ICC Document & publication

ICC comments on the OECD Discussion Draft on Action 3: “Strengthening CFC Rules” (2015)

In the second phase of the G20 endorsed OECD/BEPS Action Plan, the International Chamber of Commerce (ICC) submitted comments to the OECD’s Discussion Draft on Action 3, concerning strengthening controlled foreign corporation (CFC) rules.

In response to Action 3 of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan, ICC submitted feedback on the key issues addressed in the OECD discussion draft on strengthening controlled foreign corporation (CFC) rules.

Action 3 aims to develop recommendations for CFC rules that are effective in dealing with BEPS. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes and/or to shift profits to locations where there is little or no real activity but the taxes are low. Currently, some countries do not have CFC rules, while others have rules that do not always counter BEPS situations in a comprehensive manner.

As the world business organization, ICC raised concern that the draft merely reflects a very early stage of discussions between countries with highly opposing views on how to best proceed. This will most likely result in a menu of options for individual domestic issues rather than recommendations. Furthermore, ICC notes overlap and confusion with various other action items (e.g. 2, 5, 8-10) and believes that the proposed rules almost touch upon transfer pricing rules.

Noting preventing double taxation as a crucial objective, ICC welcomes the OECD’s recommendation to introduce a “meaningfully lower” threshold compared to the statutory tax rate of the parent jurisdiction and proposes that countries refrain from any limitation of the creditable amount, such as per year or per country limitations.