bEPS, bilateral tax treaties, Binding Aribtration, David Cameron, G8, HM Treasury, Internal Revenue Service, International Fiscal Association, Organisation for Economic Co-operation and Development, Tax, Tax avoidance and tax evasion, Tax treaty, tax treaty matters, TIEA
(UK PM David Cameron and US President Barrack Obama.)
It is increasingly likely that the U.K. and the U.S. governments will adopt different approaches to implementing the OECD’s final package of measures to tackle base erosion and profit shifting.
The UK Position
The U.K. government considers an inclusive, multilateral instrument to upgrade bilateral tax treatments as the “best way” for countries to adopt the BEPS measures, Fergus Harradence, deputy director of corporate tax at HM Treasury, said Oct. 8 at a branch meeting of the International Fiscal Association in London to discuss BEPS and U.K. policy.
A Multilateral Approach
Action 15 of the Organization of Economic Cooperation and Developments’ final BEPS report, released Oct. 5 , is a “mandate for the development of a multilateral instrument on tax treaty measures to tackle BEPS” (193 TMIN, 10/6/15). Moreover, the UK is chairing the group that will be responsible for drafting the instrument.
Work on developing such a multilateral agreement to expedite the lengthy process of amending bilateral tax treaties began at the end of May, but given that it will involve quite a lot of drafting, the process is likely to continue until the end of 2016.
On the Contrary.
The U.S. government has no plans to implement BEPS measures through a multilateral treaty. In the run-up to the release of the OECD’s final BEPS package, “the U.S. agreed to participate in multilateral instrument discussions in order to be part of the discussion on mandatory binding arbitration,” he said.
Mandatory Binding Arbitration Preferred
Robert Stack, the Treasury Department’s deputy assistant secretary for international tax affairs, told Bloomberg BNA Oct. 2 that the U.S. viewed mandatory binding arbitration “as the optimal method for resolving disputes and improving tax administration” (192 TMIN, 10/5/15).
Stack has been careful to point out that the decision to participate in the multilateral discussions was to advance U.S. interests over mandatory binding arbitration and “by no means foreshadows any decision about whether to eventually join in signing” a multilateral BEPS treaty.
Action 14 of the BEPS package is geared at making dispute resolution mechanisms in the context of cross-border tax treatment more effective. The U.S. is one of 20 countries that are committed to providing mandatory binding arbitration in their bilateral tax treaties under Action 14.
A Multi-Track Approach?
“The U.S. is very interested in the efforts to monitor harmful tax practices and practices related to dispute resolution,” Oosterhuis said.
Regarding Action 14, Harradence said that “we have found that not all countries are as willing to make use of” mandatory binding arbitration, but added there is potential to build on that, most likely using a “multi-track approach.”