Heading into spring, TEI's advocacy blooms: submissions to OECD, Quebec & Ontario, U.S. Supreme Court join comments to IRS & Treasury.

• Position: Recent Activities

Showing the breadth of its advocacy efforts, Tax Executives Institute recently filed submissions with the Organisation for Economic Co-operation and Development (OECD), the U.S. Supreme Court, and the Ministries of Quebec and Ontario, as well as the Internal Revenue Service and U.S. Department of Treasury.

TEI President Vincent Alicandri called the flurry of activity "an outstanding example of the technical expertise and wide-ranging interests of the Institute's members." In addition to the submissions, the Institute released the minutes of its February 12, 2009, liaison meeting with the IRS's Large and Mid-Size Business Division.

OECD Business Restructuring

In September 2008, the OECD issued a consultation document, Transfer Pricing Aspects of Business Restructuring, which establishes a framework for applying the OECD's transfer pricing (TP) guidelines to business restructuring transactions, as well as postrestructuring controlled transactions. In its February 18, 2009, comments on the draft, TEI commended the OECD for undertaking the study. The Institute's comments were in the form of a letter from TEI's president to Jeffrey Owens, Director of the OECD Center for Tax Policy & Administration.

Noting the draft contains helpful statements on the role of taxpayers and tax authorities as well as guidance on the application of the TP guidelines, Mr Alicandri cautioned that, on balance, the discussion draft--

* Encourages tax authorities to substitute their judgment for taxpayers in determining whether a restructuring transaction is commercially rational;

* Fails to provide guidance to ensure that cases of double taxation will be resolved in accordance with Article 9(2) of the OECD's Model Tax Treaty;

* Fails to provide an analytical framework through which taxpayers may determine (and their auditors may confirm) whether the restructuring (or post-restructuring controlled transactions) will be safe from recharacterization or adjustments; and

* Increases taxpayer documentation burdens, especially to document "alternative" transactions--ones that either independent parties might engage in or that might have been "realistically available" to the transferor and transferee.

To address its concerns about the discussion draft, TEI submitted an extensive description of the legitimate reasons that impel businesses to undertake restructuring transactions. In addition, the Institute recommended that the OECD provide a safe harbor for group restructurings that precludes a requirement for an analysis at the level of each individual taxpayer. For example, where a multinational group can show that its post-restructuring effective tax rate falls within a reasonable range of the statutory tax rates for the countries involved in a business restructuring transaction (e.g., an overall rate between 20 and 30 percent), TEI said, the jurisdictions affected by the restructuring transaction should accept the transaction as commercially rational and at arm's length.

After providing general comments and a high-level critique of the discussion draft, TEI's comments reviewed the OECD's consultation document on a paragraph-by-paragraph basis.

A second OECD working party is drafting a consultation document that will address permanent establishment and other treaty issues arising from business restructurings. The draft is expected to be released later this year.

TEI's comments are reprinted in this issue, beginning at page 154.

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