OECD/UNDP – Tax Inspectors Without Borders. Annual Report 2017/18. This Annual Report from Tax Inspectors Without Borders (TIWB) covers the period May 2017 to April 2018. TIWB’s practical and results-oriented approach to supporting domestic resource mobilisation is proving increasingly relevant in a fast moving international environment. TIWB is contributing to the United Nations’ Financing for Development agenda, and supporting progress towards attaining the Sustainable Development Goals (SDGs). It is also underpinning the Base Erosion and Profit Shifting (BEPS) actions, strengthening developing countries ability to effectively tax multinational enterprises (MNEs), while offering increased certainty and predictability to taxpayers. TIWB increasingly operates in close partnership with a diverse range of stakeholders and partners. Demand for TIWB is growing. There are 29 programmes currently operational and 7 have been completed, together exceeding the target of 35 programmes by April 2018 set by the TIWB Governing Board. Over 20 programmes are in the pipeline. New South-South opportunities are being identified, with India, Nigeria, and South Africa now offering expertise. These developments are, in part, due to increased active participation from Partner Administrations (those providing experts), with 11 countries deploying their serving tax officials and a United Nations Development Programme (UNDP) managed roster of 40 tax audit experts up and running. To date, USD 414 million in increased tax revenues is attributable to TIWB and TIWB-style support offered in partnership with the African Tax Administration Forum (ATAF) and the World Bank Group (WBG). TIWB represents excellent value for money with over USD 100 in additional tax revenues recovered for every USD 1 spent on operating costs. Whilst revenue impact is important, in the last year TIWB has gathered evidence of other long-term outcomes, including on skills transfer, organisational change and taxpayer compliance. The TIWB Secretariat has developed new tools to help with the measurement challenge. In 2017, an Experts’ Roundtable and a Stakeholders’ Workshop, involving stakeholders from 28 countries and 6 international and regional organisations, gathered lessons on how TIWB’s unique role could be strengthened and how the target of 100 tax expert deployments by 2020 should best be achieved. A mentorship programme was proposed. Other lessons include the finding that TIWB programmes with full access to taxpayer information have advantages over anonymised case reviews and can help with tax reforms by illuminating possible legislative shortcomings in international taxation. The importance of a whole-of-government approach by Partner Administrations, which could improve the efficiency of expert deployment processes with institutionalised funding arrangements, was also highlighted. The partnership between the Organisation for Economic Co-operation and Development (OECD) and UNDP, which delivers TIWB, is becoming stronger with an agreed division of labour. UNDP country offices are able to facilitate national-level discussions on domestic resource mobilisation (DRM), raise awareness and build national support for TIWB programmes. The TIWB Secretariat has launched its first e-newsletter and community of practice for its Experts. TIWB has also updated its multilingual website. The year ahead will see the TIWB Secretariat pursue the implementation of the 2016- 2019 Objectives (Annex A). Priorities will include cementing partnerships with regional tax organisations, expanding the scope of TIWB to new areas such as tax and crime, continuing to build South-South programmes and building a pool of industry expertise to assist developing countries address audit challenges in key business sectors. A major international conference on TIWB and possible future directions is being considered for 2019.
United Nations Practical Manual on Transfer Pricing for Developing Countries (2017). This second edition of the United Nations Practical Manual on Transfer Pricing for Developing Countries (the Manual) is intended to draw upon the experience of the first edition (2013) including feedback on that version, but it is also intended to reflect developments in the area of transfer pricing analysis and administration since that time. At the Ninth Session of the United Nations Committee of Experts on International Cooperation in Tax Matters in October 2013, a Subcommittee was formed with the task, among others, of updating this Manual. The mandate of the reconstituted Subcommittee on Article 9 (Associated Enterprises): Transfer Pricing in relation to this Manual was as follows: Update and enhancement of the United Nations Practical Manual on Transfer Pricing for Developing Countries, The Subcommittee as a Whole is mandated to update the United Nations Practical Manual on Transfer Pricing for Developing Countries, based on the following principles: ¾ That it reflects the operation of Article 9 of the United Nations Model Convention, and the Arm’s Length Principle embodied in it, and is consistent with relevant Commentaries of the U.N. Model; ¾ That it reflects the realities for developing countries, at their relevant stages of capacity development; ¾ That special attention should be paid to the experience of developing countries; and ¾ That it draws upon the work being done in other fora. In carrying out its mandate, the Subcommittee shall in particular consider comments and proposals for amendments to the Manual and provide draft additional chapters on intra-group services and management fees and intangibles, as well as a draft annex on available technical assistance and capacity building resources such as may assist developing countries. The Subcommittee shall give due consideration to the outcome of the OECD/Group of Twenty (G20) Action Plan on Base Erosion and Profit Shifting as concerns transfer pricing and the Manual shall reflect the special situation of less developed economies. The Subcommittee shall report on its progress at the annual sessions of the Committee and provide its final updated draft Manual for discussion and adoption at the twelfth annual session of the Committee in 2016. The Committee at its twelfth session recognized that the Subcommittee’s mandate had been met and approved the proposed update to the Manual. The Manual is improved, and made more responsive to issues of current country concern and also more in tune with rapid developments in this area, including those relating to the OECD/ G20 Action Plan on Base Erosion and Profit Shifting mentioned in the Subcommittee mandate. It was decided by the Subcommittee, and agreed by the Committee, that the Manual was not the best place for a draft annex on available technical assistance and capacity building resources such as may assist developing countries, as mentioned in the mandate. This was considered better addressed by a webpage updated and managed by the UN Secretariat. The changes in this edition of the Manual include: ¾ A revised format and a rearrangement of some parts of the Manual for clarity and ease of understanding, including a reorganization into four parts as follows: h Part A relates to transfer pricing in a global environment; h Part B contains guidance on design principles and policy considerations; this Part covers the substantive guidance on the arm’s length principle, with Chapter B.1. providing an overview, while Chapters B.2. to B.7. provide detailed discussion on the key topics. Chapter B.8. then demonstrates how some countries have established a legal framework to apply these principles; h Part C addresses practical implementation of a transfer pricing regime in developing countries; and h Part D contains country practices, similarly to Chapter 10 of the previous edition of the Manual. A new statement of Mexican country practices is included and other statements are updated; ¾ A new chapter on intra-group services; ¾ A new chapter on cost contribution arrangements; ¾ A new chapter on the treatment of intangibles; ¾ Significant updating of other chapters; and ¾ An index to make the contents more easily accessible The Foreword to the First Edition of this Manual, which is included below, remains relevant as to its substance. In particular, its recognition that: “While consensus has been sought as far as possible, it was considered most in accord with a practical manual to include some elements where consensus could not be reached, and it follows that specific views expressed in this Manual should not be ascribed to any particular persons involved in its drafting. [Part D]1 is different from other chapters in its conception, however. It represents an outline of particular country administrative practices as described in some detail by representatives from those countries, and it was not considered feasible or appropriate to seek a consensus on how such country practices were described.
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.