Bloomberg BNA International Tax - A Thailand perspective on BEPS

Jack Sheehan and Steven Carey, Managing Partner at Quantera Global, our partner firm for Transfer Pricing, published an article with Bloomberg BNA International Tax on the OECD Base Erosion and Profit Shifting (“BEPS”) deliverables and the possible actions from Thai tax authorities related to this initiatives.

Following the release of the OECD BEPS deliverables, evidence suggests that the Thai authorities will respond comprehensively to the initiatives, however, the government is yet to issue a formal announcement as to its policy intentions.

International tax avoidance and transfer pricing have recently received an unprecedented high level of attention. High profile examples include technology companies such as Google, Apple and Amazon making the headlines for complex tax structures involving Ireland and Netherlands entities; and Starbucks, which has experienced store boycotts in the U.K. due to its lack of contribution to U.K. tax revenue over several years. Many of these aggressive tax and transfer pricing structures have been in place since international trade within multinational (MNC) groups increased and double tax agreements were first introduced. So why is it only now considered a critical issue? There is no definitive answer to this but it is most likely a result of the growing significance of intangibles in the value chain of MNCs, given intangibles are very easy to move around for tax advantage; and the ongoing fiscal crisis in Europe and the US in particular creating ongoing pressure for tax revenue. The OECD has responded in an uncharacteristically prompt, detailed and pragmatic manner through the introduction of a series of action plans designed to address BEPS. The BEPS Action Plan contains 15 action points addressing the perceived shortcomings in international tax principles as they are currently applied. Broadly, these action points cover a lack of tax information exchange, ineffectiveness of transfer pricing rules and mismatches between tax systems of different countries.

The 15 actions are as follows:

Action 1: Address the tax challenges of the digital economy;
Action 2: Neutralize the effects of hybrid mismatch arrangements;
Action 3: Strengthen CFC rules;
Action 4: Limit base erosion via interest deductions and other financial payments;
Action 5: Counter harmful tax practices more effectively, taking into account transparency and substance;
Action 6: Prevent treaty abuse;
Action 7: Prevent the artificial avoidance of permanent establishment (PE) status;
Actions 8, 9, 10: Assure that transfer pricing outcomes are in line with value creation;
Action 11: Establish methodologies to collect and analyze data on BEPS and the actions to address it;
Action 12: Require taxpayers to disclose their aggressive tax planning arrangements;
Action 13: Re-examine transfer pricing documentation;
Action 14: Make dispute resolution mechanisms more effective; and
Action 15: Develop a multilateral instrument (to amend bilateral tax treaties).