The OECD is maintaining a list of countries that have legislated for CbC reporting, along with providing salient details of how the countries are choosing to meet the minimum standard. According to a January 27 statement from the OECD, 57 countries have now signed up to the MCAA on CbC reporting to automatically exchange CbC reports on a multilateral basis. Many others have decided to conclude bilateral agreements.
Improving Dispute Resolution Mechanisms
The OECD is also preparing also to launch a peer review process for Action 14, on improving dispute resolution mechanisms. The OECD's Action 14 report discusses the obstacles that prevent countries from resolving treaty-related disputes under the mutual agreement procedure (MAP) and recommends measures to overcome such obstacles. MAP is typically used to resolve double tax issues for companies that are encountered when trading or investing cross-border.
The Action 14 report includes a minimum standard to ensure that treaty-related disputes are resolved in a timely, effective, and efficient manner. Specifically this requires that countries take measures to prevent disputes, ensure the availability and access to MAP, and improve how they resolve MAP cases and how they implement MAP agreements.
The minimum standard also requires that countries publish clear rules, guidelines, and procedures on access to and use of the MAP. This should include specific information and documentation that should be submitted in a taxpayer's request for MAP assistance. Countries will also be required to publish a "MAP profile," including competent authority contact details, domestic MAP guidelines, and an explanation of how the country has responded to the minimum standard.
Tackling Treaty Abuse
The final minimum standard, for which the OECD has yet to release materials for the upcoming peer reviews, is on tackling tax treaty abuse.
The minimum standard requires the adoption, at a minimum, of rules in bilateral tax treaties intended to address treaty shopping, where the benefits of tax treaties are inappropriately accessed to achieve lower-than-intended or nil tax rates. Changes will be made to existing treaties to include provisions to effect a combination of a "limitation-on-benefits" (LOB) rule (a specific anti-abuse rule) and a "principal purpose test" rule (a general anti-abuse rule). It requires the adoption of a further rule aimed at conduit financing arrangements to further prevent treaty shopping in a targeted manner.
More than 100 jurisdictions have concluded negotiations on a multilateral instrument that will swiftly implement these tax treaty measures. This instrument would speed alterations to the more than 2,000 tax treaties in existence. This was proposed by the OECD under Action 15 and the instrument is due to be signed in June 2017.
Although the BEPS minimum standards currently focus on only four areas, the OECD still has ambitions to see through implementation of its work in other areas. It said while there is a broad international consensus on the minimum standards, not all BEPS participants have endorsed the underlying standards on tax treaties or transfer pricing. "In other areas, such as recommendations on hybrid mismatch arrangements and best practices on interest deductibility, countries have agreed a general tax policy direction," the OECD said.
According to the OECD, "in these areas, [countries] are expected to converge over time through the implementation of the agreed common approaches, thus enabling further consideration of whether such measures should become minimum standards in the future."
The four minimum standards include broad changes to international tax rules and will require significant input from companies and tax authorities. The minimum standards can therefore be seen as the OECD's effort to phase-in implementation of the BEPS measures and ensure developing nations and smaller businesses' compliance teams are not overcome by the extent of the response required.