On October 5th, the Organization for Economic Cooperation and Development (OECD) presented its final reports for the 15 actions that look into preventing Base Erosion and Profit Shifting (BEPS), these actions were determined by the countries members of the organization also including 64 non member countries.
The actions are summarized in 3 main pillars, Coherence, Substance and Transparence as well as two bases cemented on the digital economy and a multilateral instrument for disputes.
In relation to hybrid agreements the rules given intend to be in first instance inclusive, in that they should apply to any kind of agreement, also to stop hybrid agreements without affecting other fiscal and regulatory instruments that look in to avoid double taxation and that these rules should be applied to specific objectives.
For Controlled Foreign Companies (CFC) rulings important blocks are included, such as a broad definition of CFC, the definition of CFC income, the elimination of double taxation and the threshold for exemptions.
Regarding the deductibility of interest, BEPS rulings argue some components needed for the deductibility, which include among others a fixed interest rate, were the deduction is allowed from a determined rate between the net interest and the operating profit before taxes, rules regarding the financial sector are still under discussion.
For harmful tax practices, the rulings presented by the OECD are in accordance to shift in fiscal policies in a way that the tax is in accordance to the place were value is created, which will allow companies to produce research and development without the creation of harmful effects.
Actions for prevention of international treaty abuse, that seek that countries add stipulations to their double taxation avoidance agreements that reiterate that there is no intention of promoting the abuse of the treaty arrangements.
Rulings against the artificial avoidance of permanent establishment status (PE), with a more broad definition of PE it is intended to create the needed measures regarding actions used by Multinational Enterprises to avoid being listed with a PE status, mostly regarding commissionaire agreements o similar strategies.
· The use of the Arm’s length standard
· Commodities transactions treatment
· Revision of the profit Split methodology
· Guides regarding the treatment of intangibles
· Guides regarding the treatment of low value added services
· Treatment of cost contribution agreements
· Reconsiderations for the transfer pricing documentation
With this is intended to clarify focal points regarding transfer pricing, which include the review of the company real conduct in contrast with the contractual conduct with related parties or that legal property does not necessarily create rights over earnings, among others.
Some of the BEPS actions are creating an effect in the local scope, begins the ones regarding transparency. The OECD is proposing mandatory disclosure rulings which are intended for fiscal regimes to obtain information regarding aggressive fiscal planning, said disclosure rulings are proposed to be presented before the annual tax return by the taxpayer. Under this concept 3 components are proposed for the countries that agree to these rulings, flexibility for each country conditions, specific recommendations for fiscal international schemes and information sharing models.
Is clear that Mexico as part of the international community and above all as a member of the OECD must opt to follow the BEPS recommendations, as of now some of these recommendations are being implemented by the Mexican Tax Authority, such as the recent informative filings proposed by congress and presented in the parliamentary gazette on September 8th.
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