Transfer Pricing in Canada, the United States and around the World

Transfer Pricing  in Canada, the United States and around the World

RBRT Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention

The OECD has just released the Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention.

The Draft Contents is available here.

Read RBRT’s comments below.

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Comments on the Draft Contents of the 2017 Update to the OECD Model Tax Convention

August 1st, 2017
Tax Treaties, Transfer Pricing and Financial Transactions Division
OECD/CTPA
By email: taxtreaties@oecd.org

To whom it may concern:

We are pleased to comment on selected matters included in the Draft Contents of the 2017 Update to the OECD Model Tax Convention (OECD MTC, the draft taken as a whole) through the consultation taking place from July 11, 2017 to August 10, 2017.

This document may be posted on the OECD website. Full credit goes to Robert Robillard, RBRT Inc. [1]

1. Article 4, changes to paragraph 13 of the Commentary

Suggested changes to paragraph 13 of the Commentary on Article 4 of the OECD MTC intend to provide clarifying explanations on the notion of “permanent home” for the eventual implementation of the tie-breaker rules found in Article 4(2)a) of the OECD MTC.

These explanatory comments read as follows on page 67 of the draft (see last sentence in bold and italic characters):

“13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.). For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has the possession of the house and the possibility to stay there.

Regarding the suggested changes included in the draft, we believe that greater clarity could be achieved by adding the following sentence at the end of the paragraph (see the underlined sentence):

“For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has the possession of the house and the possibility to stay there. A house is deemed unavailable when it is either rented out on a weekly, monthly, or any other longer or shorter length of period provided it generates income from a source.

The first part of the suggested sentence (underlined) would deal in itself with the notion of shorter or longer renting periods.

The last part of the sentence (underlined and bold characters: “provided it generates income from a source”) relates to new paragraph 1 (see page 11 of the draft).

It specifically addresses irregular leasing activities of an house that may arise from the use of online marketplace such as Airbnb for purposes other than direct commercial activities, in which case the “home” should be deemed as “permanent” for the purpose of the tie-breaker rules found in Article 4(2)a).

2. Article 5, new paragraph 1.1 of the Commentary

We would assume that comments are in fact invited with respect to new paragraph 5 instead of paragraph 1.1, as it is numbered in the preamble of the draft. New paragraph 5 to the Commentary on Article 5 read as follows on page 71 of the draft:

  • “5. In many States, a foreign enterprise may be allowed or required to register for the purposes of a value added tax or goods and services tax (VAT/GST) regardless of whether it has in that State a fixed place of business through which its business is wholly or partly carried on or whether it is deemed to have a permanent establishment in that State under paragraph 5 of Article 5. By itself, however, treatment under VAT/GST is irrelevant for the purposes of the interpretation and application of the definition of permanent establishment in the Convention; when applying that definition, one should not, therefore, draw any inference from the treatment of a foreign enterprise for VAT/GST purposes.”

Although accurate in its substance, this paragraph highlights, once more, the unnecessary compliance burden that is created by various criteria for VAT/GST liability around the world. It also highlights the pressing needs for a common criterion to properly determine liability to VAT/GST on a worldwide basis.

In this day and age of e-commerce, companies all across the world must deal on a regular basis with a nightmarish burden to determine liability to VAT/GST in any given foreign country, state, province, territory, county or even city. And this, for no other valid reasons than tax-starved governments’ blind unwillingness to facilitate business expansion and employment creation in an orderly fashion.

In the United States alone, there are over 45 sales tax regimes.[2] Canada displays specific sales tax regimes in Quebec, British-Columbia, Saskatchewan and Manitoba on top of the federal HST regime found in the other provinces and territories.

Smaller businesses simply cannot be expected to ensure compliance with every sales tax regime on an ongoing basis without incurring significant and unjustifiably high costs.

[1] Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Economics, M.A.P., is Senior Partner at RBRT Fiscalité / Tax (RBRT Inc.) in Canada and blogger on transferpricinghub.com. He teaches at Université du Québec à Montréal; 514‑742-8086; robertrobillard@rbrt.ca. Robert is a former Competent Authority Official and Audit Case Manager at the Canada Revenue Agency.

[2] For an overview, see https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Economics. M.A.P.
Senior Partner, RBRT Inc.
Université du Québec à Montréal
514-742-8086
robertrobillard@rbrt.ca

August 1st, 2017

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Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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New OECD Report on BEPS Action 2 Branch Mismatch Arrangements

The OECD recently released an updated version of BEPS Action 2 Report titled “Neutralising the tax effects of branch mismatch arrangements”

As indicated by the OECD:

“This report set out recommendations for domestic rules that put an end to the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment. While the 2015 Report addresses mismatches that are a result of differences in the tax treatment or characterisation of hybrid entities, it did not directly consider similar issues that can arise through the use of branch structures. These branch mismatches occur where two jurisdictions take a different view as to the existence of, or the allocation of income or expenditure between, the branch in head office of the same taxpayer.”

The report has been added to the complete library on BEPS and Transfer Pricing which is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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OECD Draft: Taxation of Offshore Indirect Transfers of Assets

In the continuity of BEPS, the OECD issued on August 1st a new draft toolkit:

“This draft toolkit, “The Taxation of Offshore Indirect Transfers – A Toolkit,” examines the principles that should guide the taxation of these transactions [transfer of assets] in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

The toolkit responds to a request by the Development Working Group of the G20, and is part of a series the Platform is preparing to help developing countries design their tax policies, keeping in mind that those countries may have limitations in their capacity to administer their tax systems. Previous reports have included discussions of tax incentives, and external support for building tax capacity in developing countries. This series complements the work that the Platform and the organisations it brings together are undertaking to increase the capacity of developing countries to apply the OECD/G20 BEPS Project.”

Comments on the draft are expected by September 25, 2017.

The library on BEPS and Transfer Pricing is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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Tax Information Exchange Agreement Signed Between Canada and Grenada

Voir en français.

Department of Finance Canada indicated this morning that an “Agreement between Canada and Grenada for the exchange of information on tax matters was signed on July 14, 2017 at St. George’s, Grenada.”

This agreement should enter into force in the upcoming months.

Department of Finance Canada explained:

“Consistent with Canada’s international efforts to promote transparency and effective exchange of tax information, the Agreement provides for the mutual exchange of tax information that is possessed by, or accessible to, the taxation authorities of either jurisdiction (in the case of Canada, the Canada Revenue Agency), in order to better administer and enforce taxation laws and to prevent international fiscal evasion. The Agreement is based on the Organisation for Economic Cooperation and Development’s internationally agreed standard on exchange of tax information upon request.”

The complete Agreement Between Canada and Grenada for the Exchange of Information on Tax Matters is available here. Une version française est disponible sur cet hyperlien.

The library on Transfer Pricing in Canada is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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OECD BEPS Action 13 Updated Guidance on Country-by-Country Reporting

On July 18, the OECD issued updated guidance on country-by-country reporting which is related to BEPS action #13.

The OECD explains:

“The Inclusive Framework on BEPS has released additional guidance to give certainty to tax administrations and MNE Groups alike on the implementation of Country-by-Country (CbC) Reporting (BEPS Action 13).

The additional guidance addresses two specific issues: how to treat an entity owned and/or operated by two or more unrelated MNE Groups, and whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the CbC report.

The complete set of guidance related to CbC reporting issued so far is presented in the document released today. This will continue to be updated with any further guidance that may be agreed.”

This updated guidance on country-by-country reporting is available here.

It is also available in French here.

The updated guidance on country-by-country reporting has been added to the complete library on BEPS and Transfer Pricing which is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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2017 Update of the OECD Model Tax Convention

On July 11, 2017, the OECD issued the Draft content of the 2017 update of the OECD Model Tax Convention.

Comments are requested on specific parts of that draft by August 10, 2017 as indicated by the OECD:

  • Changes to paragraph 13 of the Commentary on Article 4 related to the issue whether a house rented to an unrelated person can be considered to be a “permanent home available to” the landlord for purposes of the tie-breaker rule in Article 4(2) a).
  • Changes to paragraphs 17 and 19 of, and the addition of new paragraph 19.1 to, the Commentary on Article 4. These changes are intended to clarify the meaning of “habitual abode” in the tie-breaker rule in Article 4(2) c).
  • The addition of new paragraph 1.1 to the Commentary on Article 5. That paragraph indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition.
  • Deletion of the parenthetical reference “(other than a partnership)” from subparagraph 2 a) of Article 10, which is intended to ensure that the reduced rate of source taxation on dividends provided by that subparagraph is applicable in the case where new Article 1(2) would have the effect that a dividend paid to a transparent entity would be considered to be income of a resident of a Contracting State because it is taxed either in the hands of the entity or in the hands of the members of that entity. That deletion is accompanied by new paragraphs 11 and 11.1 of the Commentary on Article 10.”

The Draft content of the 2017 update of the OECD Model Tax Convention has been added to the library on BEPS and Transfer Pricing which is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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OECD Transfer Pricing Guidelines 2017 Available

On July 10, 2017, the OECD released its 2017 Edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

This 2017 edition of the OECD Transfer Pricing Guidelines contains all the changes and modifications stemming from the BEPS initiative which officially started in 2013.

The end result is a whopping 600-plus pages document which now includes the latest OECD guidance on comparability, transfer pricing methods, intangibles and transfer pricing, to name a few. History buffs may recall that it all started with a 100-pages document in 1979.

At this time, the OECD Transfer Pricing Guidelines now comprises 9 fully-packed chapters with “guidance” and added examples.

Will the upcoming Chapter 10 pertains to formulary apportionment when everything else fails? Only time will tell.

But with more significant changes expected in the upcoming years regarding hard-to-value intangibles and the use of profit split methods for transfer pricing, this may not really be a stretch of the imagination after all…

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 are available here.

To know more about BEPS, check the library on BEPS and Transfer Pricing which is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Fiscalité / Tax (RBRT inc.)
514-742-8086
robertrobillard@rbrt.ca
rbrt.ca

The information in this blog post is general information only. Data and information come from sources believed to be reliable but accuracy cannot be guaranteed. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. RBRT Inc., RBRT Concepts Inc. or the author are not responsible or liable with respect to the content appearing on external sources nor regarding the language of this content. The opinions expressed in this blogpost are those of the author. Readers should seek advice from RBRT Inc. as required.

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Canada: Tax Treaty Negotiations with San Marino

This blogpost originally appeared on rbrt.ca.

Finance Canada recently begun negotiations with the Republic of San Marino to conclude a tax treaty.

Finance Canada indicated:

“Persons wishing to offer comments concerning the negotiations should send their views to the Department of Finance at:

Tax Legislation Division
Department of Finance
11th Floor
90 Elgin St.
Ottawa, ON  K1A 0G5
Fax: 613 369 3661

taxtreaties-conventionsfiscales@canada.ca

conventionsfiscales-taxtreaties@canada.ca

The library on Transfer Pricing in Canada is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

The convergence of RBRT’s tax, accounting and economics expertise makes a difference. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. The opinions expressed in this blogpost are those of the author. Readers should seek advice and counsel from RBRT Inc. as required.

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Canada: Tax Convention Signed with the State of Israel

This blogpost originally appeared on rbrt.ca.

Finance Canada indicated today:

“A new Convention between the Government of Canada and the Government of the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income was signed in New York on September 21, 2016.

The new Convention limits the rate of withholding tax to 5% for dividends paid to a company that holds directly or indirectly at least 25% of the capital of the company that pays the dividends, to 15% for dividends paid in all other cases, and to 10% for payments of interest and royalties. The new Convention also exempts from withholding tax certain payments of interest and royalties.

The new Convention includes provisions reflecting the standard developed by the Organisation for Economic Co-operation and Development for the exchange of information for tax purposes.

The new Convention will enter into force once Canada and the State of Israel have notified each other that the procedures required by their laws for the bringing into force of the Convention have been completed. The new Convention will have effect in accordance with Article 28 of the Convention.”

The complete text of the Convention between the Government of Canada and the Government of the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income is available here: http://www.fin.gc.ca/treaties-conventions/israel_1-eng.asp

The library on Transfer Pricing in Canada is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

The convergence of RBRT’s tax, accounting and economics expertise makes a difference. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. The opinions expressed in this blogpost are those of the author. Readers should seek advice and counsel from RBRT Inc. as required.

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USA: “The European Union’s Recent State Aid Investigations of Transfer Pricing Rulings”

This blogpost originally appeared on rbrt.ca.

The US Treasury recently released a White Paper on EU “State Aid approach” titled “The European Union’s Recent State Aid Investigations of Transfer Pricing Rulings”.

The summary of the White Paper indicates:

“The U.S. Department of the Treasury (“U.S. Treasury Department”) shares the European Commission’s (“Commission”) concern with tax avoidance by multinational firms. The international community, including the European Union (“EU”) and its Member States, has long recognized the need to address this issue multilaterally. For more than two decades, the U.S. Treasury Department has worked closely as part of the international community to achieve a collective solution to this global problem.

Beginning in June 2014, the Commission announced that certain transfer pricing rulings given by Member States to particular taxpayers may have violated the EU’s restriction on State aid. These investigations, if continued, have considerable implications for the United States—for the U.S. government directly and for U.S. companies—in the form of potential lost tax revenue and increased barriers to cross-border investment. Critically, these investigations also undermine the multilateral progress made towards reducing tax avoidance.

In light of these consequences, U.S. Secretary of the Treasury Jacob J. Lew sent a letter on February 11, 2016, to Commission President Jean-Claude Juncker describing the U.S. Treasury Department’s principal concerns with the Commission’s recent State aid investigations. This White Paper provides additional detail regarding Secretary Lew’s concerns, focusing primarily on the following issues:

The Commission’s Approach Is New and Departs from Prior EU Case Law and Commission Decisions. The Commission has advanced several previously unarticulated theories as to why its Member States’ generally available tax rulings may constitute impermissible State aid in particular cases. Such a change in course, which has required the Commission to second-guess Member State income tax determinations, was an unforeseeable departure from the status quo.

The Commission Should Not Seek Retroactive Recoveries Under Its New Approach. The Commission is seeking to recover amounts related to tax years prior to the announcement of this new approach—in effect seeking retroactive recoveries. Because the Commission’s approach departs from prior practice, it should not be applied retroactively. Indeed, it would be inconsistent with EU legal principles to do so. Moreover, imposing retroactive recoveries would undermine the G20’s efforts to improve tax certainty and set an undesirable precedent for tax authorities in other countries.

The Commission’s New Approach Is Inconsistent with International Norms and Undermines the International Tax System. The OECD Transfer Pricing Guidelines (“OECD TP Guidelines”) are widely used by tax authorities to ensure consistent application of the “arm’s length principle,” which generally governs transfer pricing determinations. Rather than adhere to the OECD TP Guidelines, the Commission asserts it is employing a different arm’s length principle that is derived from EU treaty law. The Commission’s actions undermine the international consensus on transfer pricing standards, call into question the ability of Member States to honor their bilateral tax treaties, and undermine the progress made under the OECD/G20 Base Erosion and Profit Shifting (“BEPS”) project.”

The complete White Paper is available here: https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/White-Paper-State-Aid.pdf

The library on Transfer Pricing in the United States is available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

The convergence of RBRT’s tax, accounting and economics expertise makes a difference. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. or the author are not responsible or liable for any error, omission or inaccuracy in such information. The opinions expressed in this blogpost are those of the author. Readers should seek advice and counsel from RBRT Inc. as required.

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