As deputy director of the OECD’s Centre for Tax Policy and Administration, Grace Perez-Navarro is an integral figure in the organisation’s work on BEPS, improving international tax cooperation, promoting better tax policies and engaging developing countries in OECD tax work. She began her career at the US Internal Revenue Service, before joining the OECD in 1997. She has held several key positions at the OECD, including having led the organisation’s work on bank secrecy, tax and e-commerce, harmful tax practices, money laundering and tax crimes, the tax aspects of countering bribery of foreign officials, and strengthening all forms of administrative cooperation between tax authorities.
Perez-Navarro will be providing a keynote speech at International Tax Review’s Global Transfer Pricing Forum in New York on May 8. Here, she talks to ITR’s sister publication, TP Week, about the progress and challenges of BEPS implementation and the OECD’s work for the year ahead.
Salman Shaheen: How is BEPS implementation progressing in your view?
Grace Perez-Navarro: BEPS implementation is going well. It’s great to see how many countries around the world are taking steps to implement not only the four minimum standards – exchange of rulings and eliminating harmful tax practices (Action 5), eliminating treaty abuse (Action 6), country-by-country reporting (Action 13), dispute resolution (Action 14) – but also the other recommendations and best practices. We also continue to see more countries and jurisdictions interested in joining the Inclusive Framework on BEPS to ensure a level playing field but also to shape the standards under development.
SS: Have you heard from companies with any concerns about BEPS?
G P-N: Companies are also moving ahead with implementation, and in particular with the implementation of country-by-country reporting (CbCR). As with any new requirement there are doubts about how to implement properly and questions of interpretation. We have already issued practical guidance in response to the issues raised and will continue to do so to facilitate compliance. Some concerns have also been raised with respect to the attribution of profits to permanent establishments and the associated compliance burdens and we are presently looking at how best to deal with the issue in a practical way.
SS: How are you allaying corporate fears?
G P-N: One of the areas of greatest concern to companies has been effective, principled and timely resolution of disputes under the mutual agreement procedure (MAP). It is for this reason that we made improving MAP one of the minimum standards of the BEPS Project. The peer reviews of countries’ MAP policies is currently underway and the peer review process specifically provides for input from taxpayers using this questionnaire. Unfortunately, thus far we have received limited taxpayer input. We encourage those companies that are concerned about responding to the questionnaire on an individual basis for fear of repercussions from the tax administrations concerned to submit their comments via a business association such as BIAC or the USCIB, where the comments can be aggregated.
SS: What is the OECD doing to reduce the compliance burden BEPS places on multinational companies?
G P-N: The notification system contained in Article 3 of the model legislation for CbC reporting was actually conceived to reduce taxpayers’ risk of having to comply with local filing of the CbC report. This is achieved by requiring the taxpayer to communicate to its tax administration whether or not it is the Ultimate Parent Entity or the Surrogate Parent Entity and, if it is neither of these two, it should notify the identity and tax residence of the Reporting Entity for the MNE Group. Unless one of the three conditions laid out in Article 2.2 (ii) allowing local filing are met, by means of this notification system MNE groups will be allowed to minimise the compliance burden that would result from having to file several CbC reports under the domestic rules of several countries.
SS: What challenges has the OECD faced in harmonising countries’ implementation of the BEPS Actions?
G P-N: The main challenge is that countries have different legal systems, legislative processes and timetables. It is also important to note that the OECD and its recommendations are not legislation and that each country is sovereign and makes its own decisions about what its tax laws should be. There is also the issue of different levels of development. We have many developing countries working on implementation of the BEPS package through the Inclusive Framework on BEPS (currently at 94 members, most of which are developing countries) and we are working with them to facilitate their implementation.
SS: What is the OECD doing to ensure that the master files and local files have uniform content around the world?
G P-N: The master file (MF) and the local file (LF) are contained in the BEPS Action 13 Report, which also introduces CbC reporting. The three-tiered TP documentation approach has also been incorporated into the OECD Transfer Pricing Guidelines. Having said that, only CbC reporting constitutes a minimum standard, to which countries adhering to the Inclusive Framework have committed to a consistent implementation in accordance with Action 13. For the time being, the adoption and specific content of the MF and LF constitute recommendations on which there is political commitment but that are not legally binding on countries. Countries are currently in the process of implementing the new measures and their focus is on getting CbC implemented in a timely manner. It may be too early to assess how they will implement the other documentation requirements.
SS: What’s next on the OECD’s TP horizon?
G P-N: In 2017, we intend to release for public comments discussion drafts on:
Attribution of profits to permanent establishments. This is follow-up work mandated by the Report on BEPS Action 7, and for which a discussion draft was already released last year in July. Based on the public comments received last year, the Inclusive Framework on BEPS is reexamining the guidance with a view to clarify certain aspects of the previous draft and to try to provide useful guidance applicable under the Authorised OECD Approach and other approaches for attribution of profits to PEs.
Use of profit split methods. This is work mandated under BEPS Action 10. A discussion draft seeking input from external stakeholders was published last year in July. As with the discussion draft on attribution of profits to PE, the input received has been valuable and will be used to clarify the circumstances in which the profit split method is the most appropriate method and attempt to provide further guidance on profit split factors.
Financial transactions. This is work mandated under BEPS Action 9. This will be the first discussion draft published on this topic, and it is likely to cover general aspects relevant in the transfer pricing analysis of financial transactions, as well as more targeted guidance on guarantees, cash pooling arrangements or captive insurance.
Hard to value intangibles (HTVI) implementation guidance. This is follow-up work mandated by the Report on BEPS Actions 8-10, which will offer practical guidance on the HTVI approach now contained in Chapter VI of the Transfer Pricing Guidelines.
In addition, new interpretation guidance for CBC reporting purposes will be published in the coming months to assist taxpayers and tax administrations in implementing the CbC reporting obligations. The work on toolkits for low-income countries, which is being undertaken jointly with other international organisations, will continue to progress.
Finally, we expect to publish a consolidated version of the Transfer Pricing Guidelines incorporating all of the BEPS changes this summer.
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