Business speaks out on preventing treaty abuse
Businesses have made their feelings clear about the OECD’s work on preventing treaty abuse, which is a sub-section of the organisation’s work on base erosion and profit shifting (BEPS).
Comments made in an address to the OECD by Will Morris, chairman of BIAC’s (business advisory arm to the OECD) tax committee emphasised business’s concern that the proposals in place so far, to prevent treaty abuse, may become a barrier to trade.
“There is an underlying concern among BIAC members that many aspects of the proposals continue to risk removing treaty benefits in genuine commercial situations,” said Morris, at the public consultation in Paris last week.
Morris said there is “disappointment” that BIAC’s concerns have not been addressed in the new discussion draft but that BIAC is determined these concerns are not swept under the carpet and intends to reiterate them.
Again, it became clear that a balance has to be found between the expectation of increased burden on taxpayers and the need to cut out base erosion.
“Abuse should be targeted, but in a way that doesn’t cause undue burden, or remove the clarity and certainty of treaty benefits for the vast majority of genuine commercial structures and transaction,” said Morris.
BIAC wants to encourage governments to tackle tax avoidance through changes to local laws.
“Treaties should remain focused on removing double taxation and promoting international trade and investment. We believe that the only avoidance to be addressed in treaties should be where benefits are obtained under the treaty itself in an unintended manner; or where the treaty would otherwise override the local law which is aimed at tackling the offending avoidance.”
In BIAC’s comments to the OECD on the issue, to be taken into consideration when the organisation draws up the guidelines, it said: “The Model Convention should provide that either a Limitation on Benefits, or a Principal Purpose Test approach should be adopted, but not both.”
Finally Morris said there was a point made in BIAC’s original submission that pointed to a “worrying signal of a change in course”.
“Namely, the fact that the proposed preamble devotes one line to the prevention of double taxation, and three lines to the prevention of abuse. We must remember that in facilitating the development of a broad network of tax treaties, the OECD has significantly contributed to the astonishing expansion in cross-border trade and investment over the past 50 years.
“It is, of course, absolutely and entirely appropriate to prevent abuse of treaties, but it is not the purpose of a treaty to prevent that abuse. As a result, therefore, we would suggest, significantly altering treaty protection should be approached with considerable caution.