The Global Approaches for the Struggle against Tax Treaty Abusive Practices: Selected Examples in BRICS Countries Karina Ponomareva PhD in Law, Assistant Professor, Omsk State University

The OECD’s strategy for deepening developing countries’ engagement in the BEPS Project is based on three pillars: Direct participation to the Committee on Fiscal Affairs and its subsidiary bodies: since 2014, 17 non-OECD and non-G20 countries joined the CFA and as of June 2016, 57 new countries and jurisdictions are involved in the CFA’s work, either as Associates or Invitees, raising the number of delegations to 103. Regional Networks of tax policy and administration officials Capacity building support including work with the G20 Development Working Group

Ways of reaching of BEPS aims Multilateral instrument + Innovation approach + Synchronicity of changing of all the tax treaties It takes too long time Lack of coordination Unilateral changing of tax treaties

Bilateral tools of exchange of information Art. 26 of the OECD Model Convention DTTs between the BRICS States, for example: Agreement between the Government of the Russian Federation and the Government of the Republic of India for the avoidance of double taxation with respect to taxes on income of 25.03.1997; Agreement between the Government of the People’s Republic of China and the Government of the Federative Republic of Brazil for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 05.08.1991

Multilateral tools of exchange of information Convention on Mutual Assistance in Tax Matters 1988: signed by all the BRICS States Multilateral Competent Authority Agreement for the Common Reporting Standard (CRC MCAA): signed by all the BRICS States Multilateral Competent Authority Agreement on the Exchange of Counrty-by-Country Reports (CbC MCAA): signed by all the BRICS States

Problems of implementation of BEPS Actions Many old rules have not changed, however, the new ones have become more complicated  Tax competition can take new forms in post-BEPS era, which can lead to disputes between tax authorities, as well as to multiple taxation The developing countries have been loosing more in pre-BEPS era and will lose more in post-BEPS era due to the unprofitable allocation of tax rights Tension between the OECD ́s objectives, representing mostly highly developed, capital exporting and high-tax countries, and the non- OECD countries’ objectives, which are rather capital importing

EU experience: Directive 2016/1164 CFC rule:  to deter profit shifting to a low/no tax country The rule on hybrid mismatches aims to prevent companies from exploiting national mismatches to avoid taxation Exit taxation: to prevent companies from avoiding tax when re- locating assets Interest limitation: to discourage artificial debt arrangements designed to minimize taxes General anti-abuse rule: to counteract aggressive tax planning when other rules don’t apply

Features of the BEPS Project that make the interaction of the BRICS countries essential Not all the Actions are necessarily pressing for developing countries and for the BRICS countries: CbCR is a clear example of this The Project assumes a certain common ground in domestic legislation which does not necessarily exist: the uniformity with regard to transfer pricing legislation (Actions 8, 9 and 10) and CFC legislation (Action 3) is not an actual fact, and the existence of consolidated general anti-abuse legislation (Actions 6 and 12) is far from the reality in many countries. The Project takes the allocation of taxing rights as a premise, while most countries are struggling in their bilateral negotiations to bring the boundaries of tax jurisdiction closer to what they perceive as fair.

Common developments of the BRICS countries in tax treaties Large treaty networks (Brazil as exception with 32 DTTs) Inclusion of a tax sparing provision in a big number of treaties (Russia as exception) Trend towards more anti-abuse and exchange of information provisions; renegotiation of treaties signed with OECD countries The main challenge for the BRICS countries is to adhere to standards of combating abusive behavior and simultaneously keep an independent policy in their relations with capital exporting countries

The Russian Federation VAT for foreign companies selling online electronic content to Russian users - Action 1  While developing the CEC rules, some recommendations of the BEPS Plan have already been taken into account - Action 3  The “thin capitalization" mechanism has been introduced - Action 4 Amendments to the Model DTT between the Russian Federation and foreign states are going to be made - Action 6  Clarification of TP rules in accordance with the recommendations of the OECD - Actions 8, 9, 10 On January 26, 2017, the Federal Tax Service of Russia signed a multilateral agreement of the competent authorities on the automatic exchange of country reports; the Federal Law of November 27, 2017 No. 340-FZ has been adopted - Action 13  Participation in meetings of the Forum on Mutual Agreements - Action 14  The Russian Federation has signed MLI - Action 15

New GAAR in Russian Law (Article 54.1) Prohibition of misrepresentation of information Taxpayers have a right to reduce tax base / tax payable on their transactions / operations, if the following requirements are met: Principal purpose of the transaction is not underpayment, offset or tax refund; Reality of the transaction: obligations under the transaction are performed by counterparties Certain facts shall not be considered as tax abuse and as separate grounds for denial in reduction of tax base / tax payable, including available to taxpayers opportunities to archive the same results by completion of lawful transactions resulting in higher taxes Russian tax authorities are likely to apply PPT directly and develop their own approach to PPT.

New rules of the CRS regime in 2018 in the framework of international automatic exchange Russian Federation starts automatic exchange in practice on September 30, 2018 The key aspect of the automatic exchange of information on the CRS standard is not the citizenship of the person as in the case of the FATCA, but the status of the tax resident Federal Law No. 340-FZ of November 27, 2013 introduces new rules of submission of documents on international groups of companies, including country reports Federal Law No. 427-FZ of December 28, 2017 added a list of permitted cases of transfer of funds to the accounts of resident individuals opened in banks in the territories of OECD or FATF Member States

Legislative Measures to Introduce Amendments to the Tax Code of the Russian Federation for CbC MCAA Mechanism of collection of information necessary for the exchange of information with the competent authorities of foreign countries within the framework of the fulfillment of the terms of the Multilateral Agreements The concept of an international group of companies has been introduced into the legislation of the Russian Federation The obligation of the participants of the international group of companies to submit additional reports to the tax authorities is established The measures of liability of taxpayers for the unlawful failure to provide notice of participation in an international group of companies have been established The Russian legislation introduced the concepts used in the automatic exchange of financial information for tax purposes (organization of the financial market and financial information) The taxpayer's right to confirm his tax status as a tax resident of the Russian Federation is established; The measures of liability of financial market organizations for failure to provide / provide false information within the framework of international automatic exchange of financial information for tax purposes have been established Adoption of orders of the Federal Tax Service of Russia determining the list of foreign states and territories with the competent authorities of which the automatic exchange of information and country reports is carried out