OECD – TRANSFER PRICING GUIDANCE ON FINANCIAL TRANSACTIONS INCLUSIVE FRAMEWORK ON BEPS: ACTIONS 4, 8-10

The 2015 BEPS Action Plan reports on Action 4 (Limiting base erosion involving interest deductions and other financial payments) and Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) mandated follow-up work on the transfer pricing aspects of financial transactions. In particular, Action 4 of the BEPS Action Plan called for the development of: “…transfer pricing guidance … regarding the pricing of related party financial transactions, including financial and performance guarantees, derivatives (including internal derivatives used in intra-bank dealings), and captive and other insurance arrangements.” Under these mandates, the Committee on Fiscal Affairs produced a non-consensus discussion draft on financial transactions in July 2018. The discussion draft aimed to clarify the application of the principles included in the 2017 edition of the OECD Transfer Pricing Guidelines (the “Guidelines”), in particular, the accurate delineation analysis under Chapter I, to financial transactions. It also provided guidance with specific issues relating to the pricing of loans, cash pooling, financial guarantees, and captive insurance. The guidance contained in this report takes account of comments received in response to the public discussion draft. This guidance is significant because it is the first time the Guidelines will be updated to include guidance on the transfer pricing aspects of financial transactions, which should contribute to consistency in the application of transfer pricing and help avoid transfer pricing disputes and double taxation. Sections A to E of this report will be included in the Guidelines as Chapter X. The guidance in Section F of this report will be added to Section D.1.2.1 in Chapter I of the Guidelines, immediately following paragraph 1.106. This report describes the transfer pricing aspects of financial transactions, including a number of examples to illustrate the principles discussed. Section B provides guidance on the application of the principles contained in Section D.1 of Chapter I of the Guidelines to financial transactions. In particular, Section B.1 of this report elaborates on how the accurate delineation analysis under Chapter I applies to the capital structure of an MNE within an MNE group. It also clarifies that the guidance included in that section does not prevent countries from implementing approaches to address capital structure and interest deductibility under their domestic legislation. Section B.2 outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions. Sections C, D and E of this report address specific issues related to the pricing of financial transactions (e.g. treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance). This analysis elaborates on both the accurate delineation and the pricing of the controlled financial transactions. Finally, Section F provides guidance on how to determine a risk-free rate of return and a risk-adjusted rate of return.

IMF/OECD/UN/WBG – The Platform for Collaboration on Tax. The Taxation of Offshore Indirect Transfers – A Toolkit

IMF/OECD/UN/WBG – The Platform for Collaboration on Tax. The Taxation of Offshore Indirect Transfers – A Toolkit. The tax treatment of ‘offshore indirect transfers’ (OITs) – in essence, the sale of an entity owning an asset located in one country by a resident of another – has emerged as a significant issue in many developing countries. It has been identified in IMF technical assistance work and scoping by the OECD but was not covered by the G20 – OECD project on Base Erosion and Profit Shifting (BEPS). In relation to the extractive industries, OITs are also the subject of work at the UN. The country in which the underlying asset is located may wish to tax gains realized on such transfers – as is currently the case for direct transfers of immovable assets. Some countries may wish to apply this treatment to a wider class of assets, to include more those generating location specific rents – returns that exceed the minimum required by investors and which are not available in other jurisdictions. This might include, for instance, telecom licenses and other rights issued by government. The report also recognizes, however, that gains on OITs may be attributable in part to value added by the owners and managers of such assets, and that some countries may choose not to tax gains on OITs. The provisions of both the OECD and the UN Model treaties suggest wide acceptance that capital gains taxation of OITs of “immovable” assets can be imposed by the location country. It remains the case, however, that the relevant model Article 13(4) is found only in around 35 percent of all Double Tax Treaties (DTTs) and is less likely to be found when one party is a low-income resource – rich country. The MLI has increased the number of tax treaties that include Article 13(4) of the OECD MTC. This impact is expected to increase as new parties sign the MLI and amend their covered tax treaties to include the new language of Article 13(4). Regardless of what any treaty provides, however, such a taxing right cannot be supported without appropriate definition in domestic law of the assets intended to be taxed and without a domestic law basis to assert that taxing right. There is a need for a more uniform approach to the taxation of OITs by those countries that choose to tax them. Countries’ unilateral responses have differed widely, in terms of both which assets are covered and the legal approach taken. Greater coherence could enhance tax certainty. The report outlines two main approaches to the taxation of OITs by the country in which the underlying asset is located – provisions for which require careful drafting. It identifies the two main approaches for so doing and provides, for both, sample simplif ied legislative language for domestic law in the location country. One of these methods (‘Model 1’) treats an OIT as a deemed disposal of the underlying asset. The other (‘Model 2’) treats the transfer as being made by the actual seller, offshore, but sources the gain on that transfer within the location country and so enables that country to tax it. The report expresses no general preference between the two models: the appropriate choice will depend on countries’ circumstances and preferences.

TAX POLICY REFORMS 2020. OECD AND SELECTED PARTNER ECONOMIES

Tax Policy Reforms: OECD and Selected Partner Economies is an annual publication that provides comparative information on tax reforms across countries. It tracks tax policy developments over time and gives an overview of the latest tax reform trends. This year’s edition focuses on the tax reforms that came into force or were due to come into force in the second half of 2019 and 2020. However, given the significant packages of measures that were introduced in the first half of 2020 in response to the COVID19 crisis, the report also includes a Special Feature on “Tax and Fiscal Policy Responses to the COVID19 Crisis”. This Special Feature takes stock of the tax and broader fiscal measures introduced by countries from the beginning of the virus outbreak up to mid-June 2020, largely based on countries’ updates to the database1 compiled by the OECD on tax and fiscal policy responses to the crisis. This year also marks the first time that China is included in the publication. This year’s report covers 40 countries including all OECD countries (with the exception of Colombia, 2 which became a member of the OECD after the primary data collection exercise had been completed), as well as Argentina, China, Indonesia and South Africa. The intention is to continue expanding the coverage of the report to additional G20 countries. In its assessment of the reforms adopted before the COVID-19 crisis, and due to come into force in the second half of 2019 and 2020, the report identifies a number of common tax reform trends across countries. It should be noted that these are trends that emerged before the COVID-19 crisis and that reforms have in some cases been delayed in response to the crisis. More generally, the COVID-19 crisis should be seen as a significant intervening event and future reports will focus on the impact of the crisis on these longer-term trends. Looking at the reforms adopted before the COVID-19 crisis, the report identifies the following trends: · Personal income tax (PIT) reductions, targeted in particular at low and middle-income households, have continued. While this trend represents a broad continuation of PIT reforms in recent years, an intensification of PIT rate cuts has been observed. PIT base narrowing measures, often targeted at families and low-income earners, have also been frequent. Regarding the taxation of household capital income, limited changes have been introduced, involving both tax increases and decreases. These measures have included changes to the taxation of rental income as well as expanded tax reliefs to support small savers. · Changes to social security contributions (SSCs) have been limited both in number and in scope. Most of the reforms were aimed at lowering SSCs, but changes were generally modest. This confirms that the pace of reform in this area has slowed. · Corporate income tax (CIT) rate cuts have continued in 2020. As was the case last year, the most significant CIT rate reductions have generally been introduced in countries with higher initial CIT rates, leading to further convergence in statutory CIT rates across countries. Many countries have also reinforced the generosity of their corporate tax incentives to stimulate investment, innovation and environmental sustainability. · With regard to international taxation, efforts to protect CIT bases against corporate tax avoidance have continued with the adoption of significant reforms in line with the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. The tax challenges arising from the digitalisation of the economy continue to represent a major concern for many countries. Efforts to achieve a consensus-based multilateral solution to address those challenges are ongoing, but a growing number of countries have announced or implemented interim measures to tax certain revenues from digital services in the meantime. · The stabilisation of standard value-added tax (VAT) rates observed in recent years is continuing, while VAT base changes have involved a mix of base broadening and base narrowing measures. High standard VAT rates in many countries have limited the room for additional rate increases. Instead, many countries have concentrated their efforts on the fight against VAT fraud and on ensuring the effective taxation of cross-border online sales to raise additional revenues and strengthen the functioning of their VAT systems.

OECD – SUPPORTING SMES TO GET TAX RIGHT: STRATEGIC PLANNIN

OECD – SUPPORTING SMES TO GET TAX RIGHT: STRATEGIC PLANNIN. In many countries, small and medium‑sized enterprises and entrepreneurs (hereafter jointly referred to as ‘SMEs’) are the backbone of the economy. They account for about 60% of employment and are largely responsible for economic growth, accounting for 50% to 60% of value added. (OECD, 2019) But while they are so important, they also face a significant number of challenges. Understanding both the importance of SMEs to the economy and these multifaceted challenges, members of the OECD Forum on Tax Administration (FTA) have collaborated over many years on initiatives aimed at reducing SMEs’ administrative burdens while ensuring tax compliance. This collaboration has resulted in a number of publications, such as the 2014 report Tax Compliance by Design: Achieving Improved SME Tax Compliance by Adopting a System Perspective (OECD, 2014) and the 2016 report Rethinking Tax Services: The Changing Role of Tax Service Providers in SME Tax Compliance (OECD, 2016). In the light of the increasingly rapid digitalisation of the economy, the changing business environment and the recent impacts of COVID‑19, FTA members decided to revisit these issues by collaborating on a series of reports aimed at supporting SMEs to get tax right. Tax administrations can play a key role in supporting SME compliance and in reducing the burdens they are confronted with. While tax administrations will not be able to address fully all of the different drivers of burdens faced by SMEs, they may be able to help mitigate many of them, especially tax compliance costs which can be significant for SMEs, particularly when compared to large businesses. In particular, tax administrations are well‑positioned: • To identify pressure points for SMEs stemming from the tax system, including engaging with policy makers and other government agencies to help reduce burdens through whole of  government approaches; and • To ensure fair competition by reducing burdens on honest taxpayers while taking action against the non‑compliant. In doing so, tax administrations might want to consider adopting a strategic approach which would allow them to not only focus on immediate concerns in a holistic manner, but also to plan for more systemic changes which take time.

OECD – After the lockdown, a tightrope walk toward recovery

OECD – After the lockdown, a tightrope walk toward recovery. The spread of Covid-19 has shaken people’s lives around the globe in an extraordinary way, threatening health, disrupting economic activity, and hurting wellbeing and jobs.Since our last Economic Outlook update, in early March, multiple virus outbreaks evolved into a global pandemic, moving too fast across the globe for most healthcare systems to cope witheffectively.To reduce the spread of the virus and buy time to strengthen healthcare systems, governments had to shut down large segments of economic activity.At the time of writing, the pandemic has started to recede in many countries, and activity has begun to pick up. The health, social and economic impact of the outbreak could have been considerably worsewithout the dedication of healthcare and other essential workers who continued to servethe public, putting their own health at riskin doing so.Governments and central banks have put in place wide-ranging policies to protect people and businesses from the consequences of the sudden stop in activity.Economic activity has collapsedacross the OECD during shutdowns, by as much as 20 to 30%in some countries, an extraordinary shock. Borders have been closed and trade has plummeted. Simultaneously, governments implementedquick, large and innovative support measuresto cushion the blow, subsidising workersand firms. Social and financial safety nets were strengthened at record speed. As financial stress surged, central banks took forceful and timely action, deploying an array of conventional and unconventional policies above and beyond those used in the Global Financial Crisis, preventing the health and economic crisis from spilling over into a financial one. As long as no vaccine or treatment is widely available, policymakers around the world will continue to walk on a tightrope. Physical distancing and testing, tracking, tracing and isolating (TTTI) will be the main instruments to fight the spread of the virus. TTTI is indispensable for economic and social activities to resume. But thosesectors affected by border closures and those requiring close personal contact, such as tourism, travel, entertainment, restaurants and accommodation will not resume as before. TTTI may not even be enough to prevent a second outbreak of the virus.

OECD – TAX IN THE TIME OF COVID-19, by Pascal Saint-Amans. 23 March 2020

This article is part of series in which OECD experts and thought leaders – from around the world and all parts of society – address the COVID-19 crisis, discussing and developing solutions now and for the future. The number of COVID-19 cases is quickly rising around the world, with major adverse effects on health and mortality. To fight the outbreak and the spread of the virus, countries are imposing unprecedented measures, such as restrictions on the free movement of people and goods, and are shutting down large parts of the economy. The result is that economic activity has fallen sharply in many countries and increased global uncertainty has further eroded confidence. Apart from responding to the escalating health emergency, the immediate economic priority for policymakers is to respond quickly to provide support to households and to improve cash-flow for businesses: we need to keep capacities of production and distribution intact throughout this crisis. The goal is to ensure that households and businesses are able to keep their heads above water until the health crisis can be contained, so that the economy is ready to rebound once the worst of the pandemic has passed. While the OECD will keep working on long-term projects like tax co-operation among countries, international standards to eliminate double taxation, and the mobilisation of domestic resources, we have prioritised work on a range of targeted and temporary tax policy and tax administration measures governments could consider as part of their immediate response. We have also compiled all tax measures taken by governments to produce a useful toolkit. (…)

OECD – Tax Crime Investigation Maturity Model

Background. 1. The Maturity Model, like any forms of modelling, is a simplified framework designed to explain the complex processes of tax crime investigation in an attempt to observe, understand and guide the capacity building efforts in a jurisdiction. This is a self-assessment tool to help jurisdictions understand where they stand in the implementation of the Ten Global Principles, based on a set of empirically-observed indicators. Further, the model charts out a path for future progress towards enhanced enforcement capabilities for achieving the overall objective of a tax crime investigation regime. 2. In addition to providing a framework for capability enhancement to combat tax crimes, the model provides a mechanism for jurisdictions to track their progress on implementation of the Ten Global Principles over time. It therefore also serves as an important tool for measuring the impact of tax crime capacity building interventions, including those promoted by the Addis Tax Initiative and G7 Bari Declaration.

OECD SECRETARY-GENERAL TAX REPORT TO G20 LEADERS. NOVEMBER 2020

As I report to you, the COVID-19 pandemic continues its course, resulting in global and sustained economic fallouts. Since the start of the COVID-19 pandemic, the OECD has monitored closely the tax and fiscal policy responses of countries and jurisdictions. Tax policy should prioritise supporting health systems and recovery above all and then be adapted in view of social and economic transformations that include but are not limited to COVID-19. Beyond domestic measures, as governments are adopting recovery plans to restore growth, the issue of international taxation and cooperation remains a priority. One pressing issue—which has been a priority of the international community for several years—is to reform the international tax system to address the tax challenges arising from the digitalisation of the economy, restore stability to the international tax framework and avoid the risk of further uncoordinated, unilateral tax measures which could trigger trade sanctions. The COVID-19 crisis has exacerbated these tax challenges even further by accelerating the digitalisation of the economy, increasing pressures on public finances and decreasing public tolerance for profitable MNEs not paying their fair share of taxes.

OECD – Revenue Statistics in Africa 2020

The publication Revenue Statistics in Africa is jointly undertaken by the OECD Centre for Tax Policy and Administration and the OECD Development Centre, the African Union Commission (AUC) and the African Tax Administration Forum (ATAF) with the financial support of the governments of Ireland, Japan, Luxembourg, Norway, Sweden and the United Kingdom. Achieving the United Nations’ Sustainable Development Goals (SDGs) and implementing the Addis Ababa Action Agenda and the African Union’s Agenda 2063 require mobilising additional finance, in particular domestic resources, to fund public goods and services. This report presents internationally comparable indicators on tax and non‑tax revenues that can be used to track progress on domestic resource mobilisation (DRM) and to inform tax policy analysis and future reform. Additionally, it provides an important backdrop in understanding the fiscal capacity of the African region to respond to the COVID‑19 crisis. The report and its data also contribute to the implementation of the Pan‑African Statistics Programme, a joint effort between the European Union and the African Union to support statistical capacity in Africa. Revenue Statistics in Africa 2020 provides data on 30 countries: Botswana, Burkina Faso, Cabo Verde, Cameroon, Chad, the Republic of the Congo, the Democratic Republic of the Congo, Côte d’Ivoire, Equatorial Guinea, Egypt, Eswatini, Ghana, Lesotho, Kenya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Namibia, Niger, Nigeria, Rwanda, Senegal, the Seychelles, South Africa, Togo, Tunisia and Uganda. It includes a special feature discussing factors likely to affect the future of DRM in Africa in the aftermath of the COVID‑19 pandemic, including the impact of the African Continental Free Trade Area (AfCFTA ) on trade and public revenues.

OECD Taxation Working Papers No. 49 – Reassessing the regressivity of the VAT

This paper reassesses the often-made conclusion that the VAT is regressive, drawing on tax microsimulation models constructed for an unprecedented 27 OECD countries. The paper first assesses the competing methodological approaches used in previous distributional studies, highlighting the distorting impact of savings patterns on cross-sectional analysis when VAT burdens are measured relative to income. As argued by IFS (2011), measuring VAT burdens relative to expenditure – thereby removing the influence of savings – is likely to provide a more meaningful picture of the distributional impact of the VAT. On this basis, the VAT is found to be either roughly proportional or slightly progressive in most of the 27 OECD countries examined. Nevertheless, results for a small number of countries highlight that broad-based VAT systems that have few reduced VAT rates or exemptions can produce a small degree of regressivity. Results also show that even a roughly proportional VAT can still have significant equity implications for the poor – potentially pushing some households into poverty. This emphasises the importance of ensuring the progressivity of the tax-benefit system as a whole in order to compensate poor households for the loss in purchasing power from paying VAT. In the broader context of the COVID-19 crisis, the findings of the paper suggest there may be scope in many countries for VAT reform to help address revenue needs, as this revenue may be generated with less significant distributional effects than previously thought. While standard VAT rates are high in many countries, OECD evidence shows that scope exists to broaden VAT bases. Nevertheless, any VAT increases, including VAT base broadening measures that impact the poor, should be accompanied by compensation measures for poorer households, such as targeted tax credits or benefit payments. (Alastair Thomas).