The OECD initiative against “Base Erosion and Profit Shifting” was commissioned by the G-20 in 2013. Final deliverables were presented to the G-20 in November 2015. “Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs.)” Creators and Presenters: • Russell Brown, LehmanBrown, China • Florence Bastin, Fiduciaire du Grand-Duché de Luxembourg S.à r.l. (FLUX) • Fabrice Rymarz, Racine, France • Simone Hennessy, HSOC, Ireland • Fuad Saba, FGMK, Chicago, USA (Moderator)

1. International Tax
Planning after BEPS
A Country Survey
TAG Alliances Lisbon Conference
Tax Specialty Group Session
May 4, 2016

2. Panel members
• Russell Brown, LehmanBrown, China
• Florence Bastin, Fiduciaire du Grand-Duché de
Luxembourg S.à r.l. (FLUX)
• Fabrice Rymarz, Racine, France
• Simone Hennessy, HSOC, Ireland
• Fuad Saba, FGMK, Chicago, USA (Moderator)

3. Background - 1
The OECD initiative against “Base Erosion and Profit Shifting” was
commissioned by the G-20 in 2013. Final deliverables were presented
to the G-20 in November 2015.
“Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit
gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations
where there is little or no economic activity, resulting in little or no overall corporate
tax being paid. BEPS is of major significance for developing countries due to their
heavy reliance on corporate income tax, particularly from multinational enterprises
(MNEs.)”
“Research undertaken since 2013 confirms the potential magnitude of the BEPS
problem. Estimates conservatively indicate annual losses of anywhere from 4 - 10% of
global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually.”

4. Background - 2
“BEPS is a global problem which requires global solutions. For the first
time ever in tax matters, OECD and G20 countries worked together on
an equal footing. More than a dozen developing countries have
participated directly in the work and more than 80 non-OECD, non-
G20 jurisdictions have provided input.”
“Fifteen actions equip governments with the domestic and international
instruments needed to tackle BEPS. The final BEPS package gives
countries the tools they need to ensure that profits are taxed where
economic activities generating the profits are performed and where
value is created, while at the same time give business greater certainty
by reducing disputes over the application of international tax rules, and
standardizing compliance requirements.”

5. Overview: BEPS 15-item action plan
Neutralize hybrid mismatch
arrangements
Strengthen CFC rules
Limit interest deductions and
other financial payments
Counter harmful tax practices
Prevent treaty abuse
Prevent artificial avoidance of
PE status
Identify challenges of a digital
economy
4
73
6
5
2
1
Align transfer pricing with value
creation – intangibles
8

6. Align transfer pricing with value
creation – risk and capital
Align transfer pricing with value
creation – high risk transactions
Establish methodologies to
collect and analyze data on BEPS
Require disclosure of aggressive
tax planning arrangements
Re-examine transfer pricing
documentation
Make dispute resolution
mechanisms more effective
14
Multilateral Instrument15
12
11
10
9
13
Overview: BEPS 15-item action plan
Continued

7. • 13 final reports (15 action items) published on October 5, 2015
• Political commitment of all OECD and G20 Countries
• Presented to the G20 Finance Ministers on October 8, 2015
Outputs include:
• Agreed minimum standards
• Reinforced/Updated international standards
• Model Rules/Leading Practices/Convergent approaches
• Horizontal Issues
See - http://www.oecd.org/ctp/beps-about.htm
Also see - http://www.oecd.org/ctp/myths-and-facts-about-beps.pdf
Final BEPS reports

8. Now what happens?
Implementation and inclusive monitoring
“With the adoption of the BEPS package, OECD and G20 countries, as
well as developing countries that participated in its development, will
lay the foundations of a modern international tax framework under
which profits are taxed where economic activity and value creation
occur. Work will be carried out to support all interested countries in
implementing the rules and applying them in a consistent and
coherent manner, particularly those for which capacity building is an
important issue.”
“Monitoring implementation and the impact of the different BEPS
measures is another key element of the work ahead. Following the G20
and OECD call for even increased inclusiveness, a new framework for
implementing BEPS will be conceived and put in place in 2016, with all
interested countries and jurisdictions on an equal footing.”

9. Outlook for 2016 – OECD work plan
Development of an overall Framework for Monitoring BEPS
Action 1 Monitoring the digital economy
Action 4
Further work on detailed design and operation of group ratio rule; specific
rules for banking and insurance
Action 5
Engage with Non-OECD Countries in connection with identifying preferential
regimes/Ongoing monitoring and review of patent boxes and preferential
regimes
Action 6 Wording of LOB; treaty entitlement of non-CIVs
Action 7 Refine PE language; Attribution of profits to a Permanent Establishment
Actions 8 – 10
Additional guidance on profit splits, financial transactions, and other
guidance; transfer pricing toolkits for low-income countries
Action 13
Development of XL Schema; signing ceremony for MCAA; Review of
implementation of new standard by 2020
Action 14 Develop terms of reference and assessment methodology for peer review
Action 15 Draft and signing of the multilateral convention

10. Pascal Saint-Amans, Director
OECD Center for Tax Policy and Administration
https://twitter.com/psaintamans
Mr. BEPS

11. • Five countries are represented
• We will provide you with our views about BEPS and
international tax planning from the perspective of the tax
authorities in our countries
• Please ask questions at any time
• We will not concentrate on CbC (Action 13) because of the €750
Million Turnover threshold
Panel discussion

12. Russell Brown, LehmanBrown

13. Through strengthening the
management of anti-tax
avoidance and survey, China
tax bureau built 265 anti-tax
avoidance investigations, 188
cases were solved.
The increase of anti-avoidance
tax for the year was expected to
reach 60 billion RMB in 2015,
which was 14.7% over the
previous year, 129 times of the
amount in 2005.
0.46
40.82
60
0
10
20
30
40
50
60
70
2005 2014 2015
Revenue/Billion (RMB)
Revenue/Billion
BEPS – At domestic level

14. On 4 January 2015, the SAT modified the law on Tax Administration
and its implementing rules, considering how to introduce the
mandatory disclosure rules to Chinese domestic rules;
At the beginning of 2015, the SAT established a new department
responsible for offshore tax administration and its aim is to provide
better tax service and strengthen tax administration;
In the past two years, the SAT issued 4 anti-tax management
regulations and regulatory documents which include the indirect
transfer of property of a non-resident enterprise management
solutions and the general anti-avoidance measures for the
administration;
BEPS – At domestic level
Continued

15. BEPS – At domestic level
Continued
On 17 September 2015,the SAT released Discussion Draft of the
revised Implementation Measures of Special Tax Adjustment;
On 25 May 2015, China and Chile signed the avoidance of double
taxation and the prevention of tax evasion agreement, the 100th
double tax agreement between China and foreign countries;
The SAT will consider to modify the Circular 75 (China-Singapore
Treaty) , compared with the Circular 75 and the relevant results of
BEPS.

16. Jurisdiction Signed on Effective from Applicable since
Bahamas 2009-12-01 2010-08-28 2011-01-01
British Virgin Islands 2009-12-07 2010-12-30 2011-01-01
The Isle of Man 2010-10-26 2011-08-14 2012-01-01
Guernsey 2010-10-27 2011-08-17 2012-01-01
Jersey 2010-10-29 2011-11-10 2012-01-01
Bermuda 2010-12-02 2011-12-31 2012-01-01
Argentina 2010-12-13 2011-09-16 2012-01-01
Cayman 2011-09-26 2012-11-15 2013-01-01
San Marino 2012-07-09 2013-04-30 2014-01-01
Liechtenstein 2014-01-27 2014-08-02 2015-01-01
China Signed Agreements for the Exchange of Tax Information
BEPS – At domestic level
Continued

17. • China fully participated in the formulation of
the new international tax rules
• BEPS Project is helpful for China in upgrading
her tax regimes, as well as improving her tax
legislations and tax administration system
• BEPS Project is a good opportunity for China to
expand her cooperation with other
jurisdictions, both bilaterally and multilaterally
• BEPS Project will help to protect China’s tax
base and allow her to get a fairer share of the
MNCs taxation
• Subject to resource constraint such as ability,
experience, language, and resource, there is still
a large gap in participating the international
rule-making
• The final results of the action plan is not
binding in law, however, because of the political
commitment and tax revolution of other
countries under the action plan framework, it is
unavoidable that it will have an impact on
China’s tax system
• The plan of modifications to tax treaties and
transfer pricing system may make MNCs face
stricter review. This will affect the cost of tax
compliance and business environment
• China does not have a history of consistent
application of regulations and it will challenge
its own MNCs
Benefits Challenges
BEPS – Impact to China

18. • Revision of the domestic tax laws and regulations;
• Localization of the BEPS Package on an as-needed basis (e.g.
Revision of Circular 2);
• Adjustment of the tax authorities’ international tax administration
divisions (completed at the SAT level with a new responsible for
offshore tax administration and an additional TP division);
• Establishment of the national tax risk monitoring and response
system on MNC’s on a group basis by the end of this year, which
means that the local-level tax authorities in charge of a MNC’s
headquarter will be responsible for monitoring the tax risks of the
whole group;
BEPS – China action plan

19. • Use of information technology to facilitate international tax
administration;
• Establishment of the PE information sharing system between
local-level state tax bureaus and local tax bureaus;
• Enhance information exchange with the exit and entry
Administration Department
BEPS – China action plan
continued

20. • More requirements for TP documentation;
• Increased focus on conduct /activity as an important test in
assessing TP compliance;
• Tax treaty access and interpretation being constrained and in some
situations uncertain;
• Wider transparency agenda, including introduction of mandatory
disclosure regimes;
• Substance-tax alignment;
• Generally unfriendly environment for a few years
BEPS – Challenges to MNCs

21. Florence Bastin, FLUX

22. • Common Reporting Standard (CRS) : automatic
exchange of financial accounts by banks to ACD
End of Banking Secrecy in 2015 area of
improved and enhanced tax
transparency
• The general anti-abuse rule and the anti-hybrid
rule (linked to BEPS)
Implementation of EU Parent-
Subsidiary Directive
• Specific provision on the doc requirements
Transfer pricing rules (BEPS Action
Items)
• Deadline 30 June 2016 for existing regime
• New Regime to be put in place
IP Box regime modified (BEPS Action
5)
• Exchange of ATA with other countries involved
(linked to BEPS)
Advance tax (ATA) decision practice
evolved
• Coherence, transparency and attractiveness2017 tax reform is underway
Recent tax changes in Luxembourg

23. Opportunities
• Development of new tax
planning and structure for
clients
• Use of different products or
vehicles
• Build economic substance
• Fairer and more ethical
competition
Challenges
• Timing and decisions taken by
EU Directive?
• Implementation of BEPS
measures for all OECD country?
• National sovereignty on tax
• Cost of developing and
structuring new tax planning
Future changes in Luxembourg
BEPS impact and EU directives

24. BEPS
&
EU Tax
measures
to be adopted
Increased
Transparency
Coherence
More robust
and
economically
justified tax
planning
Increased
substance
Challenge for
existing
structures
To adapt or
disappear
The way forward

25. Fabrice Rymarz, Racine

26. BEPS–inspired measures implemented in France
Action 3: Limitation on the deduction of interest expense
(Finance Bill 2013)
• In addition to thin cap rules, a general limitation provides that
when the net financial charges paid within a given financial year
exceed EUR 3 million, only 75% is tax deductible
v Net financial charges correspond in practice to the total
amount of interest charges incurred by the company, reduced
by any interest income received by the company in relation to
its financing activities

27. • The participation exemption régime does not apply to dividends
derived from profits that were not subject to corporate income tax
(dividends distributed by investment companies, venture
companies, listed REIT, etc.)
• The French Tax Code provides for a detailed list of entities that do
not qualify for the domestic participation exemption regime
Action 2: Limitation of the participation exemption régime
(Addendum to the Finance Bill 2015)
BEPS–inspired measures implemented in France

28. Action 5: General anti-abuse clause (Addendum to the finance
Bill 2015)
• General anti-abuse clause in accordance with the amended EU
Parent-Subsidiary Directive (2011/96)
Under this new provision, benefits of the participation
exemption regime are denied if the structure:
i. Is mainly tax driven and;
ii. Has no economic rationale. This concept is too vague and
will certainly generate quite a significant amount of
litigation (how to deal with such a concept for pure
holding companies?)
BEPS–inspired measures implemented in France

29. Action 2: Anti-hybrid measure (Finance Bill 2014)
• Objective: ending existing double dip results, based on a
different tax treatment of the same instrument (e.g., debt in one
country and equity in the other)
• Under this new anti-hybrid mechanism, interest paid to a related
company (established in France or not) that is not subject to
corporate income tax at a minimum rate of 8.33% will not be
deductible by the borrowing entity. This being said, there is no
need for the interest income to be effectively taxed, but only to be
taken into account for CIT computation purposes
BEPS–inspired measures implemented in France

30. Action 13: Reporting obligation : New transfer pricing
documentation filing requirement (Bill on tax evasion 2013)
• Scope: Companies with total assets or turnover exceeding EUR
400 million or part of a group reaching that threshold
• TP filing requirement: annual filing of a simplified version of
the transfer pricing documentation
• Penalties in case of non-filing: 0.5% of the turnover for the
year
BEPS–inspired measures implemented in France

31. Action 13: Foreign tax ruling disclosure (Finance Bill 2014)
• Companies subject to TP formalities now have to include in
their TP documentation all foreign tax rulings obtained within
the Group
BEPS–inspired measures implemented in France

32. Action 13: Country by country reporting (Finance Bill 2016)
• French companies with a consolidated turnover exceeding EUR
750 million that have subsidiaries abroad must provide, on a
yearly basis to the FTA, a country by country report detailing the
main accounting and tax features of each subsidiary
NB: French subs of foreign companies that are subject to a
similar reporting obligation in another country are exempt from
such filing requirement
Penalty for non-filing: up to EUR 100,000
BEPS–inspired measures implemented in France

33. Action 13: Automatic exchange of information
• Country by country reporting will be subject to an automatic
information exchange by France to countries:
i. That have signed a multilateral agreement with France and;
ii. Where a subsidiary/permanent establishment of the declaring
French company is resident
iii. Provided that these countries are also effectively participating
in this automatic exchange of information system
• Entry into force: 2018
Expected measures in the French tax system

34. Action 6: Anti treaty shopping provisions
• When negotiating/renegotiating DTTs, France is now willing to
add a general provision denying the benefits of the treaty when
the main objective (or one of the main objectives) sought by the
taxpayer by forming an entity in a given country is to benefit
from the treaty provisions
Expected measures in the French tax system

35. Action 7: New definition of permanent establishment in
tax treaties
• In the latest DTTs signed by France, the definition of PE has
been slightly amended in order to avoid some abusive schemes,
especially regarding the definition of a construction site. The
latter is usually treated as a PE when its duration exceeds 183
days a year. As from now on, when two (or more) companies
forming part of the same group are working on the same
construction site, there will be a PE if the overall project lasts for
more than 183 days (e.g., France – Colombia DTT dated June
2015)
Expected measures in the French tax system

36. Simone Hennessy, HSOC

37. Ireland’s International Tax Strategy in Relation to
BEPS
• Ireland’s Corporate Tax System is transparent – it is
open, transparent, and all the rules are clearly set down in
our national law
• Ireland’s 12.5% tax rate is not up for negotiation –
our low rate is one of the cornerstones of our strategy for
attracting foreign direct investment
• Ireland is countering aggressive tax planning……..
ü Through domestic legislation –constantly changing to
OECD and EU work, requirements and Directives
ü Through engaging with Developing Countries- our policy
in relation to tax treaties is aimed at meeting the interest
of both sides to these agreements
ü Supporting Country by Country Reporting

38. Ireland’s Tax Strategy - The 3 R’s
1. Rate 100% commitment to
retain 12.5%
2. Reputation legislative changes to
protect it
3. Regime legislative changes to
retain its attractiveness
for Foreign Direct
Investment “playing fair
but playing to win”

39. BEPS Measure – What has Changed?
Elimination of Double Irish
What was the Double Irish?
• Based on exploiting different definitions of corporate
residency in Ireland and the US
• Irish taxed if managed & controlled in Ireland
• US tax charged based on country of incorporation
• IP into an Irish registered company controlled in a tax haven,
say Bermuda.
• Ireland regarded company as resident in Bermuda, US
considers it Irish resident.
Google Example
• Irish subsidiary collects Revenue from ads sold in UK,
France etc.
• Irish Company in turn pays royalties to another Irish
subsidiary, resident in Bermuda

40. Change in Residency Rules – Double
Irish
• Changes from 1 January 2015
• Move from central management & control rules
• Company incorporated in Ireland = resident, unless
treated as resident in treaty partner country under
DTA
• Still provides that a foreign incorporated company =
resident, if centrally managed & controlled in
Ireland
• Transition period for companies incorporated pre 1
January 2015, new residency rules will take effect
from 31 December 2020

41. Corporate Inversions in an Irish
Context – Impact of BEPS
• Inversion – Form of Tax Avoidance
• Acquiring smaller business in Ireland and moving their tax
domicile
• Deals historically did not bring any benefits to Ireland –
increased economic or job creation
• Often inversion means establishing a head office- little more
than a brass plate.
• Recent US Treasury changes saw collapse of Allergan / Pfizer
deal on 6th April 2016
• Reportedly would have cut Pfizer’s tax bill by an estimated $1
billion annually
• Reputational damage to Ireland – inaccurately seen as benefiting
from such deals at the expense of the taxpayers in the US and
elsewhere
• Going forward some potential benefits for Ireland from
such deals down the line as companies facing with
country by country reporting pressure look to add
function to Irish headquarters operations to prove that
they are businesses of substance.

42. Country by Country Reporting
• Applies to fiscal years beginning on or after 1 January
2016
• Irish Parented Multinational Enterprises (MNE’s)
• With consolidated annualised group revenue of €750m
or more
• Data to be provided includes income, taxes by territory
• Failure to report or provide incorrect/incomplete report
will trigger €19,046 penalty. In sum instances a further
€2,535 may be charged for each date failure continues.

43. Other Measures implemented to date
• Focus of BEPS is the alignment of taxing rights with
substance
• To establish substance require decision makers,
strategic leaders to be based in Ireland.
• Require a tax regime that is attractive to talent.
• Introduced Special Assignee Relief
Programme (SARP)
• Employees employed by company incorporated &
tax resident in a DTA territory
• Assigned to Ireland for minimum period of 6
months
• 30% of their income over €75,000 disregarded for
income tax purposes

44. Attracting R&D - Effective 6.25% Corporation Tax
FIRST OECD Compliant Box in the WORLD
The Knowledge
Development Box
(KBD) is effective for
accounting periods
beginning on or after
1 January 2016
Offers companies an effective corporation tax
rate of 6.25% on profits arising from
qualifying assets, where some or all of related
R&D is undertaken by an Irish Company
The KDB follows the OECD’s nexus approach
thereby closely linking the benefits of the
regime to the proportion of R&D carried on
by the Irish Company

45. Fuad Saba, FGMK

46. Select US tax Issues with BEPS
• IP ownership and development – “DEMPE”
• Pricing of intangibles – BEPS vs. Arm’s Length
• Hybrids under BEPS vs. the US view
• Permanent establishment standards under BEPS

47. IP ownership and development
• Traditional US offshore principal structures with high-
value IP will not work under BEPS
o No more “double Irish” or CV-BV structures?
o Now require a “real base” in the offshore location with
“real people” to oversee foreign operations
• DEMPE functions: Develop, Enhance, Maintain,
Protect, Exploit
o Returns to IP in line with value creation, not funding
risk

48. IP ownership and development
Continued
• Significant costs in re-gearing e.g. commission agent
structures into buy-sell structures
o IT, financial controls, tax and financial reporting
o Uncertainty remains as to the best time to convert, and
the degree of conversion, from traditional US tax
planning
• Take the Money and Run: move IP development and
management talent offshore?

49. Pricing of intangibles – BEPS vs. ALP
• US Law and TP Regulations don’t reference the OECD TP Guidelines
o IRS position is that new OECD Guidelines are “consistent with the Arm’s
Length Principle (ALP) in the Regulations”
o Taxpayer concerns regarding Profit Split method in the Guidelines
• Ad hoc theoretical approach vs. marketplace 3rd party data
o Potential impact on tax audits, MAP cases, court cases
• Courts already differ from IRS, e.g. on economic theories vs. empirical
evidence and actual facts., respect for contracts
o DEMPE and “management & control” vs. financial risk, legal ownership
– the investor model
• OECD report is at odds with current US regulations and court
decisions on the ALP
o Will the IRS “flex” and allow foreign tax credits on reallocations of
income from the application of the new Guidelines?

50. Substance: Intangibles – key messages
IP ownership and funding by itself not sufficient to earn IP return
“Dumb Cash” Risk-Free Return or Less
“Smart Cash” Risk-Adjusted Return
DEMPE Developer Return

51. BEPS vs. hybrids
• 450 pages, 80 examples of hybrids and their treatment, 12 areas of
recommendation
• Expectation of consistent legislative action in enacting countries (!?)
• Significant impact on hybrid financial instruments, “disregarded
payments,” “reverse hybrids,” dual resident / double tax deduction
situations, “imported mismatches” and other hybrid situations

52. BEPS action 2
Neutralizing the effects of hybrid mismatch arrangements
Summary of Arrangements Targeted and Scope of Recommendations

53. • Recommendation 4 of the Action 2 Report applies
because CV is a reverse hybrid that has received a
payment that would not have resulted in a mismatch
(deductible in the Netherlands and not includable in
the US) if BV had made the payment directly to USP
o The Netherlands should deny BV’s interest
deduction
• Recommendation 5 could also apply and would
require either USP to tax the payment under Subpart
F or the Netherlands to treat CV as a resident (which
would subject the interest income to Dutch tax)
• Recommendation 8 could apply if the Netherlands
does not deny BV’s deduction or tax CV as a resident,
in which case the UK would deny UKCo’s royalty
deduction with respect to the license
Loan Interest
USP
US
CV
NL
BV
NL
UK Co
GB
License Royalty
BEPS action 2
Neutralizing the effects of hybrid mismatch arrangements

54. US LLC
USP
US
• USP makes loan to CanCo
• US LLC is obligated to purchase additional Can
Co shares on each interest payment date and on
maturity equal to payments USP receives from
CanCo
• Recommendation 1 (hybrid financial
instrument) applies because CanCo makes a
payment that results in deductible interest
expense in Canada, but no income inclusion in
the US
o Primary rule: Canada should deny CanCo’s
interest deduction
o Secondary rule: if Canada does not deny
CanCo’s interest deduction, then the US
should require USP to include the interest
payment in ordinary income
Interest
Can Co
CAN
Forward
Subscription
Agreement
Loan
BEPS action 2
Neutralizing the effects of hybrid mismatch arrangements
US

55. • Recommendation 3 (disregarded hybrid financing) applies
because UK HoldCo is a hybrid payer that has made a
disregarded payment that results in a hybrid mismatch
(deductible in the UK and not includable in US Sub’s
ordinary income)
o Primary rule: the UK should deny UK HoldCo’s interest
deduction
o Secondary rule: if the UK does not deny UK HoldCo’s
interest deduction, then the US should require US Sub to
include the interest payment in ordinary income
• The UK would not be required to deny a deduction and the
US would not be required to force an inclusion to the extent
that the deduction offsets income that is included in
ordinary income in both the UK and the US (i.e., dual
inclusion income)
• Deductions that exceed dual inclusion income may be used
in a later period to offset dual inclusion income
Loan Interest
USP
US
US Sub
US
UK Holdco
GB
UK Target
GB
BEPS action 2
Neutralizing the effects of hybrid mismatch arrangements

56. BEPS action 2
Neutralizing the effects of hybrid mismatch arrangements
• Recommendation 1 likely would apply because
PECs are a hybrid instrument and create a
mismatch if the timing between the deduction
and ultimate inclusion is “unreasonable” or USP
benefits from an indirect foreign tax credit
o Primary rule: Luxembourg should deny
LuxCo’s interest deduction
o Secondary rule: if Luxembourg does not deny
LuxCo’s interest deduction, then the US
should require USP to include the interest in
ordinary income
• Recommendation 8 could apply if Luxembourg
does not deny LuxCo’s deduction and the US does
not require USP to include the interest in
ordinary income. In such case, the UK would
deny the interest deduction on the interest
bearing loan
US
Luxembourg
LUXP
ECs
(-)
Deduction
No
Inclusion
Interest
Bearing
Loans
(+)
Inclusion
(-)
Deduction
U.K.
USP
US
LuxCo
LU
UK
OpCo GB
UK

57. Agents
• “Marketing agents” and “sales representatives” whose activities in a country result,
without material modification, in the regular conclusion of contracts to be performed
by a foreign enterprise likely will create a PE even though they do not formally
conclude the contracts
o “Rubber stamp” will not prevent a PE
o Exception for independent agents
Preparatory and Auxiliary Functions
• General Approach: Each of the exceptions to PEs found at Article 5(4) of the OECD
Model Convention must otherwise be of a “preparatory or auxiliary” nature: i.e., they
cannot be core business activities
• Anti-fragmentation rule
• Countries may reject the general approach (i.e., preserve current exceptions), as long
as they adopt the anti-fragmentation rule
Commissionaires
• Contracts for sales, rentals, or services need not be “in the name of” the principal
Permanent Establishments (PEs)

58. BEPS and PE’s
• Action 7 changes to PE definition for dependent agents
o New language includes as a dependent agent a person acting on behalf of a MNC
who “habitually plays the principal role leading to the conclusion of contracts that
are routinely concluded without material modification by the enterprise.”
• Potential actions:
o Register a PE in each country for marketing and service employees?
o Form a new legal entity in each country?
o Move people to a Hubco, or to another country with a legal entity?
o Transfer employees to an unrelated distributor?
o Comply with BEPS?
• Uncertainty likely to prevail for some time to come
• Treasury has suggested that the US may “opt out” of the new BEPS PE terms
o Traditional transfer pricing results should still be the “right answer.”

59. Chapter I: Guidance for applying the arm’s length principle (e.g., risk and
recharacterisation)
Chapter II: Guidance on commodity transactions
Chapter VI: Guidance on intangibles including hard to value intangibles
Chapter VII: Guidance on services including low value-adding services
Chapter VIII: Guidance on cost contribution arrangements
The final report on Actions 8-10, Aligning Transfer Pricing Outcomes with Value
Creation, contains the following:
Aligning transfer pricing outcome
With value creation

60. Identify economically significant risks with specificity
Identify contractual assumption of the specific risk
Functional analysis: Establish which enterprises actually control risks
through their people and the financial capacity to assume the risk
Confirm that actual conduct is consistent with contractual risk
allocation
In case of insufficient control, re-allocate risk to the entities with
actual control
Price transaction based on established risk allocation
Substance: Risk analysis
6-steps process

61. • Proposed Regulation Section 1.6038-4 would require the parent entity of a US
multinational enterprise (MNE) group with $850M or more of consolidated group
revenue for the preceding annual accounting period to file an annual report
o The annual report form would follow the template developed by the OECD in BEPS
Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting)
o The annual report would be filed with the MNE parent entity’s income tax return
for the tax year
o The requirement would apply to the MNE’s tax year beginning on or after the date
of publication of the Final Regulations
• Financial and employee information would be reported for each tax jurisdiction and
presented on an aggregate basis for all the entities in the respective tax jurisdiction
CbC reporting
Required reporting overview

62. Transfer pricing reporting
Action 13: C-by-C Reporting
• Periods beginning on or after January 1, 2016
• Filing of report will be within 12 months of the year-end
• Six months for Competent Authority review before exchange
• Groups with revenue of less than €750 million will be exempt
• Mechanism:
o Primary Mechanism: Filing for group with parent country tax authority
o Secondary Mechanism: Local filing
• Development of XML and user guide for electronic filing
• Multilateral competent authority agreement

63. • CbC reporting will provide greater transparency regarding operations and tax
positions taken by US MNEs
• The US may exchange CbC reports with other jurisdictions in which US MNEs operate
• The preamble to the Proposed Regulations states the CbC reports will aid the IRS in
performing “high-level transfer pricing risk identification and assessment”
o A CbC report will not itself constitute conclusive evidence that transfer pricing
practices are not consistent with arm’s-length standard, qualify as a substitute for
a full transfer pricing analysis, or form the sole basis for adjustments
o However, a CbC report may serve as the basis for further inquiry into transfer
pricing practices
CbC reporting - USA
Objectives and confidentiality

64. • The preamble also provides that CbC reports will be treated as confidential and used
for no other purpose than the administration of taxes
• The IRS and Treasury are to ensure the safeguard of confidentiality
o They must ensure foreign jurisdictions maintain compliance with confidentiality
requirements
o Automatic exchange of CbC reports will “pause” if a tax jurisdiction is non-
compliant
CbC reporting
Objectives and confidentiality