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BEPS (Base Erosion and Profit Shifting): An Assessment of the Priority Actions’ Impact on Latin American Taxation

Guillermo O. Teijeiro

Curacao Step Conference

March 12-13, 2015

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Roadmap to this presentation

•Some background 2012 and beyond, lessons and BEPS startup

•BEPS path and Plan’s content in a nutshell

•BEPS Plan’s well-being: internal and external challenges ahead

•Interactions between BEPS Plan and LATAM recent tax developments

•Comments on selected BEPS Actions from a LATAM perspective

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2012 and beyond

•Looking back to hectic 2012, one might found a highly complex scenario concerning public accounts and the financing of public expenditures in the industrialized world (EU/US) to which politician needed to react promptly without cutting social expenditures and/or losing votes

•Over a decade or so there had been an increasing public discontent with the level of taxes paid by multinational enterprises (MNEs); it has been suggested that some pay little or no tax everywhere in the world

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•So, MNEs appeared to be the perfect scapegoat

•MNEs were then presented as the personification of the corporate tax malice, tax demons that sucks their profit using available resources within a State (assets, labor force and access to the market), without paying their fair share of taxes

•Traditional (technical) dividing lines among tax evasion, avoidance and legitimate tax planning disappeared in the political language and all of them were deemed equally immoral and reproachable

• A new sort of tax fundamentalism spread at both shores of the Atlantic and MNEs’ conduct was labeled “immoral” or “unpatriotic” (remember Margaret Hodge in U.K. Parliament's investigations, and more recently, President Obama on inversions by U.S. MNEs)

• Confronted with those statements, the Magna Carta (1214) and modern western constitutions receipting the reserve or legality principle deeply trembled

• Something had to be done, but not certainly denying the legal origin and nature of the tax obligation

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Lessons from 2012

•Countries were not satisfied with tax collection levels from MNEs and were committed to change the situation

•Countries realized that the issues rested with the tax rules themselves, and went far beyond companies taking advantages of opportunities to reduce their tax liabilities

•The problem was in the loopholes of the international system (by then a sort of gruyere cheese) and a systematic and consistent combined effort should be made to fix it. Of course a goal beyond the reach of individual nations’ efforts or inorganic groups’ attempts

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BEPS start-up

•Then, OECD was given the lead with strong support from OECD member States and other countries

•The diagnostic was in the OECD BEPS (Base Erosion and Profit Shifting) Report, dated October 2012

•The message from OECD was clear: Let’s make the necessary changes to close existing loopholes through the amendment of domestic tax rules and DTTs, as well as multilateral instruments, but without departing from elemental traditional paradigms ruling contemporaneous international taxation

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BEPS project path

• In June 2013 OECD released its first document aimed at implementing a program to neutralize BEPS: “A step change in Tax Transparency” prepared for the G8 Meeting held in Lough Erne, in June 2013

• Next step was the release of OECD-BEPS Action Plan, a report for the G20 Meeting held in St. Petersburg in September 2013, which was approved by the Leaders’ Declaration at that Meeting

• The OECD/G20 BEPS Project was thus launched, endorsed by original G8, BRICS and a group of emerging economies, all of which, in the aggregate, account for 80% of global GNP

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• Low income countries were then invited to join on an equal footing and two reports addressed to low income economies were issued in July/August 2014.

• More than a year later G20 endorsement to the BEPS project looked intact as resulting from the Declaration of the Meeting of Finance and Central Bank deputies held in Istanbul, last December

OECD / G20 Action Plan – What does it consist of?

•15 specific actions aimed at correcting BEPS issues, to be developed and completed in a 2-year period (2014-2015). Each action described the issue or issues to be addressed, the expected outcome and the deadline

•A cutting edge document which, as I once wrote back in 2013 “…will occupy a corner of tax policymakers' and tax experts' desks for years to come”

•After some comments on the challenges faced by BEPS, I will address recent LATAM tax development as well as interrelations of BEPS selected outcomes and those developments

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Might the BEPS Plan be still in jeopardy?

•At half way the process (one year to go) there are still internal and well as external challenges to be aware of

•The OECD-G20 BEPS Project’s goal is ciclopeous: • Making the global tax environment fairer than ever by closing loopholes and adopting

rules of international law which would be domesticated simultaneously and uniformly by all relevant Nations

• All of that with the aim of making the global enterprise accountable for taxes at source (markets) and home, and without altering existent inter-nation equity, and within a very short time fuse (2 years)

•Nothing easy: beginning from listening to so many diverging voices on the same table, overcoming different viewpoints, and reaching workable and effective outcomes

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• The BEPS Project is subject to internal (inherent) risks (tight schedules, quality of outcomes, jurisdictional overlapping), and well as

• External risks (potential breach of the Nations’ compact behind a common goal due to competing interests, and misaligned, premature and unilateral actions by States) which might conspire against the coherence and effectiveness of the final outcomes

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• Among the first (internal risks) is notably the friction between an overambitious schedule, in one hand, and the quality of the outcomes, on the other. At instances, after one year of heavy work, this friction originates outcomes which are either deceptive or below expectancy [e.g., Action 1 and 7 on digital economy (DE) and PEs]

• And also the conceptual and procedural question marks surrounding the catch-all multilateral agreement that, at the very end, will be aimed at embracing all proposals affecting the current DTT network. This is still an untested instrument in the tax field which would be conditioned upon the Nations’ willingness to execute it, a uniform consent on its content, and, above all, the domestic political vicissitudes inherent to the internal approval of international treaties

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• Even if the BEPS Project is kept well afloat and in the right path under the OECD-G20 leadership (something that we all expect to happen), unintended distortions on trade and investment might arise

• Leading heads of the OECD/G20 project have for the first time publicly recognized, on occasion of the Brisbane Meeting in November 2014, that the end result may not be so neutral, and that jurisdictional tax overlapping (double or multiple taxation) might occur for years to come, until countries harmoniously consent to the allocation of the potentially greater global tax basis arising from BEPS adjustments

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Let’s now turn to some externalities

•Under heavy domestic pressure for a business-friendly tax reform that be aligned with EU corporate trends, the U.S. still looks hesitant to unconditionally embrace the BEPS Project

•If the compact of industrialized Nations breaks because of the US or other large player’s defection, there is a potential risk that the monolithic wall behind BEPS collapses, leaving room for a fierce competition on the global tax pie and the aim of self-protection of each player’s MNEs vis-à-vis foreign MNEs

•A significant defection appears unlikely now, but might become more certain as the BEPS Plan approaches the implementation stage

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• Last but not least, technically misaligned, premature and unilateral BEPS-oriented actions by the States might end up in international tax chaos, and the risk of jurisdictional overlapping would certainly maximize and become out of control

• Let’s take as an example the controversial taxation of the digital economy (DE) and a potential unilateral initiative to tax DE outputs in the market jurisdiction by a radically different taxation paradigm from that followed thus far by Actions 1 and 7 of the BEPS Plan

• It is undoubtedly true that --beyond its conceptual merits– the coexistence of any alternate paradigm aimed at taxing those outcomes in the market jurisdiction outside the PE concept (e.g., destination based corporate taxation or formulae allocation), to the extent adopted on a unilateral basis, will produce grave distortions in the international scene

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• Although it is a fact that some countries have begun to advance unilaterally, particularly beyond our region, I strongly believe it would be sound for governments to wait so that they can act on a OECD-output consensual basis, avoiding distortions in the international scene

• National time constraints and domestic political pressures do not get along well with the OECD holistic approach to BEPS, and the need to harmonize the outcomes of the different Actions, something that it still at half-way and will require further work to avoid overlaps, missed cross-references, and mismatches

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Looking at the interactions of the BEPS Plan and LATAM Tax Developments, I find three different venues

•Early adoptions of BEPS outcomes/DD proposals at the domestic legislative or tax agencies’ levels in the region

•In the apposite direction, prior legislative tax developments in LATAM taken by OECD CFA to provide widespread solutions under the BEPS Plan

•Use (or misuse) of BEPS brand at national levels

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• Against all odds, the first mentioned trend (inbound influence) has not materialized in the domestic LATAM legislations, through recent tax amendments concerning MNEs in LATAM addressed longstanding base erosion or shifting issues

• For instance, none of 2014 Chilean tax amendments traced back to BEPS proposals or suggestions, though some awaiting substance related domestic changes (GAARs, CFC rules, thin-cap rules, indirect capital gain taxation) are similarly oriented at avoiding the erosion of the national tax basis.

• The same can be said on the “substance over form” and “business purpose test” currently applied in Brazil, the Colombian SAARs (overreaching thin-cap rules) introduced in 2013, and the Peruvian 2012 reform which included inter alia, a deemed or constructive dividend distribution upon reduction of capital, new GAARs not yet fully implemented, and indirect capital gains taxation (a rule enacted in 2011)

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• The Mexican Tax Reform for 2014 also included anti-erosion rules aimed at protecting the national tax basis, including: a) a defensive rule against double deduction of outbound payments by Mexican corporations to their foreign controlling parents; b) denial of the deduction of interest, royalties and technical assistance paid to foreign beneficiaries which are non-taxable on these benefits in their home jurisdictions; and c) a subject-to-tax rule that conditions the granting of benefits to treaty-partner residents

• All in all, LATAM countries are (and have always been) capital importing countries whose economics are mostly dependable on MNEs operating in the region. It is for this very reason that tax rules have been traditionally aimed at protecting the national tax basis against base eroding and shifting schemes by the global company, and that would continue to be a core of attention of tax policy-makers even after the BEPS mood passes by in the central economies

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• LOB provisions are not usual in LATAM DTTs but application of GAARs in a treaty setting is increasingly widespread

• As an exception comprehensive LOB provisions are provided for in the Mexican DTT network, including DTTs with Barbados, Colombia, China, UAE, USA, India, Israel; Kuwait, Panama, South Africa and Ukraine. Treaty anti-abuse more limited provisions are additionally contemplated in the Mexican DTTs with Austria, Bahrein, Brazil, Canada, Hungary, Lithuania, The Netherlands, Peru, Qatar; United Kingdom, Check Republic, Slovenia, Russia and Singapore. A third group of Mexican DTTs contemplates limited provision applicable to interest and royalties

• Mexican tax treaty policy has been consistently applied even before the appearance of the BEPS Action 5, 2014 deliverable and, hence, it is not influenced by the latter

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Let’s now discuss the LATAM tax legislation’s potential or actual influence on BEPS outcomes (outbound influence)

• There are many aspects on which LATAM tax legislation may influence BEPS outcomes, particularly concerning outbound payments by MNEs. Our region has long contained a variety of defensive source rules concerning interest, IP royalties, dividends, technical assistance, and service fees in general, deduction limitations or exclusions concerning the same type of payments made intragroup, and application of GAARs and SAARs in an international context to recharacterize intercompany agreements and/or payments, or to redefine the beneficiary, including in a treaty setting

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• But there are some particular concerns where BEPS is literally copying previously developed LATAM solutions, namely

− the adoption of the so-called Sixth Method to value commodity export transactions

− the adoption of indirect capital gain taxation to cope with loss of revenue in low-income countries

− possibly, although not yet expressly suggested, Brazilian catch-all CFC system

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• LATAM use (or misuse) of the BEPS brand

• Reference is made to the increasing use of the BEPS Brand by national tax agencies in the region to articulate and justify over-aggressive press-oriented measures/auditings against MNEs which at times end up in a tax nothing with no direct revenue effect and huge reputational damage to the affected taxpayer

• In Argentina, there have been lately at least three noteworthy cases: the Despegar.com, Procter & Gamble and HSBC cases. I will limit my comments to the P&G case

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• In October 2014, P&G was accused of overpricing imports from Brazil, invoiced through a Swiss affiliated company; according to a public statement from AFIP (Argentina Tax Agency), the imports resulted in an unlawful outflow of US dollars which could qualify as aggravated contraband. AFIP suspended P&G’s tax registration number and its registration in the importers and exporters registry. While these measures were in place, P&G was unable to operate

• AFIP Chief said that multinationals could no longer expect to use “harmful tax planning in foreign trade” and referred to P&G’s behavior as a harmful triangulation of imports

• It was apparent that the goods were sold in Brazil (port of origin) at a price which was lower than that charged by the Swiss company to the Argentine subsidiary. But the issue of whether the difference in price was justified by risks and functions undertaken by the Swiss company, or whether the triangulation and the higher price lack substance, was not publicly discussed at the time

• So we might be facing the largest tax scandal ever affecting MNEs in Argentina or simply a tax nothing. AFIP announced then that would be holding daily meetings with high level P&G officials to come to an agreement. P&G was keen to solve the issue as soon as possible in order to avoid negative repercussions for the pricing of its shares in NYSE

• A couple of weeks later, AFIP decided to withdraw P&G suspensions and the scandal shortly diluted in technical discussions. AFIP justified its decision to lift the suspensions on P&G’s commitment to apply GATT rules to value its import transaction (sic)

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Comments on selected BEPS Actions from a LATAM perspective

A. The shortcomings of Actions 1&7

Action 1 Address the tax challenges of the digital economy

The September 2014 deliverable contains some interesting definitions, but process deemed recognized to be on-going

•Because digital economy is increasingly becoming the economy itself, it would be difficult to ring-fence it from the rest of the economy for tax purposes

•But recognized that DE business models present key features which might exacerbate BEPS

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• As regards solutions, the DE report is a fantastic “Veronica pass,” as in bullfighting language, since it said that: it delegates addressing the tax issues posed by the digital economy to other working groups

• According to the Report:

– Taxation in the market jurisdiction should be restored by preventing treaty abuse and artificial avoidance of PE status

– Taxation in the ultimate residence jurisdiction should be restored by strengthening CFC rules

– And both market and residence taxation should be further restore by neutralizing the effect of hybrid mismatch arrangements, limiting base erosion through interest and other financial payment, and assuring that TP outcomes are in line with value creation

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• The Report recognizes that options were discussed concerning nexus and PE definition, particularly a new nexus based on a “significant presence” in a market, as well as a WHT on sales of digital goods and services, but none of these initiatives was adopted

• It is a 198-page long report that falls short in solutions to BEPS and other challenges posed by DE

• It prevents itself, by one of its initial definitions (taking DE as the economy in general), from coming out with tailored-made and effective outcomes

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LATAM concerns

•The tax treatment of income as well as VAT/GST impact on DE proceeds is becoming increasingly significant for LATAM countries concerning B2B services and B2C sales of goods and services

•A market-oriented newly designed nexus, a formulary apportionment scheme of taxation, or any other scheme that better attends inter-nation equity from the perspective of market countries, would have then been more welcome in the region than current --not yet fully developed-- approaches

•In some LATAM countries unilateral responses have already started, e.g., the Netflix (GST) tax in the city of Buenos Aires, a 3% tax withheld on foreign providers of digital media. More legislative activity could certainly be expected in the region unless the BEPS Project comes to a more satisfactory outcome for source (market) countries

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Action 7 Prevent the artificial avoidance of PE Status

•The DD released in October 2014 includes

• A proposal that purchases of goods and maintenance of goods for delivery be excluded from the negative list

• A proposal to avoid fragmentation of activities among PEs, including PEs of related companies

• A proposal to avoid base erosion by the use of subsidiaries acting as commissioners in connection with business restructuring (it provides an option between the use of a limited force of attraction, or an exclusive independent agent clause)

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LATAM perspective

• Changes are of a very limited scope

• DE business models are not even addressed

• Changes to the negative list (in line with UN Model) are welcome in LATAM countries, which are mostly dependable on inbound business activities by MNEs

• But changes suggested to incorporate limited force of attraction and expand the notion of dependent agent to include independent exclusive agents should have been proposed even outside the limited scope of business restructurings (e.g., in line with UN Model)

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B. Implementation difficulties concerning hybrid mismatch solutions

Action 2 Neutralize the effect of hybrid mismatch arrangement

The September 2014 Instrument consists of two parts:

Part I provides recommendation for domestic rules while Part II sets out recommended changes to the OECD MC to neutralize the effect of Hybrid mismatch arrangements

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• Part I Hybrid mismatch rules, various cases

‐ Deduction / non inclusion outcomes

a. Primary response: denial of deductions in the payer's jurisdiction

b. Defensive rule: If deduction is not denied, payment to be included in income in the recipient’s jurisdiction

‐ Double deduction outcomes

a. Primary response: deny the duplicate deduction in the parent's jurisdiction

b. Defensive rule (if primary response is not adopted) deduction to be denied in the payer’s jurisdiction (Mexican domestic rule type response)

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• Part II Changes to OECD MC

‐ Dual residence entities: to be resolved on a case-by-case basis rather than on the basis of the current tie-breaker rule (place of management)

‐ Transparent entities: propose to apply the principles of the OECD Partnership Report of 1999 to all transparent entities

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Additional comments from LATAM perspective

• Part I measures

• Difficult to reach broad acceptance because it depends on domestic law implementation

• Domestic rules in LATAM countries should be adapted but administration of these rules might be troublesome

• Application of defensive rules would be difficult to be monitored in practice, even if automatic exchange of information and aggressive tax planning reporting were widely implemented

• Part II measures:

• Addressing dual residence entities under a treaty setting would require to resort to MAPs with a doubtful and lengthy outcome, unless arbitration is contemplated; arbitration is seldom included in LATAM DTTs and mass adoption of compulsory arbitration under BEPS in a short period is unlikely

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C. Where are we headed concerning CFC regimes?

Action 3 Strengthen CFC rules

• The deadline is September 2015, so that we have no even a clue yet

• Though traditional transparency regimes (for tainted income) should be maintained, low income countries might wish CFC rules to apply to all types of income, including business income obtained in non-preferential jurisdictions by foreign related or controlled entities (Brazilian Model), a trend that for a variety of reasons is not advisable. A decision by the Brazilian Superior Court of Justice issued in April 2014 deemed CFC legislation incompatible with Brazil DTTs

• Discussion draft due by early April 2015 and public consultation by May 2015

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D. Affecting the cost of Licensed IP to the region

Action 5 Counter harmful tax practices more effectively, taking into account transparency and substance

Interim Report issued September 2014 describes the progress made on the substantial activity requirement for any preferential regime, and contains the agreed framework for imposing transparency, including compulsory spontaneous exchange of rulings related to preferential regimes

• On November 11, 2014 Germany and UK agreed on a joint proposal for rules on preferential IP regimes and in accordance with OECD requirements for substance conditioned the benefits to the existence of R&D actual expenditures

• Patent box regimes in line with BEPs Project (substance) have been announced by Switzerland and Ireland; the Netherlands had already adopted substance requirements in its domestic legislation

• Substance requirements will greatly impact EU patent box regimes, thus squeezing the expected after-tax return to MNEs coming from IP licensed to LATAM

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E. Altering investment patterns through LATAM DTTs

Action 6 Prevent treaty abuse

September 2014 instrument

•Recommended that DTTs include in the title and preamble a clear statement that treaties are not aimed at creating opportunities for non-taxation or reduced taxation, including treaty shopping

•Also recommended to include a general treaty anti-abuse rule (U.K. style) aimed at arrangements one of the principal purposes (the principal purpose test) is to obtain treaty benefits, and/or specific LOB provisions patterned after the LOB provision of the US Model Convention

•Public consultation took place last January, and OECD is expected to issue a revised DD for further comments before year end

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Application of LOB clauses in LATAM DTTs might change dramatically investment patterns in the region through the use of regional holding companies in treaty partner countries. So far, except for Mexico, LATAM is an LOB-free area

Example: How does the regional holding company operate?

Relevant data

•RCo is a company resident of State R, a State that has concluded no tax treaties with LATAM countries. RCo is the top holding company of a MNE with subsidiaries in several countries

•In order to take advantage of the extensive treaty network that State I has with LATAM, RCo establishes HOLDCo, a wholly-owned subsidiary resident of State I, as its regional holding for the region

•State I grants participation exemption on dividends and capital gains received, and levies no WHT on outbound dividends

•HOLDCo acquires subsidiaries in LATAM and receives dividends, which are either reinvested in the activities of the MNE or repatriated to Rco

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RCo

HOLDCo

Sub 1 Sub 2 Sub 3

State R (no treaty withLATAM)

State IReceives dividends

Different LATAM countries

• Whether HOLDCo is the effective beneficiary of dividends and has substance under domestic GAARS in subs’ treaty countries could be not longer the decisive element. This has been the approach in a series of Argentine administrative and judicial cases, including in re Molinos Río de la Plata, decided by the Tax Court in 2013, and in the MOU annexed to the New DTT with Spain in relation to Spanish ETVEs

• Under the proposed US-style LOB provision, there would be rather an objective analysis: HOLDCo will not get treaty benefits because more than 50% of its capital belong to shareholders which are not resident in country I. Besides, HOLDCo is not listed in the stock exchange nor meets the LOB business purpose exception

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E. What Sixth Method are we talking about?

•Actions 8/10 TP outcomes

•So far OECD has released• A report with revised standards for TP of intangibles (September 2014)

• DDs on risk recharacterization, low-value adding intra-group services, cross-border commodity transaction, and use of profit-splits in the context of global value chains (November/December 2014)

•As regards commodity transactions, the so-called sixth Method is recommended

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Commodity export transactions and the Sixth Method

•The OECD TP Guidelines contains a discussion of the five transfer pricing methods which are the comparable uncontrolled price method (CUP), the resale price method, the cost plus method the transactional net margin method, and the transactional profit split method

•A Sixth (non-OECD originated) method has been gaining momentum at G20. Reference to this additional Sixth method is found in the OECD Report on the impact of BEPS on low income countries and more recently, in the DD addressing the transfer pricing aspects of cross border commodity transactions

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• The Sixth Method is clearly a LATAM creation that has significant variances among LATAM countries. It spread over LATAM as from its inclusion in the Argentine income Tax Law back in 2003. Under ITL, it applies to the export of commodities quoted in a transparent market, whenever they are exported to related final purchasers through a foreign trading entity which is not the final purchaser of the goods; in these cases, the transactions are not deemed made at arm’s length conditions and, hence, are to be adjusted by applying the quoted price of the goods in the transparent relevant market as of the date of loading, regardless of the price agreed upon at the execution date, and unless the latter is higher

• In a bull market the adjustment functions as follows: i) agreed upon price (U$S/ton) 99; ii) quoted price at loading (U$S/ton) 108; iii) difference per ton. U$S 9; iv) quantity 100, v) export price adjustment (U$S) 900

• The Argentine Sixth method consists of imputing to the exporter a notional income added on account of the market price difference occurred as from the date in which the export transaction takes place, and up to the date of loading. Therefore, the Argentine Sixth method is not a TP adjustment but a fictional SAAR which, by its very nature, should not be adopted by OECD TP Guidelines

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• The attribution of such notional income to the exporter under the Argentine Sixth Method is aimed at enlarging the domestic tax basis, ignoring the business design of the transaction as a two-segment deal and where the risk for the price differential is undertaken and hedged (the foreign trader’s level according to business practice in the sector)

• Moreover the Argentine Sixth Method applied whenever export transactions are made using a triangular structure and regardless of whether the intermediary trading is organized in a foreign preferred-tax jurisdiction. Under DTTs the adding of such notional income to the exporter contravenes article 9 (associated enterprises), creating potential double taxation which might not be remedied by otherwise available correlative adjustments provided for under that article.

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• The Uruguayan Sixth method, as well as similar legislation in the Dominican Republic, Ecuador, and Paraguay also mandates using the market price at loading, unless the foreign trader meets certain specified conditions excluding the application of the method

• The Peruvian regulations are more flexible since they allow taking the market price at loading as one among other alternatives. Moreover, the method does not apply on hedged transactions, or transactions entered into with international traders meeting certain statutorily specified conditions

• The Brazilian’s TP system of adjustments on the export of commodities appear to be the best option. It mandates to apply the quoted price in the relevant transparent market as of the date of the transaction, whenever exports are made to foreign related counterparties or purchasers subject to a preferential tax regime. This is a variation of CUP much more in line with OECD TP Guidelines

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• The recent DD under BEPS Action 10 takes the best of the LATAM statutory experiments, and comes out with a proposal which is conceptually coherent with the OECD TP guidelines principles, while avoiding instances of double taxation.

• Main proposals consist of (i) making clear that quoted or publicly available prices at the actual pricing date (e.g., upon execution of the contract) can be used as reference to determine the arm’s length price for the controlled commodity transaction, and ii) suggesting the adoption of a deemed pricing date for transactions between associated enterprises, but only in cases where the pricing date actually agreed by the associated enterprises is inconsistent with other facts of the case, or in absence of evidence of the actual pricing date agreed by the parties to the transactions

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F. Indirect transfer of Assets: straight taxing rules or GAARs?

Impact of BEPS on Low Income Countries

•G20 Development Working Group (DWG) Report

‐ Part I, July 2014

‐ Part II, August 2014

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Part I is aimed at identifying main sources of BEPS in developing countries and how they relate to OECD-G20 BEPS Action Plan

•Key BEPS issues of most relevance to developing countries include, inter alia tax losses caused by techniques used to avoid tax at source when assets in the jurisdiction are sold

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Part II Section 3 and 4 identity high priority BEPS issues and Potential Actions to assist developing countries

•Again, tax losses from indirect transfer of assets are identified. Although it is recognized that further work is needed to address this issue under domestic and international tax rules, Peruvian and Chilean systems of indirect capital gain taxation (patterned after the Vodafone taxation in India) might be used for this purpose. In fact, indirect taxation in these countries originated as a response to the loss of revenues in connection with the transfer of mineral interest held through foreign holdings, the shares of which were transferred outside the relevant country between nonresident sellers and buyers. Absent a sham, query whether this rule is an ultra vires application of the State’s tax jurisdiction

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Thank you

Guillermo O. Teijeiro

Teijeiro y Ballone Abogados

www.te-ba.com

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