Tax Avoidance, ATP, BEPS and ‘minimum international standards’ Adolfo Martín Jiménez Professor of Tax Law, Jean Monnet Chair University of Cádiz (Spain)

Rise and fall of ATP in the international context? ATP as a new category? –Popular term in press and for tax administrations BEPS Actions hardly mention ATP: –BEPS standards / guidance/ best practices –ATP only used in action 12 Why? –Useless in defining ‘material standard’ on which all States could agree (different concepts of avoidance, ATP Directory kept by OECD) –Concept used by tax administrations ‘transparency process’ linked with ‘arrangements with material tax impact’ (Action 12, enhanced relationship with taxpayers)

BEPS guiding principle(s) are the new standard Guiding principle BEPS action Plan (and BEPS outputs): alignment of tax basis and economic activity “First guide” Action 11: –Desirable BEPS v. ‘reproachable’ BEPS Reallocation of ‘real functions, assets and risks’ (in connection with Action 5 and definition of special regimes in Action 6) –No ‘single tax principle’, no prohibition of all forms of double non taxation –BEPS standards can only be derived from... ‘specific BEPS actions’

Central pillar of new standard: Actions BEPS Alignment of tax basis and economic activity requires to seek where value to global value chain in a MNE Negative and positive source rule: income allocated to where ‘value’ is (no to ‘cash boxes’) Main innovations: –‘Value’ independent from legal form (‘delineation of actual transactions’) –‘Legal allocation of risk irrelevant if no financial capacity to assume or ‘control’ risks –Intangibles the main value drivers in MNG (capital and labour?) –‘Significant people’ who control risk and ‘add value’ attract profits –Immediate effect? ‘New configuration’ v. traditional GAARs / SAARs: change in functions and relations But... –Mainly passive / shell companies affected: new model of ‘principal / license group’ with ‘substance’? –Broad margin for tax planning (action 5, concept of intangible, competition for ‘value driving activities’ v. ‘routine’ functions, economic v. legal concepts) –Effects in the division of tax base for countries

The complement to the standard: Action 7 (and 1) BEPS Limited changes to art. 5 OECD MC, main limits to PE still in place Main exception guiding principle and Actions 8-10? Rule that reinforces Actions 8-10? –Disaggregate ‘economic activity from tax base’ –‘Purely artificial avoidance of PE’ as a standard –Tax planning: Third parties (‘outsourcing’) ‘Routine’ subsidiaries Dissatisfaction with action 7 and 1: UN MC, UK, Australia, Turkey, Spain, specific taxes in different countries before BEPS etc.

Residual standard or confirmation of the standard? Action 6 BEPS Action 6 as a GAAR and 8-10 as SAAR? Action 6 as confirmation of Actions 8- 10? ‘Active conduct of business test’ in LOB and ‘value added’ (principal / license) –Drafted to permit ‘limited conduct of trade or business’ in State of residence and broad margin of manoeuvre to access treaties of that State –But pending US Technical Explanation to US MC (2016) Is PPT different? Limited effect of LOB / PPT: passive v. ‘main’ structures of multinationals Work on special tax regimes: double non-taxation not prohibited: –Special tax regimes concept leaves out Action 5 (and other incentives) and TP compliant regimes (specific features in US MC (2016): active trade clause) –Withholding will not apply for special tax regimes not falling within definition

Conclusion BEPS as a standard or... ‘on-going work’? –Not finished yet: ‘profit-split’, action 6 –Contours and contents of the ‘new standard’? –Admitted BEPS and ‘reproachable’ BEPS: The principal / licence model MNE “BEPS within BEPS” –Non-satisfactory outcomes for some countries v. proliferation of (TP / PE) conflicts? Has BEPS ‘defined’ ‘international standards’? –Tremendous effort with many ‘positive features’ (passive activities, incorporators etc.)