## Platform Responses to First Set of Public Comments

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### Purpose and status of the draft document
- Main comment themes:
  - Status of toolkit unclear; should not be treated as authoritative guidance but as providing guidance (CBI; USCIB; TEI).
  - Draft proposes significant shifts in taxing rights; changes should be resolved in multilateral fora, not by IO staff (Repsol; CBI; USCIB; ICC).
- IMF Platform responses / draft revisions:
  - Clarifies role of requested toolkits: no standards are set; toolkits do not represent official views of any Partner organizations but constitute staff analyses.
  - Explains that allocation of primary taxing rights to source countries for indirect transfers of immovable property derives from existing model treaty practice and BEPS process embodied in the multi-lateral convention.
  - Explores expansion of definition of “immovable property” to anchor taxing rights in an economic basis (location specific rents from traditionally defined “immovable property” or from grants of other rights by governments yielding location specific rents).
  - Proposes several alternative definitions countries could use; aims to yield greater certainty in adoption of taxing rights.
  - Responds to concerns that document recommends taxation of OITs rather than describing options: revised draft clarifies the two main models which—should a country wish to tax OITs—could be used and how they are structured.

### Bottom line recommendations and procedural outcome
- External recommendations:
  - Comprehensive redraft or withdrawal urged by some (CBI; USCIB; SVTDG; Repsol).
  - Some praise and proposals to broaden scope to indirect transfers of all assets and urge MLI signature including article 9(4) (BMP).
- Platform responses / changes:
  - Revised draft places greater emphasis on non-binding nature and IO staff views; revised version reposted for comment.
  - Proposals to broaden scope to all indirect transfers of assets and related MLI urging were not adopted.
  - Draft resubmitted for discussion (not withdrawn).

### Analytical bias and tone
- Criticisms received:
  - Overstates commercial arrangements as tax avoidance; indirect holdings are often commercially motivated (CBI; SVTDG; KPMG).
  - Focuses on a few high-profile cases and assumes OITs are generally tax abusive (SVTDG; Repsol; BIAC).
  - Many countries do not tax OITs; this fact was initially underemphasized (Repsol; ITIC).
  - Lack of analysis of consequences of taxing OITs (e.g., decrease in FDI, survival of less efficient investors, negative impact on MNEs investment plans) and double taxation clarity (SVTDG).
- Platform responses / revisions:
  - Introduced language acknowledging commercial reasons for OITs; reduced emphasis on tax avoidance while noting both can coexist.
  - Expanded text to show high-profile cases are illustrative of a broader class of transactions affecting lower income countries and the risk of unilateral country actions.
  - Notes examples where countries consciously choose not to tax OITs (US and Norway) and that in other countries absence of taxation may reflect non-consideration rather than policy choice.
  - Expanded discussion recognizing countries may choose not to tax OITs to attract FDI; also notes that without taxing rights allocated to them, location countries will lack that policy choice.
  - Now addresses recommendation to include treaty provisions based on article 13 (5) UN model and 13 (4) OECD/UN Models (BMG).

### Economic rationale for taxing OITs
- Critical points from commenters:
  - Capital gains as double taxing corporate income; taxing OITs effectively double taxes subsequent rents (CBI; SVTDG; Repsol; TEI).
  - Alternatives for taxing rents should be considered (specific anti-abuse measures, excises, royalties, export taxes, removing tax holidays) (CBI; SVTDG; BIAC; ITIC; PwC; Deloitte).
  - Residence country taxation rationale not sufficiently addressed (CBI; USCIB; SVTDG).
  - Concern over expansion of definition of immovable property; location specific rents concept seen as unhelpful or too broad (CBI; BIAC; TEI; KPMG; TPED).
  - Disagreement with claim that nominal revenue effect over time of capital gains tax on OITs is neutral (SVTDG; PwC).
  - Political economy arguments should be dropped (SVTDG; TEI).
- Platform responses / revisions:
  - See Box 1 and footnote 17 for explanations on capital gains and rationale; paper not intended to provide general capital gains tax rationale.
  - Adds second paragraph under “efficiency” heading and a cautionary bullet on page 27 acknowledging other ways to reach rents and that taxing offshore transfers is a useful back-up.
  - Adds footnote 22 and modifies bullet 3 on page 24 to better articulate residence country rights; acknowledges differing views on article 13(4) and the MLI.
  - Responses on taxing rents referenced above.
  - Revisions on page 20 aim to clarify nominal revenue effect.
  - Political economy argument significantly toned down.

### Technical issues (complexity and specific technical concerns)
- Overarching Platform caveat:
  - Model provisions are simplified legislative provisions and do not purport to deal comprehensively with complex issues (corporate reorganizations, minority shareholders, joint ventures, valuation, listed securities, treatment of losses, double taxation issues). This caveat reiterated in revised draft.
  - Ultimate full provisions must be adapted by each location country to its circumstances.
  - Revised draft includes more specific guidance on several technical issues where appropriate.
- Specific technical points and draft responses:
  - Valuation and apportionment: commenters request apportionment rules to tax only immovable and domestic portions (CBI; USCIB; Deloitte; TPED).
    - Revised draft recognizes valuation complexity, especially where value derives from commodity prices, centrally provided inputs, other group shareholdings.
  - Treatment of losses: commenters raised recognition of losses (CBI; USCIB; BIAC).
    - Revised draft explicitly notes losses should be recognized in the location country and be subject to appropriate loss utilization rules.
  - Double taxation concerns (SVTDG):
    - Revised draft discusses relative double taxation sensitivities between Model 1 and Model 2 more explicitly.
    - Observes taxpayers will structure transactions to minimize double taxation (empirical evidence referenced).
    - Notes a policy option for location country to tax gains on a proportionate basis (e.g., taxing only gains attributable to local immovable property).
  - Internal reorganizations and exemptions (TEI; PwC):
    - Now discussed in text rather than footnote; notes many countries do not exempt cross-border reorganizations and includes guidance on relief/exceptions for technical direct change of control due to reorganizations.
  - Minority holdings/shareholders (USCIB):
    - Not comprehensively dealt with; issue noted for location country consideration.
  - Frontloading tax (TEI):
    - Not addressed in revised draft as too detailed for toolkit; may be a design option for location country.
  - Listed companies exemption (TEI):
    - Agency taxation model excludes listed shares from local agency liability; revised draft notes listed company circumstances should be fully considered by location country.
  - Joint ventures (ITIC; TEI):
    - Not comprehensively dealt with; issue noted for location country consideration.
  - Neutrality where onshore gains are not taxable (e.g., participation exemption) (KPMG):
    - Refer to responses on losses and structural consequences above.

### Implementation considerations — Model 1 vs. Model 2
- Commenter positions:
  - No preference should be expressed for model 1 or 2 (numerous comments).
  - Many preferred Model 2 because:
    - Model 1 increases incidence of double taxation.
    - Company taxed under Model 1 does not receive proceeds of sale.
    - Transfer of funds may challenge equity injections and minority shareholder participation.
    - Better to tax real rather than deemed transactions.
    - Model 2 aligns better with legal and treaty perspectives. (CBI; others)
  - Not enough evidence provided for preference for either model (BIAC).
  - Draft inconsistent with UN approach which discusses alternatives; toolkit seen as making a single policy choice (Repsol; TEI).
  - Preference for Model 1 argued as more usable by countries (BMP).
  - Concern that Model 1 evaluation did not consider multiple transfers in multi-tier structures (China).
- Platform response:
  - Draft amended to express no preference between Model 1 and Model 2; presents pros and cons of each.

### Step-up in basis, transfer pricing linkages, and other design points
- Step-up in basis (ITIC):
  - Little guidance requested on step-up application to depreciation/amortization.
  - Platform: detailed proposed rules not provided. Clarifies under Model 1 there is automatically a basis adjustment in assets deemed disposed of, including for tax depreciation. Under Model 2, shares actually traded get basis adjustment to market value; further adjustments to lower offshore tiers would not occur under current international system. China’s system (collapsing holding structure) mentioned as an alternative.
- Linkages to transfer pricing concepts (TPED):
  - Concerns that extended definition of immovable property and whether items are intangibles not aligned with OECD/UN definitions.
  - Location Specific Advantages elaborated in TP context; relying exclusively on LSRs to justify source taxation may create confusion.
  - Platform: current version did not change definitions; makes clear definitions used are not necessarily those used elsewhere in domestic laws or international documents.
- Other points:
  - Only first-tier parent should be considered (CBI): not adopted.
  - Grandfathering/retroactivity (CBI; KPMG): draft amended to note that, unless strong reasons exist, either model should be implemented prospectively and not retroactively; transitional arrangements (e.g., deemed market value cost base at commencement) could be considered.

### Commenting organizations and persons (as listed in the document)
- BIAC  The Business and Industry Advisory Committee at OECD
- BMG   Base Erosion and Profit Shifting Monitoring Group (a consortium of 7 civil society organizations)
- CBI  Confederation of British Industry (London)
- China   (State Administration of Taxation, P.R. China)
- Deloitte LLP  (London)
- ICC  International Chamber of Commerce
- India    (Government)
- ITIC    International Tax and Investment Center (US and other)
- Jubilee USA  (an alliance of 700 faith groups--US)
- KPMG  KPMG International (UK)
- Philip Baker  (UK)
- PwC     PricewaterhouseCoopers International Limited (London)
- Repsol  (Spain)
- Sergio Guida CPA (Italy)
- SVTDG Silicon Valley Tax Directors Group (US)
- TEI  Tax Executives Institute (US)
- TPED   Transfer Pricing Economists for Development (Paris and Vienna)
- USCIB United States Council for International Business (US)

*Source: pr18297comments*

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_Source: https://www.imf.org/-/media/files/news/press-release/pr18297comments.pdf_