Joint Action On Offshore Indirect Assets Tax

The IMF, OECD, UN and World Bank Group released a draft toolkit designed to help developing countries tackle the complexities of taxing offshore indirect transfers of assets. Public feedback on practice of multinational corporations to minimize their tax liability is sought by the Platform for Collaboration on Tax.

Background

Offshore indirect transfers (OITs) refer to the sale of an entity located in one country, and this entity owns an "immovable" asset located in another country, in which case the seller is a non-resident of the country where the asset is located. Tax treatment of transactions as such has raised significant concern in many developing countries. However, this is not dealt in the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. The toolkit is a response to the Development Working Group of the G20, and the intension of the Platform is to help developing countries design their tax policies in case these countries are less capable to administer their tax systems.

Draft Toolkit

This draft toolkit discussed the current standards in the OECD and the U.N. Model Tax Convention, and the new Multilateral Convention. The connotation of revenue of immovable assets are suggested to be extended, in particular regarding extractive industries in developing countries. The definition of immovable property is also redefined broadly. Two optional models on offshore indirect transfers taxation are provided by the draft: to tax the local resident asset-owning entity under a deemed disposal model, where the tax duty occurs if there is a sufficient change in the ownership of the entity; or to tax the non-resident seller alternatively, which may be supplemented with taxable asset rules. All interested stakeholders on this draft are inquired for comments by September 25, 2017 from questions provided by the OECD including, but not limiting to:

  1. Does this draft toolkit effectively address the rationale(s) for taxing offshore indirect transfers of assets?
  2. Does it lay out a clear principle for taxing offshore indirect transfers of assets?
  3. Is the definition of an offshore indirect transfer of assets satisfactory?
  4. Is the discussion regarding source and residence taxation in this context balanced and robustly argued?
  5. Is the suggested possible expansion of the definition of immovable property for the purposes of the taxation of offshore indirect transfers reasonable?
  6. Is the concept of location-specific rents helpful in addressing these issues? If so, how is it best formulated in practical terms?
  7. Are there other implementation approaches that should be considered?
  8. Is the draft toolkit's preference for the 'deemed disposal' method appropriate?
  9. Are the complexities in the taxation of these international transactions adequately represented? 

Sources:  OECD, The Taxation of Offshore Indirect Transfers – A Toolkit

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