 2016Analysis

OECD reveals developments in BEPS implementation

The Organisation for Economic Co-operation and Development (OECD) has disclosed a discussion draft which deals with the design and operation of the group ratio rule under Action 4 of the BEPS Action Plan, and a standardised IT-format for the exchange of tax rulings (ETR) between jurisdictions – the ETR XML Schema – under BEPS Action 5.

Some domiciles which are popular with captives believe base erosion and profit shifting (BEPS) has the potential to impact their business because it could force some companies to re-examine the extent to which tangible operations and people are based in the location of their captive. This could in fact benefit some jurisdictions.

Following on from these developments, the OECD has also welcomed Angola and the Seychelles as the 83rd and 84th members of the inclusive framework on BEPS.

OECD has invited interested parties to provide comments on a discussion draft which deals with elements of the design and operation of the group ratio rule under Action 4 (interest deductions and other financial payments) of the BEPS Action Plan.

Angola and Seychelles joined the inclusive framework on BEPS on July 7, following its first meeting in Kyoto, Japan on June 30 to July 1.

OECD expects that most of the countries and jurisdictions that attended the Kyoto meeting as Invitees will join the inclusive framework in the coming months.

According to OECD, as a key outcome of the work on BEPS Action 5 (harmful tax practices), a framework covering all rulings that could give rise to BEPS concerns in the absence of compulsory spontaneous exchange has been agreed.

The framework covers six categories of rulings: rulings related to preferential regimes; cross border unilateral advance pricing arrangements (APAs) or other unilateral transfer pricing rulings; rulings giving a downward adjustment to profits; permanent establishment rulings; conduit rulings; and any other type of ruling where the FHTP agrees in the future that the absence of exchange would give rise to BEPS concerns.

The ETR XML Schema provides the common IT-format for implementing the exchange of tax rulings between competent authorities, as foreseen by Action 5. The related ETR XML Schema User Guide further explains the information required to be included in each data element to be reported. It also contains guidance on how to make corrections of data element within a file.