Friday, 10 April 2015

OECD's discussion draft issued on mandatory disclosure rules

The OECD released a discussion draft on Action 12 (Mandatory Disclosure Rules) of the base erosion and profit shifting (BEPS) Action Plan on 31 March 2015. The purpose of Action 12 is to come up with recommendations for the design of disclosure rules, with a view to providing tax authorities with improved, early access to information on potentially aggressive or abusive tax planning strategies by multinationals, and to deter both the promotion and the use of such schemes.
Action 12 recognizes the benefits of an increased flow of tax information to authorities to better understand tax risks and potentially abusive tax planning strategies. The 83-page draft provides an overview and comparison of existing mandatory disclosure regimes (in Canada, Ireland, Portugal, South Africa, the UK and the US) and their interaction with other disclosure initiatives and compliance tools, possible options for a design of a mandatory disclosure regime, and discussion of how to identify and define international transactions that would be captured by a disclosure regime. The approach contemplated in the discussion draft focuses on both taxpayers and promoters of tax planning schemes, and includes the following recommendations on the design of a disclosure regime for international tax schemes:

  • An arrangement that incorporates a cross-border outcome would be reportable if it involves a domestic taxpayer. A domestic taxpayer would be treated as involved in a cross-border arrangement where the arrangement will have a material impact on the taxpayer’s tax reporting position. This would include a transaction with a domestic taxpayer that has material economic consequences for that taxpayer or material tax consequences for one of the parties.
  • Disclosure would be required if the cross-border outcome arises in the same controlled group or the taxpayer is party to the arrangement.
  • Where the person making the disclosure does not have sufficient information to provide a clear understanding of the arrangement, he/she would be required to identify the person believed to hold the missing information and certify that requests for that information actually have been made to that person.

Action 12 also calls for the design and implementation of enhanced models of information sharing for international tax schemes, but these must be coordinated with other information exchange initiatives (e.g. Actions 5 and 13 (counter harmful tax practices more effectively, taking into account transparency and substance and re-examine transfer pricing documentation, respectively)), which are not yet completed.
A public consultation meeting on the discussion draft will be held on 11 May 2015. Action 12 is to be completed by September 2015.
Source: Deloitte