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Part II: OECD discussion draft on Action 6 of the BEPS Action Plan
On 21 November 2014, the OECD published a discussion draft which deals with follow up work mandated by the report on Action 6 (Prevent the granting of treaty benefits in inappropriate circumstances) of the BEPS Action Plan. The OECD recognised that further work is needed with respect to the precise contents of the model provisions and related commentary included in Section A of this report, in particular the LOB rule. Further work is also needed with respect to the implementation of the minimum standard and with respect to the policy considerations relevant to treaty entitlement of collective investment vehicles (CIVs) and non-CIV funds. Taxand is honoured to provide combined feedback from around the world on the follow up discussion draft with respect to Action 6 of the BEPS Action Plan.
The OECD Committee of Fiscal Affairs made a huge effort of analysing the various comments on the public discussion draft published on 11 April 2014. The OECD report and the follow up work issued are very detailed and well drafted. However, the combination of their numerous provisions increases their complexity and therefore they may not be easily comprehensible by a person who is not a lawyer or tax professional.
The follow up report acknowledges that the adoption of both types of rules (LOB and PTT), together, might not be appropriate for all countries. Taxand believes that the combination of the limitation on benefits (LOB) provision and the principal purpose test (PPT) rules could create significant fiscal complexity and uncertainty for international business, in particular as the PTT may apply independently of the LOB clause.
The discussion draft identifies the various issues on which there will be follow-up work, as mentioned above, and includes specific questions on which comments were invited. Taxand is honoured to provide written comments based on these questions and the practical experience we have as tax advisors.
The consultation of the prevention of the granting of treaty benefits in inappropriate circumstances is a key initiative of the BEPS Action Plan, which Taxand supports. This is particularly important in light of the fragmentation of domestic approaches to treaty shopping and multiplication of different treaty interpretation issues on abuse, leading in some cases to divergent national case law.