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BEPS Toolkit Released On Offshore Indirect Transfers

by Ulrika Lomas,, Brussels

07 August 2017

The Platform for Collaboration on Tax, a joint initiative of the OECD, the International Monetary Fund, the United Nations, and the World Bank Group, has launched for consultation a draft toolkit designed to help developing countries address concerns surrounding the tax treatment of offshore indirect transfers of assets.

Releasing the toolkit, the OECD said the tax treatment of "offshore indirect transfers" (OITs) – the sale of an entity located in one country that owns an "immovable" asset located in another country, by a non-resident of the country where the asset is located – has emerged as a significant concern in many developing countries.

The OECD explained that it has become a relatively common practice for some multinational corporations trying to minimize their tax burden, but there is no unifying principle on how to treat these transactions, and the issue was not addressed in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

"This draft toolkit, 'The Taxation of Offshore Indirect Transfers – A Toolkit,'" the OECD said, "examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasizes extractive (and other) industries in developing countries, and considers the current standards in the OECD and the UN model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax."

The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organizations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.

The Platform is inviting comments on the following specific questions:

  • Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
  • Does it lay out a clear principle for taxing offshore indirect transfers of assets? Is the definition of an offshore indirect transfer of assets satisfactory?
  • Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
  • Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
  • Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
  • Are there other implementation approaches that should be considered?
  • Is the draft toolkit's preference for the "deemed disposal" method appropriate?
  • Are the complexities in the taxation of these international transactions adequately represented?

Comments must be received by September 25, 2017.

TAGS: Offshore | tax | investment | business | double tax agreement (DTA) | tax avoidance | law | Organisation for Economic Co-operation and Development (OECD) | United Nations (UN) | offshore | agreements | multinationals | tax planning | transfer pricing | tax reform | standards | trade | Tax | BEPS

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