A senior Finance Canada/OECD official comments on BEPS issues including CbC reporting, the Nexus Approach and examples of unilateral downward adjustments

BEPS comments of Kevin Shoom, a senior Finance Canada official who currently is working at the OECD, include:

• Insofar as the OECD is concerned, the country-by-country (CbC) reporting contemplated under Action 13 of BEPS can take the so-called bottom-up approach of working from individual company accounts to create the line in the CbC report for the full country, or the top-down approach of taking the group’s consolidated accounts and then breaking them down for individual countries.
• The Action 13 report limits the use of CbC reports by the countries receiving the reports to “assessing high-level transfer pricing risks and other BEPS related risks, and stating that the reports cannot be used, for example, as the sole basis for a reassessment.” These restrictions are also in the competent authority agreements, and are subject to the peer review process.
• The Nexus Approach requires the amount of income eligible for benefits in an IP regime to be proportional to the amount of expenditures undertaken by the taxpayer to develop the IP. “In the process of developing the Nexus Approach, 16 IP regimes were identified in OECD and G20 countries. They were all found to be, in whole or in part, inconsistent with the Nexus Approach.”
• Examples of “unilateral downward adjustments” are the Belgian and Netherlands regimes excluding excess profits from income. “[T]he OECD…is not considering whether they constitute harmful tax practices - but instead relying on transparency, so that tax administrations that provide these regimes are expected to engage in automatic spontaneous exchanges of information on the granting of these benefits under these regimes.”

Neal Armstrong. 2016 IFA Conference transcript and slides of Kevin Shoom on BEPS