15 May 2015 OECD holds public consultation on BEPS Action 12 on mandatory disclosure rules On May 11, 2015, the Organization for Economic Co-operation and Development (OECD) held a public consultation in connection with the Base Erosion and Profit Shifting (BEPS) project that was focused on Action 12 on mandatory disclosure rules. The consultation was an opportunity for stakeholders to engage directly with the OECD Secretariat and the country delegates who are responsible for the work on this Action. On March 31, 2015, the OECD issued a discussion draft on Action 12 on mandatory disclosure rules (the Discussion Draft).1 The Discussion Draft makes a series of recommendations about the design of mandatory disclosure regimes, which are described as intended to allow maximum consistency between countries while also being sensitive to local needs and to compliance costs. The OECD received nearly 300 pages of comments on the Discussion Draft, which are posted on its website. The public consultation on May 11, 2015 was a dialogue among stakeholders, country tax officials, and the OECD Secretariat on key issues and concerns raised in the comments. The consultation was hosted by OECD Working Party 11, which has responsibility for the OECD's work on Action 12. This working group also has responsibility for other BEPS Actions, including the work on Action 2 (hybrid mismatch arrangements), Action 3 (CFC rules) and Action 4 (interest deductions and other financial payments). The consultation was live-streamed by the OECD and a recording is available on the OECD website. Business participants from various businesses expressed several common concerns. First, they stated that the proposed rules lack clarity. Subjective rules would create uncertainties and, with substantial penalties proposed, any failure with respect to compliance with such uncertain rules would be very costly. Some business participants stressed that transactions subject to the disclosure rule must not be assumed to be per se abusive. In addition, business participants pointed out that the concept of "cross-border outcomes" should be narrowly defined to cover only transactions with material tax consequences. They noted that overly broad disclosure would make risk identification more difficult, especially for developing countries. Thresholds or filters should be used to better exclude from the mandatory disclosure rules low-risk transactions and transactions with clearly delineated non-BEPS tax benefits. Business participants also expressed concern that the framework approach taken by the OECD could create inconsistencies across jurisdictions and could cause overlapping and duplicative reporting requirements. They urged the OECD to clearly state the objectives of the disclosure rules to help increase consistency across jurisdictions. Moreover, a transaction should be exempt from mandatory disclosure if relevant information regarding such transaction is already disclosed (e.g., in a tax ruling or transfer pricing documentation). In contrast, the Mexican delegate, the only government delegate who spoke extensively during the consultation, noted that "advance" reporting of transactions, while it could be duplicative, would allow governments to manage risk more proactively. Some business participants stressed that inconsistent and duplicative reporting would dramatically increase compliance burden and costs. It was noted that the shortened comment period and the lack of clear proposals are diminishing the opportunity for stakeholders to comment effectively, making it difficult to provide detailed feedback on compliance costs. Most business participants expressed the view that the primary reporting obligation should be on the promoter of a transaction. However, a member of the OECD Secretariat stated that there are difficulties in defining promoter in the international context. The OECD is concerned that a jurisdiction may not be able to gain access to complete and sufficient information if a transaction is carried out offshore and the reporting obligation is placed solely on promoters and advisors that have no presence in such jurisdiction. One business participant countered that the reporting obligation should fall on the person that decides the tax consequence of a transaction. It was noted that simply widening the scope of the persons subject to reporting requirements may not be the most efficient way for a jurisdiction to obtain information. Some business participants noted that cooperative compliance, such as the Compliance Assurance Process (CAP) in the United States, can be an alternative. In that regard, the Mexican delegate noted that such programs do improve transparency. However, resource constraints of tax authorities may limit the number of taxpayers that can be qualified for such program. Some business participants also raised concerns regarding confidentiality. They suggested that the OECD provide clear guidance for the treatment of the disclosed information and set forth the responsibilities of tax authorities to safeguard such information. In addition, several participants stressed that privileged information should be exempt from disclosure. The discussion at the consultation underscored the balance required in crafting mandatory disclosure rules. With the OECD's work on Action 12, more jurisdictions may establish mandatory disclosure regimes and jurisdictions with existing mandatory disclosure regimes may make changes to their rules. Thus, it is important for companies to keep informed of developments in this area in the OECD and in the relevant countries in which they operate, to assess the implications of these proposed rules to their compliance policies and procedures, and to consider actively engaging with policymakers in this international tax debate.
1 See Tax Alert 2015-684. Document ID: 2015-0948 | |||||||
