The OECD has released 2 new discussion drafts of the BEPS Action Plan on:
- Action 7 – Prevent the Artificial Avoidance of PE Status.
- Action 10 – Proposed Modifications to Chapter VII of the Transfer Pricing Guidelines Relating to Low Value-Adding Intra-Group Services.
The Action 7 draft includes the preliminary results of the work carried on with respect to issues related to the artificial avoidance of PE status and includes proposals for changes to the definition of permanent establishment found in the OECD Model Tax Convention.
The Action 10 draft seeks to reduce the scope for erosion of the tax base through excessive management fees and head office expenses by proposing an approach which identifies a wide category of common intra-group services commanding a very limited profit mark-up on costs, applies a consistent allocation key for all recipients, and provides greater transparency through specific reporting requirements.
COMMENTS on the Action 7 draft are due by 9 January 2015 and on the Action 10 draft by 14 January 2015.
The OECD Action Plan on Base Erosion and Profit Shifting, published in July 2013, identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.
[LTN 213, 4/11/14]
Extract – (Action 10) Discussion Draft of changes to the ‘transfer pricing guidelines
In the 19 July 2013 BEPS Action Plan, the OECD was directed to “[d]evelop rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties. This will involve adopting transfer pricing rules or special measures to provide protection against common types of base eroding payments, such as management fees and head office expenses.”
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The main aspects of this additional guidance include:
(a) A standard definition of low value-adding intra-group services;
(b) Clarifications of the meaning of shareholder activities and duplicative costs, specifically in the context of low value-adding intra-group services;
(c) Guidance on appropriate mark-ups for low value-adding intra-group services;
(d) Guidance on appropriate cost allocation methodologies to be applied in the context of low value-adding intra-group services;
(e) Guidance on the satisfaction of a simplified benefit test with regard to low value-adding services; and
(f) Guidance on documentation that taxpayers should prepare and submit in order to qualify for the simplified approach.