TEI comments on BEPS multilateral instrument.

AuthorHasenoehrl, Nick
PositionBase erosion and profit shifting

On June 29,2016, TEI filed a comment letter with the OECD regarding its request for input on Development of d Multilateral Instrument to Implement the Tax Treaty related BEPS Measures under Action 15 of the OECD's base erosion and profit shifting (BEPS) project. The Institute's comments emphasized the need for flexibility in the multilateral instrument to reflect the concerns of the many jurisdictions that may sign the document and reiterated TEI's strong support for mandatory binding arbitration to settle the anticipated increase in mutual agreement procedure cases that may result from the BEPS project, among other things. TEI's comments were prepared under the aegis of the Institute's European Direct Tax Committee, whose chair is Nick Hasenoehrl. Benjamin R. Shreck, TEI tax counsel, coordinated the preparation of the Institute's comments.

The Organisation for Economic Cooperation and Development (OECD) published final reports pursuant to its base erosion and profit shifting (BEPS) project on October 5, 2015. The reports were the culmination of the OECD's Action Plan on Base Erosion and Profit Shifting (hereinafter the Plan) published in 2013. The Plan set forth 15 actions the OECD would undertake to address a series of issues that contribute to the perception of tax bases being eroded or profits shifted improperly. Included in the October 2015 final reports was the report under Action 15 of the Plan, Developing a Multilateral Instrument to Modify Bilateral Tax Treaties. The OECD issued a public discussion draft under Action 15 (the Discussion Draft) on May 31, 2016, requesting comments on technical issues related to development of the Multilateral Instrument (the Instrument).

I am pleased to respond to the OECD's request for comments on behalf of Tax Executives Institute, Inc. (TEI). TEI also requests the opportunity to speak in support of these comments at the public consultation to be held on July 7, 2016 in Paris.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organization has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 2,800 of the leading companies in the world. (1)

General Comments

TEI commends the OECD for providing the opportunity to comment on technical issues related to the development of the Instrument, which ordinarily would be the subject of confidential negotiations solely between potential treaty partners. In particular, TEI appreciates the OECD's request for comments regarding "the approach to be taken in developing the optional provision on mandatory binding MAP arbitration ...," (2) As noted in one of TEI's first letters to the OECD regarding the BEPS project, the multilateral instrument under Action 15 and the efforts to improve the mutual agreement procedure (MAP) under Action 14--including the possibility of mandatory binding arbitration--are the two BEPS action items most critical to multinational enterprises. (3) This remains the case more than two years later and TEI urges the OECD and the 96 countries participating in the Ad Hoc Group to continue their work on a flexible Instrument promoting uniformity in international tax treaties and their underlying policy.

Regrettably, Actions 14 and 15 were left to the end of the BEPS project before they received the OECD's and participating states' full attention. While TEI appreciates aspects of dispute resolution under Action 14 have been determined to be minimum standards, excluding mandatory binding arbitration from the standards is a grave disappointment. Business stakeholders consistently warned throughout the BEPS project of the massive increase in MAP cases likely to arise from the substantial changes to the international tax regime resulting from the project. Significant improvements to the MAP process are needed in the business community's view to efficiently and effectively process the anticipated increase in MAP cases in a timely manner. This would help alleviate the double-taxation sure to arise from the anti-BEPS measures and provide multilateral enterprises with certainty and finality in their cross-border business operations.

The primary key to an effective and improved MAP process was (and is) a mandatory binding arbitration procedure to motivate competent authorities to reach a decision on a MAP case and, should they fail, quickly resolving the case under arbitration. Just as important, the prospect of arbitration to settle MAP cases would likely prevent many MAP disputes from arising in the first place as tax authorities who may be tempted to make unprincipled or aggressive adjustments refrain from doing so, knowing an arbitrator would likely adopt the treaty partners position in arbitration. While we are encouraged by the number of countries declaring their commitment to mandatory binding MAP arbitration, it is unfortunate such arbitration will not be more widely adopted as a result of the BEPS project.

Responses to Specific Requests for input in the Discussion Draft

The Discussion Draft requests comments on technical issues arising from implementing the...

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