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BEPS is making everything transparent

Increased transparency and automatic exchange of information for MNEs


This article, authored by Mario van den Broek and Jordi van der Struis of RSM Netherlands originally appeared in Bloomberg BNA Tax Planning International Review, October 2016 edition.

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Clearly, the most significant fiscal undertaking of the last decades to tackle strategies of multinational enterprises (“MNEs”) to erode tax bases and shift profits within the group is the Base Erosion and Profit Shifting (“BEPS”) initiative of the OECD.

The final BEPS report has provided for 15 action points to create more coherent international tax rules, reinforce the link between the substance requirements and international tax standards but also increase transparency and certainty for both businesses and governments.

Although BEPS intends to target aggressive and harmful tax planning, its impact reaches far beyond what would still be possible under BEPS in terms of tax planning or structures. Interestingly, as a first response to BEPS, several MNEs may be tempted to assume that BEPS likely will not have a significant impact on the basis of a lack of sophisticated or aggressive tax planning since they may not apply hybrid structures or have any subsidiaries in tax havens, excessively debt funded companies or any of the other tax strategies that are targeted by BEPS. However, such an assumption does not exempt MNE’s from possible increased compliance requirements as a wide array of transparency driven regulations exist with implications that are more far reaching than some may assume. 

In this article, we will discuss in more detail some of those implications and the impact on the role of the tax department going forward.

Part 1: Transparency

Tax transparency can be broadly referred to as the symmetry of information between tax administrations and between tax administrations and taxpayers. Transparency entails a responsibility equally shared by tax administrations and the taxpayer, its aim being to share the tax policy and strategies between tax administrations and between tax administrations and taxpayers.

The competition between countries to attract foreign investments and increase tax revenue has created a patched landscape of various tax regimes that all differ in terms of tax rates, tax incentives and general concepts. Multinationals and other taxpayers responded by setting up complex and tax driven structures to benefit from the differences between the local tax regimes where possible.

Faced with budget deficits and increasing public pressure, countries jointly, via the OECD and other international organizations and institutes took the decision to change the rules of the game. Not only for multinationals but also for the individual countries themselves. Interestingly, to a certain extent, this decision is also a result of competition between and small countries.

Following the general acknowledgement that a multilateral approach is required to tackle harmful tax planning and avoidance, transparency has been identified as one of the key instruments to make the required changes to the international tax landscape. Not only to enforce and regulate the implementation of BEPS but also to change the mindset of countries and multinationals and enhance cooperation instead of competition between countries.

But the renewed role of transparency in international taxation goes beyond the items mentioned above as transparency can also restore the lost balance of power between tax administrations and taxpayers. Overall, increasing transparency should allow for a further integration of different tax regimes globally. Even beyond the measures that are proposed or in some case already implemented rules as provided by BEPS.

Part 2: The current framework for the exchange of tax related information

This section is intended to provide an overview of the milestones in terms of the developed framework for the exchange of information for tax purposes.

Exchange of information via OECD model tax treaties

The standards of transparency and exchange of information have been reflected for the first time in tax treaties, when the OECD published its First Model Tax Convention in 1963. In this respect, Article 26 of the OECD Model Tax Convention provides for the most widely accepted basis for bilateral exchange of information for tax purposes by allowing for the exchange of information between tax authorities of the Contracting States. The material scope of Article 26 was restricted in the 1963 version, since it only covered taxes and persons covered by the Convention. Another limitation of the 1963 Model was the fact that it accepted only information exchange upon request, while it explicitly held spontaneous exchange of information to be inadmissible.

While the current version of the OECD Model Convention does not specifically mention the type of information that is allowed to be exchanged but the Commentary on Article 26 provides explicitly that all relevant information can be exchanged and that the competent authorities of the Contracting States can more or less decide what is relevant.

Despite the update of the exchange of information clause in the OECD Model convention, the OECD expressed its intention to speed up this process. Recognizing that international cooperation on tax matters through the exchange of information was crucial to take a stand against harmful tax practices, the OECD subsequently developed tax information exchange agreements templates (TIEAs). With the TIEAs in place, it was possible to exchange information with jurisdictions without OECD or UN model treaties.

As with tax treaties, TIEAs also depend on the willingness of governments to share information about their taxpayers. The bilateral exchange of information provided by the tax treaties that are based on the OECD model tax convention and TIEAs gained momentum as from 2008 as a result of the financial crisis which, for example, led to the renegotiating of tax treaties which allow for the exchange of information.


The enactment of the US Foreign Account Tax Compliance Act opened the door to automatic international exchange of information and should be considered as an important breakthrough. Under FATCA, financial assets of US persons maintained outside the US are automatically reported by Financial institutions to the Internal Revenue Service,

To “encourage” Foreign Financial Institutions to comply, the US provisions require a US withholding agent to withhold 30% tax on certain payments made to non-FATCA-compliant foreign entities. As far as exchange of information is concerned, FATCA was revolutionary in several areas. It introduced a regime requiring information to be exchanged on an automatic basis, using financial service providers as reporting agents. Also, the extraterritorial nature of this US statutory provision, which lies in its capacity to subject foreign persons to the authority of IRS without having to act through the tax administration of the country of residence or nationality of the foreign persons in question, sent a shock wave through the financial services industry but FATCA was also an important development in terms of the exchange of information for tax purposes.

Common Reporting Standard

Shortly after recovering from the initial shockwave caused by FATCA a new initiative to increase transparency amongst OECD Member States was launched in the form of the “Common reporting Standard (“CRS”).

CRS constitutes a standardized automatic exchange model, which builds on the foundation of FATCA and its intergovernmental agreement Model 1 to maximize efficiency and minimize costs. At the same time, it represents a culmination of the recent discussions on global tax transparency. Since CRS is based on FATCA, similar information must be reported, hence it provides for the detailed reporting and due diligence requirements for the identification and reporting of financial account information. As a result, the information that is exchanged belongs to financial institutions and consists of details of financial assets they hold on behalf of taxpayers from jurisdictions with which their tax administration exchanges information.

Part 3:  BEPS initiatives for increased transparency

BEPS Action Point 13 and CbCR

BEPS Action Point 13 introduces the concept of country by country reporting (“CBCR”) regarding the initiative to re-examine the transfer pricing documentation required from MNEs relating to their intra-group transactions.

Action point 13 requires a global template to be prepared by MNEs which shall include “a high level view of the Multinational Enterprises` global activity”, referred to as “country-by-country reporting”. As a result, a qualifying MNE must provide an overview of the profits earned, taxes paid, assets owned and the number of employees in each of the jurisdictions in which it operates.

In order to facilitate the implementation of the CbC Reporting standard, the implementation package comprised in the BEPS Action 13 consists of, i.e., a Multilateral Competent Authority Agreement on Automatic Exchange of CbC Reports (“CbC MCAA”). Under the CbC MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Convention.

The purpose of CbCR is to ensure that tax administrations obtain a better understanding of how multinational companies have structured their operations (from a tax perspective). The CbC MCAA is inspired by the CRS MCAA which has been concluded in the context of the implementation of the Common Reporting Standard. While the CbC MCAA and the CRS MCAA share the same goal (to increase tax transparency at a global level), the former contributes to increase tax transparency with respect to corporate taxpayers, whereas the latter aims to combat tax evasion from individuals.

At the level of the European Union (“EU”), there have been multiple proposals launched by the European Commission revolving around the implementation of country by country reporting and exchange of the reports. The first draft Directive was released on January 28, 2016 as part of the EU Anti-Tax Avoidance Package. Subsequently, the EU Council has published the latest version that must implement the recommendations of the OECD concerning country by country reporting within the EU. Thus, pursuant to Directive 2016/881 of 25 May 2016, Member States would require country by country reports from EU and non-EU multinational groups operating in the EU and with consolidated group revenue of at least €750 million for financial years starting on or after January 1, 2016. At the same time, Article 8aa of the aforementioned instrument forms the legal basis for the mandatory automatic exchange of information in the country by country report.

Furthermore, on April 12, 2016, the European Commission has released a proposal[1] that is more farfetched than the mere automatic exchange of information as the proposed directive provides with public country by country reporting. In the words of the Commission, the resort that triggered the adoption of this proposal in the first place is the fact that “the public should be able to scrutinize all the activities of a group when the group has certain establishments within the Union.[2]”

Safeguarding taxpayer rights

The CbC MCAA does not contain any provision with respect to the right of taxpayers to be informed before the information concerning them is being exchanged. The same applies to the EU Directive that governs the automatic exchange of country by country reports and the proposal for public country by country reporting as both initiatives do not contain any provision addressing taxpayers` notification rights.

The CbC MCAA refers to the Convention on Mutual Assistance in Tax Matters for the applicable data privacy and confidentiality safeguards which in turn refers back to the domestic law of its signatories states[3].

Subject to the applicable legislation of countries involved with the exchange, the above can clearly give raise for concerns as to the protection of taxpayers in terms of privacy. This concern is also shared by the United States given the measure taken on 29 June 2016 [4] not to exchange information on their taxpayers with countries that  fail to meet the confidentiality requirements, data safeguards and appropriate use restrictions set forth in the competent authority agreement that the United States intend to conclude.

BEPS Action Point 5 and tax rulings

Improving tax transparency constitutes one of the main priorities under BEPS Action Point 5 which commits the Forum on Harmful Tax Practices (“FHTP”) to “revamp the work on harmful tax practices with a priority on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes”.

Six categories of rulings have been proposed to be subject to compulsory spontaneous exchange of information being a) rulings on preferential regimes (for instance, those rulings concerning geographically mobile activities), b) cross-border rulings in respect of transfer pricing, c) cross-border rulings providing for a unilateral downward adjustment of taxable profits that is not directly reflected in the taxpayer`s financial or commercial accounts, d) PE rulings, e) related party conduit rulings, and f), any other type of rulings that would give rise to BEPS concerns.

Under this Action Point 5, a number of filters have been recommended to assess whether or not the obligation of spontaneous exchange of information on rulings exists. Accordingly, this obligation may exist for those rulings related to preferential regimes that are within the scope of work of the FHTP and that meet the “no-or low effective tax rate” factor.

In the EU, automatic exchange of tax rulings was considered for the first time in 2012, when the Code of Conduct Group for Business Taxation reviewed developments in Member States` procedures regarding tax rulings. In the following years, the European Commission developed a package of tax transparency measures, with the automatic exchange of tax rulings and APAs being comprised in Directive 2015/2376 of 8 December 2015[5].

On the basis of the abovementioned, Member States are mandated to exchange information automatically on Advance Tax Rulings (“ATR”), as well as Advance Pricing Agreements (“APAs”). The decree covers both existing agreements that have been issued between January 1, 2012 and January 1, 2017 and agreement are issued after January 1, 2017.

Tax administrations around the world are working on measures to build the framework required to implement the abovementioned measure. For example, the Dutch tax administration is currently gathering information on the advance pricing agreements (“APA”) and advance tax rulings (“ATR”) that have been concluded with taxpayers that will be used to fill out the templates which need to be exchanged following the implementation of Directive 2015/2376.

Safeguarding taxpayer rights

With regard to measures protecting confidentiality of commercially sensitive data contained in tax rulings that are automatically exchanged, BEPS Action Point 5 only specifies that the country receiving the information must have a legal framework in place that protects the information. In addition, exchange with a country may be suspended if the appropriate safeguards are not in place or if there is a breach in confidentiality.

At EU level, the safeguard of confidentiality of the information in the tax rulings automatically exchanged pursuant to Directive 2015/2367 is also left at the discretion of the national law of the Member States. Thus, paragraph 1 of Article 16 states that it shall “enjoy the protection extended to similar information under the national law of the Member State which received it.”


The abovementioned developments underline the new reality that multinationals are facing, which is that potentially sensitive or even classified information is exchanged among tax administrations.  An important aspect to consider in this respect are the safeguards in terms of data protection and other tax payer rights under BEPS Action Point 13 and BEPS Action Point 5. Based on the above, one may argue that the safeguards in the regulations governing the exchange of information following the implementation of BEPS Action Point 13 and BEPS Action Point 5 are insufficient. One of the consequences is that MNEs will need to allocate resources to actively protect their privacy and control what information is exchanged where possible as this is not a given under the applicable regulations. For this purpose, detailed knowledge of the local legislation that governs the exchange of information is required.

Finally, MNEs may be confronted with data privacy issues, regardless of their tax structure.

Part 4: Implications for the tax department  

In addition to the need to constantly monitor applied tax planning structure under BEPS, tax departments of MNE’s will have to find ways to  meet the increased compliance burden that will come with the increased amount of transparency driven measures.

As mentioned earlier, transparency under BEPS requires tax departments to provide more insight in the applied tax structures as a result of which they may be facing additional questions and tax audits. In addition, this increase may happen on a multinational basis since exchange will take place at more levels than one.

Certain information that has to be exchanged is quite complex and requires information to come from different departments within the MNE causing the tax department to operate in an even more integrated manner to safeguard an efficient compliance process. 

An important observation for exchange of information under BEPS Action Point 5 is that the information will be exchanged using a standard format. This means that tax administrations will perform a review and/or determine to request for additional information on the basis of very limited information. From this perspective, it may be important to start a dialogue with the relevant tax administration to provide input on the information on the tax ruling that will be included in the template to put the information in the necessary context.

The above also applies to the templates that are used for CbCR purposes in the sense that the tax department should carefully consider what possible conclusions can be drawn when tax administrations review the template. For this purpose, the tax department may consider doing a dry run by, for example, filling out a template for the situation per year end 2015.

The preparations to comply with both BEPS Action Point 13 and BEPS Action Point 5 may result in discussions on the desirability of the business model and/or tax strategy that is applied. With an increasing focus on tax, the tax department may be expected to be more proactive and develop a strategy that adequately addresses the challenges related to the increased transparency.



[1] Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches, COM(2016) 198 final.

[2] Ibid., recital (6), p. 10.

[3] Article 22 of the OECD Convention on Mutual Assistance in Tax Matters.

[4] Final regulations concerning country by country reporting

[5] Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, OJ L 332/1. 


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