Platform for Collaboration on Tax releases toolkit to help developing countries tackle the complex issues around taxing offshore indirect transfers of assets

IMF News, June 4, 2020

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Canonical URL: Platform for Collaboration on Tax releases toolkit to help developing countries tackle the complex issues around taxing offshore indirect transfers of assets

Press Release No. 20/235
Dates cited in release:
- June 4, 2020 (publication date)
- Washington, D.C., June 3, 2020 (dateline)
Media relations contact:
- PRESS OFFICER: Keiko Utsunomiya Kutsunomiya@imf.org
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
- @IMFSpokesperson
The Platform for Collaboration on Tax (PCT) released a "Toolkit on the Taxation of Offshore Indirect Transfers (OIT)" providing guidance on design and implementation issues when one country seeks to tax gains on the sale of interests in an entity owning assets located in that country by an entity which is a tax resident in another country.
This is the third Toolkit published by the PCT to provide guidance on areas of international taxation of particular concern to developing countries.

The toolkit addresses issues particularly significant to developing countries, mostly but not exclusively natural resource rich countries—primarily from the perspective of the country where the underlying assets are located.
It focuses on taxation of indirect transfers of assets such as:
- mineral rights
- other assets generating location specific rents such as licensing rights for telecommunications
The topic is highlighted as a concern in many developing countries and is noted as magnified by the revenue challenges that governments face as a consequence of the COVID-19 crisis.

The toolkit notes the significance of this issue in the development of the OECD led Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the “MLI”).
The MLI includes a provision based upon the OECD and UN model tax conventions for extending the reach of existing tax treaties to allocate rights to tax such indirect transfers to location countries, should treaty partners so choose.

Economic rationale:
- The toolkit assesses the economic rationale for allocating taxing rights on such transfers to the country where the underlying assets are located.
- It proposes that location countries may wish to tax offshore indirect transfers of at least those assets which are immovable—within the meaning of current UN and OECD model treaties—and perhaps additional assets that also generate location specific rents.
Two suggested models for domestic legislation if location countries wish to extend taxing rights:
- Deemed disposal model:
- Seeks to tax the resident asset owner by treating it as having realized the gain on the assets immediately before the transfer and reacquired the asset immediately after the transfer.
- Non-resident seller model:
- Seeks to tax instead the non-resident seller of the asset.
Additional toolkit content:
- Suggests a model definition of immovable property for the purposes of such domestic legislation.
- Provides further guidance to support enforcement and collection.

The toolkit takes into account extensive comments received during two rounds of public consultation in 2017 and 2018 from numerous groups representing country authorities, civil society organization and the private sector.
Planned complementary activities:
- A launch webinar in the coming weeks.
- French and Spanish versions of the toolkit will follow.
- Virtual learning opportunities based on the toolkit.

The PCT is a joint initiative of:
- the International Monetary Fund (IMF)
- the Organization for Economic Cooperation and Development (OECD)
- the United Nations (UN)
- the World Bank Group (WBG)
The release notes earlier PCT toolkits:
- Toolkit on Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment in 2015
- Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses in 2017
- Others are in varying stages of development and public comment

Source: IMF press release Press Release No. 20/235, June 4, 2020.

Executive Summary
- Executive Summary (Markdown version)
- Executive Summary (PDF)