transparency and disclosure - united nations · 9/23/2014 · transparency and disclosure ......

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Transparency and Disclosure

Diane Ring23 September 2014

Transparency and DisclosureOVERVIEW

GOAL:• Provide countries with appropriate information to protect

their tax base and respond to base erosion and profit shifting

TRANSPARENCY:• Understanding how the taxpayer conducts business and

makes investments in the country

DISCLOSURE:• Access to information necessary to provide transparency

regarding taxpayer activities in the country23 September 2014 2

Transparency and DisclosureTax Information: Current and Future

New Sources for Information• BEPS Project (especially Country-by-Country Reporting

Template and Master File)• Automatic Exchange of Information

• OECD’s “Common Reporting Standard” and Related Material

• Industry-Specific Reporting Requirements• Intergovernmental Agreements (“IGAs”)• Expanded Use of Multilateral Convention on Mutual

Administrative Assistance in Tax Matters

23 September 2014 3


Existing Sources of Information• Article 26 in Bilateral Treaties (based on UN and

OECD Models)• Tax Information Exchange Agreements (“TIEAs”)• Regional Agreements• Global Forum on Transparency and Exchange of

Information

23 September 2014 4


New: BEPS and Transparency and Disclosure• Three Action Items: 11, 12, 13

• Action Item 12: Disclosure of Aggressive Tax Planning (Delivery Date September 2015)

• Action Item 11: Project to Collect and Analyze BEPS Data and Assess Impact of Reforms (Delivery Date September 2015)

• Action Item 13: Transfer Pricing Related Documentation (Major Focus)

23 September 2014 5


New: BEPS Action Item 13• Re-examine transfer pricing documentation

• MNE’s provide all relevant governments with the needed information on their global allocation of income, economic activity, and taxes paid among countries according to common template.

• Country-by-Country Reporting Template

• Relevant beyond transfer pricing to assist country efforts to evaluate BEPS situation and to make risk assessments

• Risk assessment particularly valuable to developing countries: help to maximize allocation of audit and investigative resources

23 September 2014 6


New: BEPS Action Item 13 continued

Three Components:• Master File: “standardized information for all MNE

group members”Information would cover five topics:

(1) Group’s Organizational Structure(2) Description of business or businesses(3) Intangibles held by the Group(4) Intercompany financial activities(5) MNE’s financial and tax positions

23 September 2014 7


New: BEPS Action Item 13 continued• Country-by-Country Reporting Template (“CbC”)

Template includes information on seven topics:(1) Revenue(2) Earnings before taxes(3) Cash taxes(4) Current year tax accruals(5) Stated capital and accumulated earnings(6) Number of employees(7) Tangible assets

• Information provided on a Country-by-Country basis (as opposed to Entity-by-Entity)• Template accompanied by a list of all group entities and permanent establishments operating

in each jurisdiction along with business activity codes identifying major activities

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• Local File: Jurisdiction-specific information that would complement the master file in helping country ensure that the taxpayer complied with the arm’s length principle and with transfer pricing rules in its major transactions connected to that jurisdiction

• File includes: detailed information regarding relevant transactions between the MNE’s local entity in the local jurisdiction and its related entities in other countries, including (1) financial details of the transactions; (2) comparability analysis for pricing; and (3) “selection and application of the most appropriate transfer pricing method for the fiscal year”

• See Annex to OECD Discussion Draft—information in local file expected to cover details on Local Entity (structure, organization, operations), Financial Accounts, and Controlled Transactions (details and analysis)

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• Key Issues:– Burden on taxpayer– Mechanism for reporting and sharing information required

under Action Item 13– Access to information– Permitted uses of information by countries– Capacity of countries to use information– Public disclosure, data protection, and privacy

23 September 2014 10

Transparency and DisclosureTax Information: Current and FutureNew: BEPS Action Item 13 continued

Developing Country PerspectivesAdvantages

• Risk Assessment: Master file and CBC template assist in assessing greatest tax base risks and directing resources accordingly

• Uniformity: Standardized MNE reporting facilitates cross-taxpayer risk assessments and facilitates training of new staff

• Meaningful Documentation: Widespread adoption and enforcement of documentation requirements increases the availability and quality of information for developing countries (regardless of the country’s leverage or enforcement influence)


Transparency and DisclosureTax Information: Current and FutureNew: BEPS Action Item 13 continued

Developing Country PerspectivesConcerns

• Access: Implications of proposed delivery mechanisms for jurisdictions with many foreign MNEs and a limited treaty network

• Language: Importance of local language materials for resource-constrained countries

• Domestic legislation: Need for domestic legislation to implement• Transfer pricing regime and penalties: Impact of a country’s transfer pricing

rules and penalties on an MNE’s conduct and planning• Capacity building: Types of resources and capacity building that would be

valuable in or necessary to using the proposed documentation



New: Automatic Exchange of Information• Overview• Current Practices (Model Treaties, EU)• Challenges in Implementing Automatic Exchange of Information

(1) Common standard for reporting information(2) Due diligence by financial institutions(3) Exchange process(4) Legal framework for exchange(5) Compatible technical systems

• OECD and G2O



New: Automatic Exchange of Information continued

OECD Release:(1) Common Reporting Standard (“CRS”)(2) Model Competent Authority Agreement (“CAA”) (3) Commentary



New: Automatic Exchange of Information continued• CRS Specifics:

– Reporting Entities: Custodial institutions, depository institutions, investment entities, and specified insurance companies

– Information Provided: Includes interest, dividends, account balance or value, income from certain insurance products, sales proceeds from financial assets, other income generated by assets held in the account, and payments made with respect to the account

– Covered Accounts: Include those held by individuals and entities (including trusts and foundations). Identifying information required includes, “name, address, jurisdiction(s) of residences, TIN(s) and date and place of birth (in the case of an individual)

– Due Diligence: Required by reporting financial entities (level of due diligence required varies, depending on when account was created, its contents, its value, and other information known to the financial entity)



New: Automatic Exchange of Information Continued

CAA:• Model CAA drafted as bilateral agreement• Model Multilateral version provided in Annex• Pursuant to agreement, countries agree to:

(1) have domestic rules requiring financial institutions to report accounts and follow appropriate due diligence standards(2) have appropriate safeguards to protect confidentiality of taxpayer data(3) infrastructure necessary for effective exchange


Transparency and DisclosureTax Information: Current and FutureNew: Automatic Exchange of Information Continued

Developing Country PerspectivesAdvantages

• Global approach: More global approach to automatic exchange facilitates implementation for developing countries – many of which are interested

• Reduced Burden: Receipt of information “automatically” imposes less burden on country than receipt through “on request” approach

• Message to Taxpayers: Widespread implementation of automatic exchange sends message to taxpayers about countries’ ability to enforce tax rules and risks of evasion

• Uniform Treatment of Taxpayers: Automatic access to information on all of the country’s taxpayers increases uniformity of enforcement

• Individuals and Entities Covered: Inclusion of entities (such as trusts) in automatic exchange of information enhances effectiveness and helps curb tax base erosion


Transparency and DisclosureTax Information: Current and FutureNew: Automatic Exchange of Information ContinuedDeveloping Country Perspectives

Concerns• Reciprocity: Current reciprocity requirement for CAA may limit

availability for developing countries• Need for Existing Legal Mechanism: If based on bilateral treaties, then

value to developing countries depends on treaty network• Multilateral Mechanism: Basing agreement on the Multilateral

Convention on Mutual Assistance in Administrative Tax Matters eliminates treaty network concern, but still need to get relevant countries to participate

• Domestic Reforms Needed: CRS data reporting, due diligence standards, and data protection must be implemented in domestic law

• Infrastructure: Financial entities and government need infrastructure adequate to meet their obligations under automatic exchange



New: Industry-Specific Reporting Requirements• Overview• Examples:

1) Extractive Industries Transparency Initiative (“EITI”)– Seeks to promote 2-pronged reporting approach for transparency in extractive industries

– Businesses report what they pay to each jurisdiction– Governments report what they receive

2) European Union’s Capital Requirements Directive (CRD IV)– Seeks disclosure by covered financial institutions of information on Country-by-Country

basis (profit or loss before tax, tax paid, subsidies received, average number of employees)– EU member states must domestically enact rules to require reporting



Other New Developments• Intergovernmental Agreements (“IGAs”):

– Prompted by United States’ introduction of “Foreign Account Tax Compliance Act” (“FATCA”) in 2010, which requires foreign and domestic financial institutions to provide data to the United States on U.S. taxpayers, or face penalties

– Role of IGAs– Expanded interest in IGAs beyond United States

• Increased Attention to Multilateral Convention on Mutual Administrative Assistance in Tax Matters:

– As independent source of heightened exchange of information– As legal framework for sharing, receiving and providing information under Action Item

13 reporting – As legal framework for CRS and Automatic Exchange of Information



Existing Mechanisms Supporting Transparency and Disclosure• Article 26 (based on UN and/or OECD Model Treaties)

– Recent developments• Tax Information Exchange Agreements (TIEAs)• Regional Agreements• Global Forum on Transparency and Exchange of

Information


transparency and disclosure - united nations · 9/23/2014 · transparency and disclosure ......

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