Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

United States

The United States has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

The United States can legally issue three types of rulings within the scope of the transparency framework.

In practice, the United States issued 114 past rulings; for the period 1 April 2016 -31 December 2016, the United States issued 21 future rulings; and for the year in review, the United States issued 30 future rulings1 within the scope of the transparency framework.

Peer input was received from three jurisdictions in respect of the exchanges of information on rulings received from the United States. It was generally positive, noting that information was complete, in the correct format and received in a timely manner.

1. One of them qualifying both as an APA and as a PE ruling.

Introduction

1337.  This peer review covers United States’ implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1338.  The United States can legally issue the following three types of rulings within the scope of the transparency framework: (i) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (ii) permanent establishment rulings; and (iii) related party conduit rulings. Certain rulings can be published but this is currently not the case for those which fall within the scope of the transparency framework. In the United States, APAs are issued by a specific office, the Advance Pricing and Mutual Agreement (APMA) programme of the Internal Revenue Service (IRS). The other types of rulings are issued by the IRS’s Office of Associate Chief Counsel, with specific offices dedicated to international issues, financial institutions and products, partnerships and special industries, corporate, and tax exempt and governmental entities. The United States notes that PE rulings and related party conduit rulings are not ordinarily issued unless there are unique and compelling circumstances.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1339.  For the United States, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

1340.  In the prior year peer review report, it was determined that the United States’ undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The United States’ implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1341.  For the United States, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

1342.  In the prior year peer review report, it was determined that the United States’ undertakings to identify future rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. As the United States implementation in this regard remains unchanged, they continue to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

1343.  In the prior year peer review report, it was determined that the United States review and supervision mechanisms were sufficient to meet the minimum standard. The United States’ implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

1344.  The United States continues to meet all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1345.  The United States has the necessary domestic legal basis to exchange information spontaneously. United States note that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

1346.  The United States is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) Tax Information Exchange Agreements and (iii) double tax agreements in force with 48 jurisdictions.1

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1347.  In the prior year peer review report, it was determined that the United States’ completion and exchange of templates were sufficient to meet the minimum standard. The United States’ implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

1348.  Furthermore, the United States has confirmed that the summary section of the template is completed as in the internal FHTP suggested guidance. The staff completing the summary section is instructed to insert the description of the covered transaction(s) from the text of the redacted APA and to include a brief description of the transfer pricing method.

1349.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	8	0	N/A	This relates to the exchanges with new members of the IF that joined in 2017.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	117	0	N/A	The APMA office presented 2 exchanges to the EOI office within the CA slightly over three months after the issuing date, but were exchanged by the EOI office within 3 months after the information was made available.
Total	125	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	23	14 days	0

1350.  The two exchanges on a future ruling reported by the United States as being delayed have been exchanged by the Competent Authority within a week after the information was made available to them and therefore are not considered as delays according to the ToR. Instead the reported delays are a result of a slight delay in the transmission of information of one ruling to the Competent Authority and the United States is monitoring its process.

1351.  The United States notes that the 23 follow up requests received from different jurisdictions did not provide sufficient explanations to justify foreseeable relevance. The 14 days indicated in the table above therefore refers to the responses sent out by the United States explaining that additional information was needed to allow the requested rulings to be exchanged.

Conclusion on section B

1352.  The United States have the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and have completed all exchanges on time. The United States have met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

1353.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	117	Australia, Brazil, Canada, China (People’s Republic of), Colombia, Denmark, Egypt, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kazakhstan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peru, Poland, Russia, South Africa, Spain, Sweden, Thailand, Turkey, Ukraine, United Kingdom
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	Included in de minimis	N/A
Related party conduit rulings	0	N/A
De minimis rule	3	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	1171

1. The three exchanges on PE rulings also qualified as unilateral APAs and were exchanged on templates that identified those two categories of rulings. Because these were included on combined templates, the PE rulings were excluded from the Total to avoid double counting.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1354.  The United States does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. The United States also has bilateral agreements Australia, Austria, Barbados, Belgium, Bulgaria, Canada, China (People’s Republic of), Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Thailand, Turkey, Ukraine and United Kingdom.