Cronología del los Grupos Parlamentario del PRD en el Congreso del Estado.

Thank you for the opportunity to comment on the non-consensus Discussion Draft in respect of Treaty Aspects of the work on Action 2 of the BEPS Action Plan released on 19th March 2014 (the ‘Discussion Draft’).

Treaties are designed to promote cross-border trade and investment by protecting against the risk of double taxation and to provide certainty of tax treatment. We support the position that treaty relief should not be available where the treaty conditions are only met through abuse.

We have included our comments on each of the areas identified in the Discussion Draft below.

(1) Ensuring that dual resident entities are not used to obtain the benefits of treaties unduly The Discussion Draft notes the interaction with the proposals resulting from the work on Action 6 (Preventing Treaty Abuse) included within the Discussion Draft released on 14 March 2014

(Preventing the granting of treaty benefits in inappropriate circumstances) (‘Treaty Abuse Discussion Draft’). As requested, our comments about the proposed change to Art.4(3) were included in our response to the Treaty Abuse Discussion Draft. In particular, we consider that the removal of the effective management test for determining corporate residence would significantly increase uncertainty and put greater pressure on competent authorities. Tax abuse through dual-residence can be tackled through domestic laws.

The Discussion Draft is concerned that the change to Art.4 (3) will not address all BEPS concerns related to dual-resident entities, particularly in relation to avoidance strategies resulting from an entity being a resident of a given State under that State’s domestic law whilst, at the same time, being a resident of another State under a tax treaty. We have positive experience of the UK rules operating effectively in this area.

Deloitte LLP Athene Place 66 Shoe Lane London EC4A 3BQ United Kingdom Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198 www.deloitte.co.uk Direct: 020 7007 0848 Direct fax: 020 7007 0161 [email protected] Marlies de Ruiter, Head

Tax Treaties, Transfer Pricing and Financial Transactions Division, Organisation for Economic Co-operation and Development/CTPA

By email: [email protected]:

2 May 2014

(2) Ensuring that transparent entities are not used to obtain the benefits of treaties unduly Clarification for transparent entities

The Discussion Draft proposes to include in the OECD Model Tax Convention provisions and

commentary to ensure that income of wholly or partly transparent entities is treated, for the purposes of the Convention, in accordance with the principles of the Partnership Report. The principle of these proposals is welcomed and will help to clarify the current position, particularly in respect of partially transparent funds. The wording of the proposed amendments to Article 1 and commentary should be clear and consistent and not restrict transparent entities from meeting the conditions unless such a restriction is in line with the policy intention.

For example, the income of a UK pension fund is primarily tax exempt under UK domestic law. The wording within the proposed amendments to Article 1 refers to the income of a resident such that it is anticipated that a UK pension fund would be eligible to benefit under the treaty. We note however, that the commentary in respect of this article refers to ‘taxable income’. A UK pension fund is not subject to tax on its income and therefore this condition would not be met. Consistent terminology in line with the policy intention of the provisions should be used throughout both the article and the commentary.

There is an opportunity to further clarify whether the attribution of income to fixed bases and/or permanent establishments is to be undertaken at the level of the transparent entity rather than at the level of the partner or investor. This was covered in the Partnership Report at example 12 but continues to be a practical problem which often results in double taxation without any relief. In addition, recommendations should be made to provide consistency where a transparent entity has different sources of income (e.g. domestic and foreign-source, or dividends and gains) and the method of attribution of income to partners or investors (i.e. commercial profit sharing ratios, pro- rata).

The work on the recommendations in respect of Action 2 and 6 present the opportunity to establish consistency and certainty in respect of the above points.

Verification of person’s entitlement to benefits

Paragraph 26.6 of the proposed commentary on Article 1 confirms that States should not be

expected to grant the benefits of a bilateral tax convention in cases where they cannot verify whether a person is truly entitled to these benefits. If a Contracting State cannot obtain tax information it might instead use a refund mechanism. On the basis that efficient systems are the most effective, we strongly support the ability for taxpayers to obtain relief at source where the required information has been provided.

In general, refund mechanisms are administratively burdensome, costly and time consuming for taxpayers and tax administrations and should therefore be reserved for cases where tax information has not been provided. In order to give taxpayers certainty over the type of information required by tax authorities in order to preserve relief at source, guidance should be given on information reporting requirements that could be incorporated into domestic law.

partnership is resident, along with details of each partner’s percentage ownership. For partnerships with a large volume of partners whose composition frequently changes the paperwork requirement is significant. In many cases, the individual payments to partners are relatively small such that the administrative burden of providing the level of information required outweighs the benefit of claiming treaty benefits. The recommendations should help to address this issue. For example, a standard format residency certification could be introduced, with transparent entities providing self-

certification, subject to tax authority audit.

At its meeting in January 2013, the Committee on Fiscal Affairs approved the TRACE (“Treaty Relief

and Compliance Enhancement”) Implementation Package. The work completed on the TRACE

project was supported by industry and confirmation should be provided as to how the proposed changes to the OECD Model Tax Convention interact with TRACE.

(3) Interaction between the recommendations included in the WP11 Discussion Draft and the provisions of tax treaties

Exemption and credit method

The credit method can be administratively burdensome for taxpayers and tax authorities, and in general the exemption method is simpler and, in many cases, preferred. It is appropriate that the exemption method should be replaced with the credit method in respect to dividends that are deductible in the payer state. For example, the UK dividend exemption operates on this basis and is not available where a deduction is allowed in the payer state.

We note that the European Commission is also looking at this issue and proposed changes to the Parent- Subsidiary Directive announced on 25 November 2013. The EC proposal aims to tighten the provisions so that hybrid loan arrangements cannot benefit from tax exemptions.

If you wish to discuss any of the points raised in this letter, please do not hesitate to contact me ([email protected]).

Yours sincerely

W J I Dodwell Deloitte LLP

By e-mail to [email protected]