12 | LEXPERT • June 2016 | www.lexpert.ca/usguide-corporate/
THE BEPS EFFECT
On its face, the Liberal government's first federal budget, tabled in March 2016, includes various mea-
sures that appear to advance Canada's commitment to the Organisation for Economic Co-operation
and Development's (OECD) crusade against base erosion and profit shifting (BEPS).
The measures include limiting treaty benefits by expanding the application of "back-to-back" interest
rules to apply to payments of rents and royalties, to "economically similar" arrangements notwithstanding
the form of those arrangements, and to arrangements involving multiple intermediaries. As well, the bud-
get has tightened up the "control exception" to the surplus stripping rules.
Canada will also implement country-by-country reporting, revise its transfer-pricing guidance to en-
sure it meets the BEPS standard, and implement the BEPS minimum standard for the spontaneous
exchange of certain tax rulings as well as the common reporting standard for the automatic exchange of
information among participating countries.
But Nathan Boidman of Davies Ward Phillips & Vineberg LLP in Montréal has long expressed
doubt that BEPS was rolling out anything that developed countries hadn't already considered or that it
would change how international tax law is formulated in countries like Canada.
"For the OECD to say that the G20 should adopt anti-treaty-shopping rules, for example, is tan-
tamount to getting a 'new glimpse of the obvious,' as former RJR Nabisco CEO Ross Johnson once
said," he says. "Canada and other countries have been trying to prevent inappropriate treaty shopping
for years."
At their core, the BEPS "deliverables" or recommendations, released in October 2015, take aim
squarely at global profit shifting. "The key principle is that profits should be located where value is cre-
ated and where economic activity actually takes place," says Carrie Smit of Goodmans LLP in Toronto.
Accordingly, the voluminously detailed deliverables have "action items" that embrace transfer pric-
ing, treaty shopping, hybrid entities and instruments, interest deductibility and harmful tax practices.
But Canada has been working on many of these issues for some time. "The government has long
made it clear that it wants to manage abuses at the cross-border level," says Carman McNary of Dentons
The federal government's commitment
to fight against base erosion
and profit shifting and an evolving
duty of care for tax authorities
are all on the radar of tax lawyers
BY JULIUS MELNITZER
TAXING
COMMITMENTS
TAX
PHOTO:
SHUTTERSTOCK
