TEI comments on modified nexus approach under BEPS Action 5.

• Position: Tax Executives Institute, base erosion and profit shifting

On February 19, 2015, TEI submitted comments to the OECD's Forum on Harmful Tax Practices regarding the modified nexus approach to preferential intellectual property tax regimes under BEPS Action 5. The Institute's letter focused on the fact that the modified nexus approach would require many multi-national enterprises to substantially reorganize their operations to take advantage of preferential tax regimes specifically enacted to attract business and that such reorganizations are costly and may not be undertaken. TEI also recommended that the modified nexus approach not limit the relevant IP assets to patents and the relevant qualifying activities to research and development, among other things. TEI's comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Nick Hasenoehrl. Benjamin R. Shreck, TEI Tax Counsel, coordinated the preparation of TEI's comments.

On July 19, 2013, the OECD published an Action Plan on Base Erosion and Profit Shifting (hereinafter the Action Plan or the Plan) setting forth 15 actions the OECD will undertake to address a series of issues that contribute to the perception that individual countries' tax bases are being eroded or profits shifted improperly. Pursuant to Action 5 of the Plan, the OECD published a document entitled Action 5: Agreement on Modified Nexus Approach for IP Regimes (hereinafter the Agreement), along with a one page "explanatory paper" requesting comments on the Agreement (the Paper). The Agreement and Paper follow on the OECD's release in September 2014 of the BEPS Action 5 deliverable for 2014, entitled Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance.

The OECD solicited comments from interested parties no later than February 20, 2015. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to the OECD's request for comments.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organisation 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 3,000 of the largest companies in the world. (1)

TEI Comments

Timing of stakeholder solicitation and input

TEI appreciates the solicitation from the OECD and the Forum on Harmful Tax Practices (FHTP) of comments and input from stakeholders on the modified nexus approach to intellectual property (IP) regimes as endorsed by all OECD and G20 countries. (2) It is regrettable, however, that the OECD has proceeded on an extremely accelerated timeframe for soliciting stakeholder views on such a contested issue as preferential regimes for IP. With more time to comment, stakeholders would have a much greater ability to consider the issues and submit more helpful and...