TEI Comments on Taxation of Offshore Indirect Transfer.

• Author: Parsons, Giles
• Position: Tax Executives Institute

On October 19, 2017, TEI filed a letter with the Platform for Collaboration on Tax, a joint initiative of the World Bank, OECD, Internationa! Monetary Fund, and United Nations, regarding the Platform's draft toolkit on the taxation of offshore indirect transfers. TEI's comments focused on the need for the Platform's toolkit to educate and provide options to nations considering taxing offshore indirect transfers, rather than prescribing a preferred approach, among other things. TEI comments were prepared under the aegis of the European Direct Tax Committee, whose chair is Giles Parsons. Ben Shreck, TEI tax counsel, coordinated the preparation of TEI's letter.

The Platform for Collaboration on Tax (the Platform), a joint initiative of the Organisation for Economic Co-operation and Development, International Monetary Fund, United Nations, and World Bank, released a document entitled The Taxation of Offshore Indirect Transfers--A Toolkit (the Draft Toolkit or Toolkit) on August 1, 2017. The Draft Toolkit was designed to help developing countries address the complexities of taxing offshore indirect transfers of assets, which the Platform states is a practice by which some multinational corporations try to minimize their tax liability.

The Platform requested public feedback on the Draft Toolkit from interested stakeholders by October 20, 2017. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to the Platform's request for comments.

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)

TEI's members are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises, including issues surrounding the tax complexities of offshore indirect transfers. We believe that the diversity and professional training of our members enable us to bring a balanced and practical perspective to the issues raised by the Draft Toolkit.

TEI Comments

Overview and Summary of Comments

TEI appreciates the opportunity to comment on the Draft Toolkit and its proposed approach to the tax issues presented by offshore indirect asset transfers. As a threshold matter, TEI notes the status of the Toolkit is unclear. The Draft Toolkit does not appear to be an officially sanctioned or endorsed view of any of the contributing organizations that comprise the Platform, nor any of the member countries. However, in TEI's view there is a strong possibility tax authorities, particularly in the less developed nations for which the draft Toolkit is being developed, will treat the Toolkit as authoritative guidance. Therefore, TEI recommends the Platform make clear that the Toolkit should not be treated as authoritative guidance and is not meant to override contrary guidance that is authoritative, including obligations imposed by bilateral income tax treaties. Changes to the fundamental policy underlying the capital gains articles of treaties should be the subject of discussion by countries, either bilaterally or in a multilateral framework.

Overall, we believe the Platform should reconsider its suggested approach to offshore indirect transfers as set forth in the Draft Toolkit and focus on helping countries make informed decisions about how to treat offshore indirect transfers for tax purposes. This could be done by detailing the advantages and disadvantages of various approaches to taxing or not taxing offshore indirect transfers, and in particular detailing the issues that should be considered when making the decision whether to tax such transfer before deciding how to tax them.

The Draft Toolkit should also ensure neutrality and symmetry for offshore indirect transfers when compared to direct asset transfers. Relevant issues to consider when assessing a tax on indirect transfers include how to determine the potential capital gain, how to ensure a step up in the basis of the underlying assets, whether deferral rather than recognition of gain is possible, how to limit the scope of the rules to ensure effective taxation while avoiding unintended taxation and other consequences, and how to address offshore indirect capital losses. It is critical that these issues be discussed in sufficient detail to ensure that the final toolkit provides helpful guidance to developing countries.

More broadly, TEI believes the Platform's agenda should be driven by the objective, also supported by the G20, of providing toolkits that increase certainty for taxpayers and tax authorities. Currently, how offshore indirect transfers will be assessed and taxed is often uncertain in...