IBFed Policy Paper on the OECD Recommendations Regarding Base Erosion and Profit Sharing

22 Apr 2016

Please find attached the Policy Paper prepared by the IBFed Tax WG following our meeting with you in February 2016.  The memo explains why banks are different from other corporates and why/how these differences should be taken into account when rules are elaborated and recommendations are drafted regarding Base Erosion and Profit Shifting (BEPS), an area in which the OECD is playing a key role.

The Tax WG had the chance to discuss this topic at length with Pascal Saint-Amans and his staff during a meeting on 18 February 2016 and the OECD was interested to receive a memo explaining more in detail the viewpoint of the Banking Industry.

The key messages included in the memo are the following:

  • The Regulatory and Commercial Environment has a large influence on banking groups.
  • Banks book profits in jurisdictions where key functions are undertaken. This normally results in income being booked in the location where customer facing.
  • Banks are generally not carrying on the activities that give rise to Base Erosion and Profit Shifting (BEPS) concerns and therefore should not constitute a natural focus of the BEPS action plan. This particularly applies to the treatment of hybrid regulatory capital and allocation of interest deductions.  Consistent carve-outs or deeming rules should be contemplated considering applicable regulatory requirements and existing business models.
  • The BEPS action plan should not thwart commercial activity, give rise to inconsistencies and/or create excessive compliance burdens.
  • Globally consistent application of any rule changes is critical.

The memo has been endorsed by all members of the IBFed Tax WG.

Please read the full paper via the link below.

IBFed Policy Paper on the OECD Recommendations
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