In a Bloomberg BNA article, Carol Doran Klein, USCIB’s vice president and international tax counsel, explained that effective dispute resolution will be necessary for the success of the Organization for Economic Cooperation and Development’s (OECD) project on base erosion and profit shifting (BEPS), designed to rewrite the rules of the international tax system. The OECD released its final BEPS recommendations on October 5.
At an international tax conference on October 15 in Toronto, Klein told attendees that BEPS’s new rules on profit attribution and allocation of risk will lead to more controversy, because there is no guarantee that governments will interpret these rules consistently. Effective dispute resolution is therefore key for the successful implementation of the BEPS recommendations.
“I think that the arm’s-length standard, as set out in the guidelines, can work—but only with real functioning dispute resolution,” Klein told Bloomberg BNA. “It is going to be key to resolve disputes early, for this process to have success,” she said. “You could have real transfer pricing reform, but only in my view if the dispute resolution is implemented as indicated in the guidance.”
Klein also said that questions risk analysis about risk analysis were likely to cause dispute, and the implementation could be subjective.
“It is clear that the risk-adjusted return depends on the credit-worthiness of the borrower and the riskiness of the investment, but there’s very little guidance on how these factors should be determined and weighted,” Klein told Bloomberg. “Tax administrations may also be examining the riskiness of a transaction after that risk has played out, so reaching agreement on a risk-adjusted return may be challenging.”
Read more: “Companies See Dispute Resolution as Crucial in BEPS” (Paywall)