OECD BEPS and Tax Reform Tax Coalition Issues Forum April 28, 2017

Today’s presenters Cathy Schultz NFTC Mary Bennett Baker McKenzie Janet Boyd Dow Chemical Co. Barbara Mantegani Mantegani Tax PLLC Amy O’Donnell Roberti Proctor & Gamble

Origin of OECD/G20 BEPS Project Growing concern expressed in wake of financial crisis regarding base erosion and profit shifting by MNEs Increased attention of civil society and media to corporate tax affairs Spreading perception that MNEs dodge taxes all around the world and in particular in developing countries Political pressure to take action G20 meetings of June and November 2012 focused on BEPS issue and requested OECD action

The BEPS timeline February 2013: Initial BEPS diagnostic report by OECD July 2013: Publication of 15-point BEPS Action Plan 2013 – mid-2014: Discussion drafts and public consultations September 2014: Interim reports on 7 Action Items Late 2014 – mid-2015: Discussion drafts and public consultations October 2015: Presentation of final BEPS Reports to G20

Basic objectives of BEPS Project Three main principles: Preventing double non-taxation due to the gaps that exist between countries’ tax rules Aligning taxation with substance Improving transparency

Participating BEPS Countries

Some key BEPS provisions Action 7: Preventing artificial avoidance of PE’s Action 2: Hybrid mismatches Actions 8-10: Transfer pricing outcomes in line with value creation Action 4: Limiting interest deductions Action 13: Transfer pricing documentation / CbC reporting Action 5: Preferential regimes / rulings exchange Action 6: Preventing treaty abuse

Some work still underway Further analysis of options 1: Digital Economy Transfer pricing of financial transactions 4: Limit Interest Deductions Analysis of attribution of profits 7: PE avoidance Guidance on profit splits 8-10: Transfer pricing MAP monitoring mechanism 14: Improving dispute resolution Multilateral Convention to implement treaty recommendations 15: Multilateral instrument

Corporate structures under pressure “Cash box” structures / tax haven cost sharing participants Cost-plus sales and marketing compensation Contract manufacturing / IP box Contractual allocation of residual profit Finance structures Remote selling

Taxpayers’ PE planning considerations Declare a PE? Convert to Reseller? Convert to Branch? Do nothing?

Analyzing risk Multiple factors impact decision to wait or proceed with changes How aggressive is existing structure? What are risks? Alternatives? Where are risks? How large are risks? Appetite for risk/reputational damage Cost of change—including business impact

Reporting Across Jurisdictions Centralize the process Provide consistent story globally Collaborate with investor relations/communications departments on messaging

What else to keep an eye on? The OECD’s “Inclusive Framework” Final guidance on PE profit attribution, profit splits Transfer pricing of financial transactions EU Anti-Tax Avoidance Directive implementation Country unilateral actions (e.g., ATO positions on offshore PEs, MAAL; Indian equalization levy, etc.) Public CbC reporting proposals (e.g., EU / UK developments)

OECD BEPS and Tax Reform Thank you!