Emerging markets, transfer pricing and tax treaties on the agenda of annual event

How do key emerging markets fit into the global taxation system? How can the Organization for Economic Cooperation and Development (OECD), national governments and global business best foster simplicity, effective problem-solving and appropriate tax policy tools for countries at different stages of development?

These were among the questions tackled at USCIB’s annual tax conference, held June 4 and 5 in Washington, D.C. The sixth edition of this popular event, which sold out and achieved record attendance, focused on the work of the 34-nation OECD, a key global forum for discussion and coordination of national taxation policies.

The annual event provides a unique opportunity for American business to interact with top representatives of the OECD’s Center for Tax Policy and Administration (CTPA), as well as senior tax officials from the U.S. and other OECD countries.

“As emerging markets like China and India continue to attract significant inbound investment, increase their outbound investment, and grow their participation in global production and value chains, it is critical that their national tax policies work harmoniously with the evolving global body of tax treaties and related rules,” said Bill Sample, corporate vice president for worldwide taxation with Microsoft Corp. and chair of USCIB’s Taxation Committee. “This event provides an important opportunity for tax executives from multinational companies to benchmark the best approaches to tax and development, and to discuss related issues of transfer pricing and tax treaties, through direct discussion with experts from the OECD and national tax officials.”

Key questions addressed at the conference included: What are the latest international developments affecting permanent establishments? Are transfer pricing rules too complex? How should income from intangible property be determined? How are countries working together to improve tax compliance and cooperation?

Three priorities

In opening remarks, Pascal Saint-Amans, the CTPA’s new director, emphasized three priorities: engaging with non-OECD countries, transfer pricing and tax policy. Among the members the G20, he noted, eight are non-OECD countries, and the OECD, as the standard-setter in international taxation, needs to engage with these important emerging economies. He noted that China is potentially interested in joining the OECD, while Brazil is engaging with the organization on transfer pricing. Overall, Saint-Amans predicted that the next generation of emerging economies would not have precisely the same interests as the big emerging economies, so the organization would need to adapt to new circumstances.

On tax policy, one of the OECD’s most important roles is to provide good statistical analysis to inform the tax policy debate. The OECD will examine whether tax incentives are effective, and how best to design incentives to achieve stated policy objectives. In addition, Saint-Amans said the OECD plans a greater focus on value-added taxes, which are a significant source of revenue for many countries but have not received the attention they deserve. A first Global Forum on VAT will be held in November of this year.

In keynote remarks, Jose Fernandez, assistant secretary of state for economic and business affairs, said fair and effective tax administrations served to spur private investment, and are an important way to complement official development assistance. He said the State Department viewed tax reform as an important part of the overall process of political reform, including in countries of the Middle East and North Africa emerging from autocratic rule.

“The OECD has and continues to serve in a crucial role in advancing the interests of business,” Fernandez stated. “What businesses need to succeed is a stable, predictable environment marked by rule of law, which is to say: the rules are known up-front, no particular business is favored over another by government; and property and contracts are evenly enforced.”

Focus on transfer pricing

Among other speakers, Masatsugu Asakawa, vice minister withthe Japanese finance ministry and chair of the OECD Committee on Fiscal Affairs (CFA), laid out the CFA’s broad agenda on tax policy, including efforts to help countries compare best practices and design tax policies for maximum social and economic benefits. Joe Andrus, head of the OECD’s transfer pricing unit, discussed soon-to-be-released guidance on intangible goods, including patents and trademarks that are often challenging to value appropriately under transfer pricing rules. He said the guidance would address definitions of intangibles, identify which companies ought to be entitled to a return on intangibles, take steps to better define and characterize specific types of transactions, and address valuation.

“We don’t care about categories,” Andrus stated. “The analysis is the same.” Broadly stated, he said, an intangible is something that is not a physical or financial asset, and which is capable of being owned or controlled for use in commercial activities. By contrast, market conditions that cannot be owned or controlled by a single enterprise are not intangibles. Examples of these include market size, disposable income and similar market attributes.

Other speakers at the two-day conference included Manal Corwin, deputy assistant secretary of the Treasury for international affairs; Marlies de Ruiter, new head of OECD’s tax treaty, transfer pricing and financial transactions division; and Sam Maruca, the Internal Revenue Service’sdirector of transfer pricing operations.

“Informed, ongoing dialogue with the OECD secretariat and with OECD member states is crucial for global companies,” according to Carol Doran Klein, USCIB’s vice president and international tax counsel. “It’s a testament to how seriously companies view these issues that the event was sold out weeks in advance.”

The conference was co-organized by USCIB, the OECD and the Business and Industry Advisory Committee (BIAC) to the OECD, which officially represents the view of industry in the Paris-based body. Supporting organizations include the International Fiscal Association – USA Branch, the International Tax Policy Forum, the National Foreign Trade Council, the Organization for International Investment, the Tax Council Policy Institute, the Tax Executives Institute and the Tax Foundation. Details are available at www.uscibtax.org.

Staff contact: Carol Doran Klein

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