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Economic Aspects of the Taxation of Offshore Indirect Transfers

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TPED issued comments after the release by The Platform For Collaboration on Tax of the Draft on the Taxation of Offshore Indirect Transfers.

The Platform for Collaboration on Tax is a joint effort launched in April 2016 by the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG). The Platform is designed to intensify the co-operation between these International Organisations (IOs) on tax issues.

This draft toolkit, The Taxation of Offshore Indirect Transfers – A Toolkit, examines the principles that should guide the taxation of these transactions in the countries where the underlying assets are located. It emphasises extractive (and other) industries in developing countries, and considers the current standards in the OECD and the U.N. model tax conventions, and the new Multilateral Convention. The toolkit discusses economic considerations that may guide policy in this area, the types of assets that could appropriately attract tax when transferred indirectly offshore, implementation challenges that countries face, and options which could be used to enforce such a tax.

In line with the Association’s focus, TPED issued comments focused on the economic aspects of the Draft distinguished from, but in support of, the tax and legal considerations, which have been duly taken into account.

TPED’s comments focused on:

  • the proposed extended definition of immovable property in article 13(4) MTC, including reference to government rights under which companies may operate;
  • the valuation of such rights for the assessment of the 50% criterion in said article 13(4) MTC; and
  • the taxation of the whole transaction in the State issuing the rights, and related “basis step-up” for the enterprise as a whole, once that the 50% threshold is satisfied, as opposed to pro-rated taxable asset rule.

Authors of the paper from TPED are: Romero Tavares, Giammarco Cottani, Pim Fris, and Sébastien Gonnet.