The U.S. and the Implementation of BEPS Ivan Strunin Managing Director US Tax, Deloitte APICE Ltd. Hong Kong IFA Seoul May 12, 1016 Copyright © 2016 Deloitte Development LLC. All rights reserved.

3 Overview of IRS proposed CbC regulations Consistent with OECD section 13 report with the following changes: US ultimate parent entity must file annually if its multinational enterprise (MNE) group had annual revenues of $850 million or more in the preceding year CbC report is due with timely-filed tax return (with extensions) – not 12 months after year-end as suggested by the OECD Will apply to taxable years of U.S. parent entity that begin on or after the date final regulations are issued (expected sometime in 2016) Calendar year taxpayers would first apply regulations for 2017 tax year, filed in 2018, exchanged by IRS with treaty and TIEA partners in 2019 Fiscal year taxpayers may file earlier Requirement to include tax ID number for constituent entities in the tax jurisdiction of residence

Copyright © 2016 Deloitte Development LLC. All rights reserved. 4 CbC constituent entities “Constituent entities” includes all business entities (e.g., corporations, partnerships, “disregarded entities” for US income tax purposes, hybrid entities, and trusts, including permanent establishments) including those that are required to consolidate their accounts for financial reporting purposes under U.S. GAAP, or that would be so required if equity interests in the US ultimate parent entity were publicly traded on a US securities exchange Does not include a foreign corporation or foreign partnership that is not a CFC or CFP of the US ultimate parent entity, or any permanent establishment of such foreign corporation or foreign partnership

Copyright © 2016 Deloitte Development LLC. All rights reserved. 5 CbC residence information Tax jurisdiction of residence determines where each “constituent entity” in MNE group reports its revenues, profits, and other required information on an aggregated basis Entity is “resident” if it is liable to tax in that jurisdiction based on place of management, place of organization, or other similar criterion. Treaty tie-breaker rules, if any, apply Permanent establishment is treated as resident in a jurisdiction to extent of the income attributable to the permanent establishment Partnerships and other pass-thru entities that are not liable to tax in the jurisdiction in which they are organized generally will have no tax jurisdiction of residence but IRS expects that partners will report their share of partnership items in the partner’s jurisdiction (assuming the partner is liable to tax in its jurisdiction) Priority for reporting income by jurisdiction FirstTaxable at entity level or PE SecondTaxable at equity holder Level ThirdNot liable to tax in any jurisdiction

Tangible assets other than cash and cash equivalent Copyright © 2016 Deloitte Development LLC. All rights reserved. 6 Data required for business entities US Proposed reporting rules require reporting of the global allocation of income and related financial attributes Entity level data: Tax Jurisdiction of Residence Tax Jurisdiction of Organization or Incorporation (if different from residence) Main Business Activities Tax Identification Number (in tax jurisdiction of residence) Financial data: Aggregate information reported for each tax jurisdiction of residence and for all constituent entities with no tax jurisdiction includes: Revenues (related, unrelated, total) Profit/Loss before income tax Income tax paid (cash) Income tax accrued Stated capital Accumulated earnings Number of employees

ActionOECD CategorizationNotes on local country implementation Expected timing of implementation VAT on business to customers digital services (Action 1) Best PracticeThe US does not have VAT and there are no proposals to introduce VAT.N/A Hybrids (Action 2)Best Practice The US has existing dual consolidated loss rules that generally embody Recommendations 6 (Deductible Hybrid Payments Rule) and 7 (Dual Resident Payer Rule) in Part I of Action 2. US law and treaties generally embody the treaty recommendations in Part II of Action 2. No legislative proposals on other Action 2 recommendations are currently active. N/A CFCs (Action 3)Recommendations The existing US CFC regime incorporates many of the recommendations from Action 3. No legislative proposals on changes to the US CFC regime are currently active. N/A Interest deductions (Action 4) Best Practice An existing fixed-ratio limit on the US deductibility of net interest expense generally applies to foreign-owned corporations, but the ratio is generally 50% instead of 10-30%. No legislative proposals on Action 4 recommendations are currently active. N/A Harmful tax practices (Action 5) Minimum Standard Existing US law allows an R&D credit. No legislative proposals on preferential IP regimes are currently active. US law has other preferential tax regimes but it is not yet known if any changes will be made. Not yet known Prevent treaty abuse (Action 6) Minimum Standard The US generally meets the Action 6 minimum standard through its Limitation on Benefit (“LOB”) provisions in treaties in force or in treaties or protocols awaiting ratification, and its anti-conduit rules. Proposed changes to the US Model Income Tax Convention would make LOB model provision more restrictive. The US Congress remains opposed to, and will not adopt, a Principal Purpose Test (“PPT”). Signed tax treaties that would add LOB provisions to US treaties with Hungary and Poland are still awaiting ratification and have been delayed in the Senate since 2011, and may remain so indefinitely. BEPS MATRIX Copyright © 2016 Deloitte Development LLC. All rights reserved.

Permanent establishment status (Action 7) Minimum Standard The US Treasury Department appears to be favourably disposed to some of the recommendations in Action 7. However, signed tax treaties have been delayed in the Senate since 2011 and may remain so indefinitely, therefore the timing of any changes is unknown. Not yet known Transfer Pricing (Actions 8- 10) Minimum Standard The US Treasury Department has stated that the consistency of existing internal US transfer pricing principles with Actions 8-10 means that harmonizing the 2 will not require “substantial” changes to current US transfer pricing regulations. IRS application of Article 9 of tax treaties is expected to generally be consistent with Actions Not yet known Disclosure of aggressive tax planning (Action 12) Recommendations Existing US law has statutory and regulatory disclosure rules for aggressive tax planning. No active proposals for change. N/A TP documentation (Action 13) Best PracticeNot yet known CbC Reporting (Action 13)Minimum Standard The US Treasury Department recently announced plans to issue regulations to implement CbC reporting by the end of Proposed regulations issued Dispute resolution (Action 14) Minimum Standard Action 14 is broadly consistent with the existing US position on dispute resolution. US tax treaties provide for mandatory binding arbitration. The US is one of the twenty countries that joined in endorsing mandatory binding arbitration under Action 14. Not yet known. Signed tax treaties have been delayed in the Senate since 2011 and may remain so indefinitely, therefore the timing of any changes is unknown BEPS MATRIX Copyright © 2016 Deloitte Development LLC. All rights reserved.