The OECD is inviting feedback on follow-up work relating to the interaction between the treaty provisions of the report on its Base Erosion and Profit Shifting (BEPS) action 6 and the treaty entitlement of non-collective investment vehicle (non-CIV) funds, with the aim of ensuring the new arrangements cover these appropriately
Paragraph 14 of the final version of action 6 under BEPS (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances) indicated that the OECD would continue to examine issues related to the treaty entitlement of non-CIV funds to ensure that the new treaty provisions 6 address adequately the treaty entitlement of these funds.
At the time, the OECD said it had identified two general concerns that governments have about granting treaty benefits with respect to non-CIV funds: that non-CIV funds may be used to provide treaty benefits to investors that are not themselves entitled to treaty benefits and that investors may defer recognition of income on which treaty benefits have been granted.
The OECD first consulted on this issue in March 2016, and is now publishing a discussion draft providing with information on the subsequent developments in the work on the interaction, including the conclusions reached at the May 2016 meeting of the working party tasked with examining the OECD’s tax treaty-related work.
This looked at how limitation-on-benefits (LOB) and principal purposes test (PPT) rules included in the report on action 6 might inadvertently affect non-CIVs and why the most urgent issue was how to address any such inadvertent effects before the inclusion of these rules in the multilateral instrument that was under negotiation to implement the tax treaty-related BEPS recommendations.
In subsequent work the OECD developed examples related to the application of the PPT rule with respect to some common transactions involving non-CIV funds, although it decided against developing a LOB rule at this stage.
The discussion draft invites comments on three draft examples under consideration by the working party for inclusion in the commentary on the PPT rule. They concern a regional investment platform, a securitisation company, and an immovable property non-CIV fund. The OECD says these examples do not represent a consensus views but are intended to provide stakeholders with substantive proposals for analysis and comment.
The draft examples and the comments received will be discussed at a meeting later in February 2016.
Feedback should be sent by 3 February by e-mail to [email protected] in Word format. They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA.
