This report focuses on aggressive tax planning (ATP) schemes based on after-tax hedging. In general terms, after-tax hedging consists of taking opposite positions for an amount which takes into account the tax treatment of the results from those positions (gains or losses) so that, on an after-tax basis, the risk associated with one position is neutralised by the results from the opposite position. While after-tax hedging is not, of itself, aggressive – being generally a straightforward risk management technique – the report recognises that it can also be used as a feature of ATP schemes. ATP schemes based on after-tax hedging pose a threat to countries’ revenue base: empirical evidence suggests that hundreds of millions of USD are at stake, with a number of multi-billion USD transactions identified by certain countries. ATP schemes based on after-tax hedging originated in the banking sector, but experience shows that they are also used in other industries and, in some instances, also by medium-sized enterprises, thus generating an even bigger threat to tax revenue. It is therefore important that governments are aware of arrangements that use hedging for ATP purposes. The Report follows on from the 2011 OECD Report Corporate Loss Utilisation through Aggressive Tax Planning which recommends countries analyse the policy and compliance implications of after-tax hedges in order to evaluate the appropriate options available to address them. It was prepared by the ATP Steering Group of Working Party No. 10 on Exchange of Information and Tax Compliance of the Committee on Fiscal Affairs (CFA). The report builds on a number of country submissions to the OECD Directory on Aggressive Tax Planning where several ATP schemes based on after-tax hedging have been posted. After having discussed in general terms the notion of hedging as a risk management tool and the effect of taxation on hedging transactions, the report describes the features of ATP schemes based on after-tax hedging that have been encountered by a number of countries. In those schemes, taxpayers use after-tax hedging to earn a premium return, without actually bearing the associated risks, which is in effect passed on to the government. In all of these schemes there is generally no pre-existing exposure to hedge against but rather the exposure is created as part of the relevant scheme. ATP schemes based on after-tax hedging exploit the disparate tax treatment between the results (gain or loss) from the hedged transaction/risk on the one hand, and the results (gain or loss) from the hedging instrument on the other. In some of these schemes, the tax treatment of gains and losses arising from each transaction is symmetrical, while in others the tax treatment is asymmetrical. Other schemes rely on similar building blocks and are often structured around asymmetric swaps or other derivatives. ATP schemes based on after-tax hedging can exploit differences in tax treatment within one tax system and are in that sense mostly a domestic law issue. Any country that taxes the results of a hedging instrument differently from the results of the hedged transaction/risk is potentially exposed. The issue of after-tax hedging also arises in a cross-border context with groups of companies operating across different tax systems, which gives rise to additional challenges for tax administrations.
OECD – Standard for Automatic Exchange of Financial Account Information in Tax Matters: Implementation Handbook. SECOND EDITION
The purpose of the CRS Handbook is to assist government officials in the implementation of the Standard for the Automatic Exchange of Financial Account Information in Tax Matters (“Standard”) and to provide a practical overview of the Standard to both the financial sector and the public at-large. The Handbook provides a guide on the necessary steps to take in order to implement the Standard. Against that background, the Handbook is drafted in plain language, with a view of making the content of the Standard as accessible as possible to readers. The Handbook provides an overview of the legislative, technical and operational issues and a more detailed discussion of the key definitions and procedures contained in the Standard. This second edition of the Handbook is intended to be a living document and will be further updated and completed over time. Changes reflected in the second edition of the Handbook provide additional and more up-to-date guidance on certain areas related to the effective implementation of the Standard. This includes revisions to sections pertinent to the legal framework for implementation of the AEOI, data protection, IT and administrative infrastructures as well as compliance measures. More clarity has been provided in the trust section of the Handbook relation to the identification of Controlling Persons. The objective of the Handbook is to assist stakeholders in the understanding and implementation of the Standard and should not be seen as supplementing or expanding on the Standard itself. Cross references to the Standard and its Commentary are therefore included throughout the document. The page numbers refer to the pages in the consolidated second edition of the Standard. Background to the creation of the Standard for Automatic Exchange 1. In 2014, the OECD together with G20 countries and in close cooperation with the EU as well as other stakeholders developed the Standard for Automatic Exchange of Financial Account Information in Tax Matters, or the Standard. This was in response to the call of the G20 leaders on international community to facilitate cross-border tax transparency on financial accounts held abroad. The Standard intends to equip tax authorities with an effective tool to tackle offshore tax evasion by providing a greater level of information on their residents’ wealth held abroad. In order to maximise efficiency and minimise costs the Standard builds on the automated and standardised solutions that jurisdictions previously developed for the purposes of the intergovernmental operationalisation of the US laws commonly known as FATCA. 2. The Standard has now moved from the design to implementation and application phase with the first exchanges having taken place in September 2017. There are over 100 jurisdictions representing all the major international financial centres that have committed to commence automatic exchange of information in 2017 or 2018. Within that group there is a small group of jurisdictions that have yet to pass domestic legislation to impose reporting obligations on their financial institutions. Many jurisdictions have also made significant progress in adopting the necessary international legal frameworks enabling cross-border exchanges. 3. The commitment process is monitored by the Global Forum on Transparency and Exchange of Information for Tax Purposes (“Global Forum”) whose role is to ensure timely and effective implementation of the Standard based on a level playing field. In parallel, the OECD continues its work on the practicalities of the Standard by seeking stakeholder input and clarifying its application through the regular publication of Frequently Asked Questions (FAQs) on the AEOI Portal as well as updates to this Handbook.
OECD/G20 Base Erosion and Profit Shifting Project – Public consultation document: Review of Country-by-Country Reporting (BEPS Action 13). 6 February 2020 – 6 March 2020
OECD/G20 Base Erosion and Profit Shifting Project – Public consultation document: Review of Country-by-Country Reporting (BEPS Action 13). 6 February 2020 – 6 March 2020. Action 13 of the OECD/G20 Base Erosion and Profit Shifting Project (BEPS Action 13) established a three-tiered standardised approach to transfer pricing documentation, comprising:
IGF-OECD PROGRAM TO ADDRESS BEPS IN MINING TAX INCENTIVES IN MINING: MINIMISING RISKS TO REVENUE. SUPPLEMENTARY GUIDANCE: How to Use Financial Modelling to Estimate the Cost of Tax Incentives. Financial models are representations of the real world intended to give useful insight. They can be used to help governments make better-informed decisions, such as whether to provide a tax incentive to a mining project given the expected impact on government revenues and investor returns. Financial modelling is not new, although a lack of modelling expertise in developing countries compromises government efforts to design effective fiscal regimes and negotiate contracts. Outside of governments there are various organisations involved in financial modelling. The International Monetary Fund (IMF) uses the Fiscal Analysis of Resource Industries (FARI) framework to evaluate extractive industry fiscal regimes. In the future they intend to expand FARI modelling to assist revenue administrations to model the tax gap between actual and expected revenues. Practitioners in the non-profit sector include the Columbia Center on Sustainable Investment (CCSI), International Institute for Sustainable Development (IISD), Natural Resource Governance Institute (NRGI) and the Overseas Development Institute (ODI). OpenOil, a company based in Berlin, has developed an open-source approach to financial modelling of extractive industry projects and has published models of projects in Latin America, Africa and Asia. About this supplementary guidance – This guidance is focused specifically on how governments can use financial models to estimate the unintended revenue losses that result from mining investors changing their behaviour in response to tax incentives. It is intended to supplement Tax Incentives in Mining: Minimising risks to revenue, guidance material prepared under a programme of cooperation between the OECD and the Inter-Governmental Forum on Mining (IGF). It is not intended to replicate general guidance and technical assistance offered by international organisations, non-profits and private companies. Who is this guidance for? The guidance is for users who have some knowledge of financial modelling, such as government officials in ministries of mining or finance that are tasked with building financial models to advise decision-makers on fiscal regime design or contract negotiation. Knowledge of the basics of financial modelling is therefore assumed and this guidance does not teach users how to build a basic financial model of a mining project. The modelling tool adds new insights on how to integrate tax incentives into financial models and how to test the revenue impact of potential behavioural responses. See Annex 1 for suggested guidance material on basic financial modelling.
OECD Taxation Working Papers N. 44 – TAXING VEHICLES, FUELS, AND ROAD USE: OPPORTUNITIES FOR IMPROVING TRANSPORT TAX PRACTICE.
OECD Taxation Working Papers N. 44 – TAXING VEHICLES, FUELS, AND ROAD USE: OPPORTUNITIES FOR IMPROVING TRANSPORT TAX PRACTICE. This paper discusses the main external costs related to road transport and the design of taxes to manage them. It provides an overview of evolving tax practice in the European Union and the United States and identifies opportunities for better alignment of transport taxes with external costs. There is considerable scope for improving transport tax practice, notably by increasing the use of taxes based on road use. Distance charges offer great promise in delivering more efficient road transport. In heavily congested areas, targeted charges are a cost-effective way of reducing congestion. Fiscal objectives provide an impetus for change as improving vehicle fuel efficiency and fleet penetration of alternative fuel vehicles erode traditional tax bases, particularly those relating to fossil fuel use. A gradual shift from an energy-based approach towards distance-based transport taxes has the potential to establish a stable tax base in the road transport sector in the long run. Traditional structures of road transportation taxes in most countries focus on fuels and, to a lesser extent, vehicles. The central message of this paper is that there is considerable scope for beneficial change in this structure, by increasing the use of taxes based on road use, particularly distance charges and congestion charges. Distance charges can raise revenue at economic costs comparable to or lower than those of fuel taxes, and their appeal from this point of view will increase strongly when road transport decarbonises. Distance charges also offer great promise in delivering more efficient road transport, particularly if they can be differentiated to some degree according to vehicles’ emission profiles and to exposure to pollution. The main external cost of transport in urban areas relates to congestion.
This report is an outcome of the joint project on transfer pricing between OECD and Receita Federal do Brasil (RFB). It contains the findings of the in-depth analysis of similarities and differences between the transfer pricing framework currently in place in Brazil as compared to the OECD guidance (OECD Transfer Pricing Guidelines for Multinational Enterprise and Tax Administrations), which is the international consensus on transfer pricing. The report also explores the options for Brazil to converge with the OECD transfer pricing standard while enhancing the positive attributes of the existing framework. In February 2018, the OECD and Brazil launched a joint project to examine the similarities and divergences between the Brazilian and OECD transfer pricing approaches to valuing cross – border transactions between associated enterprises for tax purposes. This initiative builds on Brazil’s robust engagement in the OECD’s tax work, which began in 2010 when it joined the Global Forum on Transparency and Exchange of Information for Tax Purposes, and was further strengthened in 2013 when it became a member of the G20/OECD Project to counter Base Erosion and Profit Shifting (BEPS), which had a substantial focus on transfer pricing. Beyond just taxation, in 2017, Brazil also expressed interest in initiating the process to join the OECD. Objective: assessing the strengths and weaknesses of Brazil’s transfer pricing framework The 15 – month work programme carried out by the OECD jointly with Receita Federal do Brasil (RFB) included an in depth analysis of the Brazilian transfer pricing legal and administrative framework as well as its application. Based on the assessment of its strengths and weaknesses, possible options were explored for Brazil’s alignment with the OECD internationally accepted transfer pricing standard, using the OECD Transfer Pricing Guidelines and other relevant OECD guidance as a reference for the analysis.
OECD (2017) – FIGHTING TAX CRIME: THE TEN GLOBAL PRINCIPLES. This is the first comprehensive guide to fighting tax crimes. It sets out ten global principles, covering the legal, strategic, administrative and operational aspects of addressing tax crimes. The guide has been prepared by the OECD Task Force on Tax Crimes and Other Crimes (TFTC). It draws on the experience of the members of the TFTC as well as additional survey data provided by 31 jurisdictions: Australia, Austria, Brazil, Canada, Czech Republic, Denmark, El Salvador, Finland, France, Georgia, Germany, Greece, Iceland, Indonesia, Italy, Japan, Lithuania, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, the United Kingdom and the United States. The guide shows that the fight against tax crime is being actively pursued by governments around the world. Jurisdictions have comprehensive laws that criminalise tax offences, and the ability to apply strong penalties, including lengthy prison sentences, substantial fines, asset forfeiture and a range of alternative sanctions. Jurisdictions generally have a wide range of investigative and enforcement powers as well as access to relevant data and intelligence. Suspects’ rights are nearly universally understood in the same way and enshrined in law. Increasingly, jurisdictions are taking a strategic approach to addressing tax offences, which includes targeting key risks and leveraging the tools for co-operation with other law enforcement agencies, both domestically and internationally. At the same time, tax crime investigations increasingly need to be undertaken with greater efficiency and fewer resources. However, data shows that the investment is worthwhile, with some jurisdictions being able to calculate the return on investment from the criminal tax investigation teams and reporting recovery of funds well in excess of the expenditure, ranging from 150% to 1500% return on investment. The role played by criminal tax investigators thus contributes significantly to jurisdiction’s overall tax compliance efforts. The implementation of the 10 global principles around the world is critical in addressing the tax gap and supporting domestic resource mobilisation. Recommendations: This guide recommends that jurisdictions benchmark themselves against each of the ten global principles. This includes identifying areas where changes in law or operational aspects are needed, such as increasing the type of investigative or enforcement powers, expanding access to other government-held data, devising or updating the strategy for addressing tax offences, and taking greater efforts to measure the impact of the work they do. In particular, developing jurisdictions are encouraged to use the guide as a diagnostic tool to identify principles which may not yet be in place. Jurisdictions which have made commitments to capacity building for developing jurisdictions in tax matters (such as the Addis Tax Initiative or the G7 Bari Declaration) are recommended to consider how they can work with developing jurisdictions to enhance tax crime investigation based on this guide, including through providing support for the OECD International Academy for Tax Crime Investigation and other regional initiatives. The TFTC will continue its work in facilitating international co-operation on fighting tax crime, particularly on issues where multilateral action is required to address common challenges. This could also include collaborating to create an agreed strategy for addressing tax crimes that have cross-border elements. Such a strategy could include identifying the risks of such tax crimes, defining the additional data and other mechanisms that are needed to more effectively combat such tax crimes and working towards ensuring that data and mechanisms are available and efficient in practice.
OECD – Combatting Tax Crimes More Effectively in APEC Economies. Tax crimes, corruption, terrorist financing, money laundering, and other financial crimes threaten the strategic, political, and economic interests of all countries. The sums lost to illicit financial flows (IFFs), including those that derive from these crimes are vast. For example, a 2011 UNODC report estimates that from 2000 to 2009, total proceeds from transnational organised crime was the equivalent of 1.5% of global GDP, or USD 870bn in 2009. These illegal activities and ensuing lost revenues complicate efforts to reach the Sustainable Development Goals (SDGs) and meet the objectives of the 2015 Cebu Action Plan such as good governance, sound fiscal policies, and infrastructure financing. These crimes are all closely related and thrive in a climate of secrecy, inadequate legal frameworks, lax regulation, poor enforcement, and weak inter-agency co-operation. By exploiting these weaknesses and advances in technology, criminals can covertly move substantial sums between multiple jurisdictions with relative ease and great speed. Consequently, criminal activity and the illicit financial flows that follow are becoming ever more sophisticated. Meanwhile, law enforcement structures have, in many cases, not evolved at the same speed and the international community has struggled to keep up with this threat. In recognition of the importance of this topic, APEC Finance Ministers included in their Cebu Action Plan a roadmap for a more sustainable financial future for the Asia-Pacific region. Specifically, Action item 2.E calls on APEC Economies to: “build capacity to address financial crimes, which threatens everyone’s economic and social well-being. Illicit financial activities such as tax evasion, corruption, terrorist financing, computer fraud, money laundering and other financial crimes are a global problem requiring coordinated responses within governments and between APEC Economies.” The Cebu Action Plan also called for the OECD to prepare, within two to four years, “a report exploring ways to strengthen capacity in tackling tax crimes and other related crimes in APEC Economies.” This report responds to that mandate by bringing together the legal instruments, policy tools, and capacity building initiatives available to enhance the fight against tax crimes, drawing on examples and successful practices in APEC Economies.
OECD – Guidance on the Implementation of Country-by-Country Reporting. BEPS ACTION 13. All OECD and G20 countries have committed to implementing Country-by-Country (CbC) reporting, as set out in the Action 13 Report “Transfer Pricing Documentation and Country-by -Country Reporting”. Recognising the significant benefits that CbC reporting can offer a tax administration in undertaking high level risk assessment of transfer pricing and other BEPS related tax risks, a number of other jurisdictions have also committed to implementing CbC reporting (which with OECD members form the “Inclusive Framework”), including developing countries. Jurisdictions have agreed that implementing CbC reporting is a key priority in addressing BEPS risks, and the Action 13 Report recommended that reporting take place with respect to fiscal periods commencing from 1 January 2016.
Maturity models are a relatively common tool, often used on a self-assessment basis, to help organisations understand their current level of capability in a particular functional, strategic or organisational area. In addition, maturity models, through the setting out of different levels and descriptors of maturity, are intended to provide a common understanding of the type of changes that would be likely to enable an organisation to reach a higher level of maturity over time.The OECD Forum on Tax Administration (FTA) first developed a maturity model in 2016 in order to assess digital maturity in the two areas of natural systems/portals and big data. The digital maturity model was introduced in the OECD report Technologies for Better Tax Administration (OECD, 2016). Building on this, work began in 2018 to develop a set of stand-alone maturity models covering both functional areas of tax administration, such as auditing and human resource management, as well as more specialised areas such as enterprise risk management, analytics and the measurement and minimisation of compliance burdens. The maturity model contained in this report, which is intended to be the first in a series of published FTA maturity models, covers the functional area of tax debt management. Tax debt management is a large function, employing around 10 percent of tax administration with outstanding collectible tax debt across the FTA of around EUR 820 billion (OECD, 2019 ). There are, though, significant variations in tax debt management performance and administrations also have different powers and tools available to them to deal with tax debt, as shown in Chapter 3 of the Tax Administration 2019 report (OECD, 2019). Against this background, the aim of the tax debt management maturity model is: •To allow tax administrations to self -assess through internal discussions as to where they see themselves as regards maturity in various aspects of tax debt management.• To provide debt management staff as well senior leadership of the tax administration with a good oversight of the level of maturity based on input from other stakeholders across the organisation. This can help in deciding strategy and identifying areas for further improvement, including where that needs to be supported by the actions of other parts of the tax administration. • To allow tax administrations to compare where they sit compared to their peers. The results of the initial piloting of the model by twenty-one tax administrations (including some non-FTA members) were analysed by the OECD FTA Secretariat. A “heat map” contained in this report shows the reported maturity of different administrations, on an anonym ous basis. This report consists of four parts: • Chapter 1: Using the debt management maturity model. This provides an overview of the model and an explanation of how to use the model, including how to get the most out of discussions within the tax administration. • Chapter 2: Results of pilot self-assessments. This chapter sets out the anonymised results of the pilot undertaken to refine the maturity mode Chapter 3: The full tax debt management maturity model. The chapter contains the model which can be used by tax administrations for self-assessment purposes and, following anonymised collation of results, for the purposes of international comparisons.• The Annex contains a record sheet for internal purposes, including to inform repeat use of the model from time to time, and for anonymised comparison purposes when submitted to the Secretariat. (This annex and the tax debt management maturity model are both available in word version on the FTA website.) The tax debt management maturity model was developed by an advisory group of tax administrations from Belgium, Canada, Hungary, Norway, Spain and Singapore. It has also benefited from discussions with the members of the FTA Tax Debt Management Network, chaired by the General Administration for Collec tion and Recovery under the Belgian FPS Finance, and from a pilot undertaken by a wide range of FTA members and some non-members.