US Inbound: The US position on BEPS

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US Inbound: The US position on BEPS

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Jim Fuller


David Forst

US Treasury officials had some interesting recent comments on the OECD's base erosion and profit shifting (BEPS) project that reflect the lesser degree of US enthusiasm relative to certain other countries. Understanding the US position on BEPS is especially important for residents of those countries that are more committed to the BEPS project, since inconsistency in approaches to transfer pricing increases the possibility of double taxation. Robert Stack, Treasury deputy assistant secretary (international tax affairs), said the US faces challenges in its engagement on BEPS. Stack stated that although many countries are seeking to address BEPS issues, some proponents of the OECD project operate in ways that enable the practices being addressed. He stated that the US check-the-box rules have troubled some US trading partners, but that the US is not alone in this regard. He noted the UK's patent box regime, as an example.

Stack expressed a concern that countries such as India and China are seeking to use the OECD's BEPS project to "recalibrate the global paradigm" on source and residence-state taxation "that has been in place since the 1920s". He said the challenge for the US and other participants is to come to a consensus on a principled approach that is not "governed by self-interest". However, there is always a danger that some jurisdictions may "cherry pick" from whatever consensus is reached, he stated.

Stack seemed to suggest the US is more focused on outbound issues, rather than inbound issues. He stated that the OECD BEPS project must remain focused on addressing the problem of stateless income in order for the project to have a chance of success. If the BEPS project veers away from this objective and seeks instead to rebalance source and residence taxation rights, the project likely will fail.

He elaborated on the administration's support for stronger rules on controlled foreign corporations as the best way to address profit-shifting concerns. He argued that a tougher controlled foreign companies (CFC) regime could keep the discussion from devolving into attacks on the arm's-length standard or other globally recognised transfer pricing norms. He stated that if a country has a better CFC rule, such as a minimum tax rule, it would take away the incentives to move capital to low or no-tax countries, and it would take the pressure off transfer pricing.

Treasury International Tax Counsel Danielle Rolfes recently said that, while the US might not be at the forefront of the BEPS project, companies should be prepared for the reality that "something will happen". She further stated that "the status quo is not an option and we don't have time".

Whether or not the BEPS project is on a slow or fast track, application of transfer pricing rules across jurisdictions could become more, not less, divergent. This could make transfer pricing between countries more favourably disposed to BEPS and the US a larger issue in the future.

Jim Fuller (jpfuller@fenwick.com)

Tel: +1 650 335 7205

David Forst (dforst@fenwick.com)

Tel: +1 650 335 7274

Fenwick & West

Website: www.fenwick.com

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