INGENIEUR
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IFCs are by default intermediation points for businesses , risk , assets and wealth . By design , they are meant to lessen the natural friction which occurs when the legal and tax systems of two countries collide .
will be applied via the adoption of domestic legislation , it ’ s take-up has been almost universal . Clearly , the possible clawing back of taxes unpaid is great encouragement !
The BEPS project consists of 15 action plans , organised around three main pillars — coherence of corporate tax at the international level , realignment of taxation and substance , and transparency — with four minimum standards agreed to by all participating countries who have committed to implementing them under the Inclusive Framework . Two of the four minimum standards i . e . Actions 5 ( Countering Harmful Tax Practices More Effectively , Taking into Account Transparency and Substance and 13 ( Transfer Pricing Documentation and Country-by-Country Reporting ), clearly have transparency in mind .
The Common Reporting Standard In 2014 , the OECD developed the CRS for the automatic exchange of information ( AEOI ) between countries , which has had a widespread impact on how countries share and obtain information . Facilitated by the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information ( CRS MCAA ), the CRS has created a superhighway of tax information , corporate information and personal details .
Substance requirements The second pillar of the BEPS actions addresses substance , and Action 5 contributes to this as well as to transparency . The first part of Action 5 relates to transparency through the compulsory spontaneous exchange of certain taxpayer-specific rulings between tax administrations , facilitated by the “ building ” of this new superhighway of tax information via CRS .
The other part relates to preferential tax regimes , whereby a peer review of preferential tax regimes in all Inclusive Framework members is undertaken by the Forum on Harmful Tax Practices ( FHTP ) to identify features of regimes that have the potential to unfairly impact the tax base of other jurisdictions .
Countries are expected to comply with the standard on harmful tax practices , including ensuring that their preferential regimes align taxation with substance , be it operational or management activity . In effect , the Inclusive Framework has very elegantly created a new standard for substantial activities requirements for all activities conducted in a jurisdiction .
The death of IFCs ? Thus , amid all the emphasis on transparency and substance , it is not surprising that IFCs are facing the impact of increased scrutiny , bringing with it the core fundamental question as to why these jurisdictions have been utilised in the first place .
The answer is clear and simple : IFCs are by default intermediation points for businesses , risk , assets and wealth . By design , they are meant to lessen the natural friction which occurs when the legal and tax systems of two countries collide . IFCs — well executed — are meant to erase the friction caused by a globalised world , creating a
78 VOL 85 JANUARY - MARCH 2021