OECD BEPS and Tax Reform Tax Coalition Issues

OECD BEPS and Tax Reform Tax Coalition Issues Forum April 28, 2017

Today’s presenters Cathy Schultz NFTC Barbara Mantegani Tax PLLC Mary Bennett Baker Mc. Kenzie Amy O’Donnell Roberti Proctor & Gamble Janet Boyd Dow Chemical Co. 2

Origin of OECD/G 20 BEPS Project • Growing concern expressed in wake of financial crisis regarding base erosion and profit shifting by MNEs • Increased attention of civil society and media to corporate tax affairs – Spreading perception that MNEs dodge taxes all around the world and in particular in developing countries – Political pressure to take action • G 20 meetings of June and November 2012 focused on BEPS issue and requested OECD action 3

The BEPS timeline February 2013: July 2013: 2013 – mid-2014: Initial BEPS diagnostic report by OECD Publication of 15 -point BEPS Action Plan Discussion drafts and public consultations September 2014: Late 2014 – mid-2015: October 2015: Interim reports on 7 Action Items Discussion drafts and public consultations Presentation of final BEPS Reports to G 20 4

Basic objectives of BEPS Project • Three main principles: – Preventing double non-taxation due to the gaps that exist between countries’ tax rules – Aligning taxation with substance – Improving transparency 5

Participating BEPS Countries 6

Some key BEPS provisions Action 7: Preventing artificial avoidance of PE’s Action 2: Hybrid mismatches Action 4: Limiting interest deductions Actions 8 -10: Transfer pricing outcomes in line with value creation Action 13: Transfer pricing documentation / Cb. C reporting Action 5: Preferential regimes / rulings exchange Action 6: Preventing treaty abuse 7

Some work still underway 1: Digital Economy • Further analysis of options 4: Limit Interest Deductions • Transfer pricing of financial transactions 7: PE avoidance • Analysis of attribution of profits 8 -10: Transfer pricing • Guidance on profit splits 14: Improving dispute resolution • MAP monitoring mechanism 15: Multilateral instrument • Multilateral Convention to implement treaty recommendations 8

Corporate structures under pressure • “Cash box” structures / tax haven cost sharing participants • Cost-plus sales and marketing compensation • Contract manufacturing / IP box • Contractual allocation of residual profit • Finance structures • Remote selling 9

Taxpayers’ PE planning considerations Declare a PE? Do nothing? Convert to Reseller? Convert to Branch? 10

Analyzing risk • Multiple factors impact decision to wait or proceed with changes – – – How aggressive is existing structure? What are risks? Alternatives? Where are risks? How large are risks? Appetite for risk/reputational damage Cost of change—including business impact 11

Reporting Across Jurisdictions • Centralize the process • Provide consistent story globally • Collaborate with investor relations/communications departments on messaging 12

What else to keep an eye on? • • • The OECD’s “Inclusive Framework” Final guidance on PE profit attribution, profit splits Transfer pricing of financial transactions EU Anti-Tax Avoidance Directive implementation Country unilateral actions (e. g. , ATO positions on offshore PEs, MAAL; Indian equalization levy, etc. ) • Public Cb. C reporting proposals (e. g. , EU / UK developments) 13

OECD BEPS AND TAX REFORM Thank you! 14