COMMENTS RECEIVED ON PUBLIC DISCUSSION DRAFT BEPS ACTION 11: IMPROVING THE ANALYSIS OF BEPS 13 May 2015 TABLE OF CONTENTS BDI (Federation of German Industries) ...................................................................................... 05 BIAC ........................................................................................................................................... 07 BMG (BEPS Monitoring Group) ................................................................................................ 15 BUSINESS EUROPE ................................................................................................................. 21 CBI .............................................................................................................................................. 25 DRTP Consulting Inc. ................................................................................................................. 27 DURST Michael (PDF) .............................................................................................................. 31 ERNST & YOUNG LLP ............................................................................................................ 35 ESRI: The Economic and Social Research Institute ................................................................... 39 Institute for Austrian and International Tax Law ........................................................................ 47 IAPT: International Alliance for Principled Taxation ................................................................ 53 International Chamber of Commerce (ICC) ............................................................................... 67 Oxford University Centre for Business Taxation ....................................................................... 71 Pricewaterhouse Coopers LLP .................................................................................................... 75 RBS RoeverBroennerSusat GmbH & Co. KG ............................................................................ 81 SAF: School of Accounting and Financing ................................................................................ 85 STEWART Jim ........................................................................................................................... 91 TD Bank Group ........................................................................................................................... 97 The Consultative Committee of Accountancy Bodies-Ireland ................................................. 101 UNCTAD .................................................................................................................................. 107 3 4 Address Breite Straße 29 David Bradbury 10178 Berlin Head of Tax Policy and Statistics Division Postal Address OECD/CTPA 11053 Berlin 2, rue André Pascal Germany 75016 Paris Phone Contacts FRANCE Tel.: +49 30 2028-1507 Fax: +49 30 2028-2507 Dear Mr. Bradbury, BDI refers to the OECD Discussion Draft “Improving the Analysis of BEPS (BEPS Action 11)” issued on 16 April 2015. We would like to thank you for the possibility to provide our comments that allow us to engage with you on these important issues. We focus our feedback on the most fundamental issues raised in the draft. We appreciate the time and effort invested in improving the availability and analysis of data on Base Erosion and Profit Shifting (BEPS) to help facilitate proper monitoring of the implementation of the Action Plan. However, it would have been highly desirable if there had been an appropriate analysis of the magnitudes involved prior to the discussions and proposals being presented within this project. We conclude that the Draft provides needed clarity on the definition of BEPS and therefore gives guidance on which situations should and should not be targeted. The focus of BEPS should be on artificial arrangements to exploit the differences in countries tax rates and/or tax policy instruments. This also means that the use of such instruments in and of itself cannot and should not be classified as BEPS, nor should BEPS countermeasures be applicable to these situations. Therefore, we urge governments to reassess whether each Action Item individually and all Action Items collectively are adequately targeted and do not have unintended spill-over effects regarding genuine economic activities. We agree with the Draft that one of the key challenges with available data sources is that it is difficult to disentangle real economic effects from the effects of BEPS related behaviour. Estimating the effects of * BDI (Federation of German Industries) is the umbrella organization of German industry and industry- related service providers. It speaks on behalf of 36 sector associations and represents over 100,000 large, medium-sized and small enterprises with more than eight million employees. A third of German gross domestic product (GDP) is generated by German industry and industry-related service. 5 BEPS requires a need to establish a counterfactual; i.e. what the outcome would have been without BEPS. There is a need to exclude the effects of real economic activities across countries independent of taxes as well as the effects of real economic activity across countries by differences in non-BEPS-affected tax rates (a change in the effective tax rate in the country/countries, introduction of investment incentives etc.). This also means that there is a need to distinguish normal tax planning from aggressive tax planning and tax avoidance. As stated in the Draft, macroeconomic aggregates, such as foreign direct investment (FDI) include both real and BEPS related investment and returns, which are difficult or impossible to separate. It is also impossible to isolate BEPS related changes e.g. in the financing structure from non BEPS related changes. Changes in tax rates will inevitably affect the financing mix and leverage of a business. Businesses will use more debt financing if the corporate tax rate is higher and more equity financing if the corporate tax rate is lower. We note that this is not a BEPS issue as the financing mix is also influenced by government changes in investment incentive schemes and changes in regulations of financial markets and banks. Despite the recognition that it is impossible to separate BEPS related changes from other changes, the Draft ambitiously attempts to do precisely that. We nevertheless appreciate the OECD’s recognition of the difficulties and agree with the need to try to quantify BEPS. However, it must be ensured that the analysis of BEPS does not increase the administrative burden of businesses. It is vital that tax rules and reporting for tax purposes do not become an obstacle to trade and cross-border investment which would hamper economic growth. Besides collecting and assessing data on the impact of BEPS measures and counter-measures, the focus of the ongoing work must continue to also be put on finding effective ways of diminishing the scale of existing double taxation. We believe that the promotion of cross-border trade and investment and the mitigation of double taxation should remain central to the OECD´s work. Please do not hesitate to contact us if you have any questions. Sincerely, Berthold Welling Dr. Karoline Kampermann 6 William Morris Chair, BIAC Tax Committee 13/15, Chauseee de la Muette, 75016 Paris France David Bradbury, Head, Tax Policy and Statistics Division, CTPA. Organisation for Economic Cooperation and Development 2 rue André-Pascal 75775, Paris, Cedex 16 France Submitted by email: [email protected] May 8th, 2015 Ref: OECD DISCUSSION DRAFT: BEPS ACTION 11 (IMPROVING THE ANALYSIS OF BEPS) Dear David BIAC thanks the OECD for the opportunity to provide comments on its Discussion Draft on Action 11 (Improving the Analysis of BEPS) of the Base Erosion and Profit Shifting Action Plan issued 16 April 2015 (the “Discussion Draft”). In the attached document, you will find a number of both general and specific comments, setting out our feedback and concerns in response to the Discussion Draft. First, we acknowledge and welcome the fact that you have taken considerable care to try to distinguish the effects of real economic activity from the effects of BEPS-related activity. We welcome the balanced way in which you have interpreted the data, which gives us confidence that your subsequent analysis of the effects of implemented BEPS recommendations will be useful. Second, as you will see, we do have questions about the possible indicators listed in the Discussion Draft. In our view, some do not seem appropriate conceptually. In other cases, however, modifications might be possible, and we would be happy to discuss those latter ones further at the public consultation and beyond. We very much hope that you find our comments useful, and we look forward to working with you on these important issues over the next few months. Sincerely, Will Morris Chair, BIAC Tax Committee 7 1. BIAC welcomes the opportunity to give comments on this very important subject. Policy responses should always be proportionate to the issues at hand. It is therefore important to gather facts and to analyse the consequences. The Discussion Draft is comprehensive and well balanced. The difficulties of assessing BEPS should not be underestimated. It is truly difficult to distinguish real economic effects from tax effects and BEPS-related behaviour. 2. BIAC agrees with the Discussion Draft regarding the difficulties to assess where profits arise in the complex value chains