In October 2015, the Organisation for Economic Cooperation and Development (OECD), on behalf of the G20 released the final report with an agreed comprehensive package of measures to address Base Erosion and Profit Shifting (BEPS).
Action Item 5 of the report was introduced to counter harmful tax practices more effectively, by strengthening transparency through the compulsory spontaneous exchange of information on six categories of rulings – building on the rulings framework implemented on preferential regimes.
What is the scope of the measure?
The measure includes rulings such as Private Binding Rulings and Advanced Pricing Arrangements (APAs) that apply to a specific taxpayer and on which the taxpayer is entitled to rely. Both pre and post-transaction rulings are included.
Note: The definition of rulings excludes, for example, any statement or agreement reached as a result of an audit carried out after a taxpayer has filed its tax return or accounts. This does not however, exclude any ruling or agreement, on the treatment of future profits, given as a result of an audit if that ruling falls within any of the following categories.
What are the categories of rulings included in the measure?
The six categories identified that could give rise to BEPS concerns are as follows:
- rulings related to preferential regimes
- cross border unilateral APAs or other unilateral transfer pricing rulings
- rulings giving a downward adjustment to profits
- permanent establishment (PE) rulings
- conduit rulings
- any other type of ruling where the Forum on Harmful Tax Practices agrees in the future that the absence of exchange would give rise to BEPS concerns.
What are the periods covered by the measure?
The measure applies to:
- Past rulings – those issued on or after 1 January 2010 that are still in effect as at 1 January 2014.
- Future rulings – those issued on or after 1 April 2016.
What information is exchanged?
Information is exchanged as part of a two-step process:
- Step 1 – a summary and some basic information (for example, entity details) on the ruling will be exchanged
- Step 2 – if the tax administration requires further information, the complete ruling will be exchanged, upon request.
With which countries will the information be exchanged?
The information will be exchanged with the countries of tax residence of the following related party entities:
- ultimate parent company
- immediate parent
- related parties to the arrangement.
Exchange will only occur where Australia has a comprehensive tax treaty with the member country or the member country is a signatory to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
No exchange will occur with countries which Australia only has a Tax Information Exchange Agreement or a condensed tax treaty with no Exchange of Information article.
Will the information exchanged remain confidential?
Yes. Information will be exchanged under the tax confidentiality provisions in the treaties. The provisions operate to ensure that information is only used for specified purposes and only disclosed to specified persons and cannot be forwarded or disclosed to other jurisdictions.
Will I be informed if my information is exchanged?
No. There is no legal requirement for us to inform you when your information is exchanged. We will however, discuss the measure with you for all future products that may be subject to an exchange.
The OECD released a comprehensive package of measures to address Base Erosion and Profit Shifting.