The Organisation for Economic Co-operation and Development (OECD) has released
for public comment draft documentation for implementing a streamlined procedure
for portfolio investors to claim reductions in withholding rates pursuant to tax
treaties or domestic law in the source country.
This release is the work of the Informal Consultative Group on the Taxation
of Collective Investment Vehicles and Procedures for Tax Relief for Cross-Border
Investors (ICG) which was established in 2006 by the OECD’s Committee
on Fiscal Affairs (CFA) to consider legal questions and administrative barriers
that affect the ability of collective investment vehicles (CIVs) and other portfolio
investors to effectively claim the benefits of tax treaties.
On January 12, 2009, the OECD released two reports prepared by the ICG in fulfilment
of this mandate. The ICG’s first report, on the “Granting of Treaty
Benefits with respect to the Income of Collective Investment Vehicles,”
addresses the legal and policy issues relating specifically to CIVs. A modified
version of that report was released by the OECD for public comment on December
9, 2009.
The report by the ICG on “Possible Improvements to Procedures for Tax
Relief for Cross-Border Investors” discusses the procedural problems in
claiming treaty benefits faced by portfolio investors generally and makes a
number of recommendations on “best practices” regarding procedures
for making and granting claims for treaty benefits for intermediate structures.
The Implementation Package was developed by the Pilot Group on Improving Procedures
for Tax Relief for Cross-Border Investors (Pilot Group) to provide standardized
documentation that could be used by countries that wish to adopt the “best
practices” described in the ICG's report. The Pilot Group includes representatives
of the tax administrations of some OECD member countries as well as representatives
from the financial services industry.
The Implementation Package provides a system for claiming treaty benefits that
allows authorized intermediaries to make claims on behalf of portfolio investors
on a “pooled” basis.
One of the major benefits of such a system is that information regarding the
beneficial owner of the income is maintained by the authorized intermediary
that is nearest to the investor, rather than being passed up the chain of intermediaries.
Although a source country may be willing to provide benefits on the basis of
pooled information, it may want to maintain the ability to confirm that benefits
that have been provided were in fact appropriate. In addition, when a residence
country’s investor obtains income from abroad, the residence country has
a compliance interest in knowing the details of that.
For those reasons, the Implementation Package also recommends that those financial
institutions that wish to make use of the “pooled” treaty claim
system be required to report on an annual basis directly to source countries
(i.e. not through the chain of intermediaries) investor-specific information
regarding the beneficial owners of the income.
The Implementation Package is the work of the Pilot Group and does not necessarily
reflect the views of the OECD or any of its member states.
The CFA will be deciding whether and how the work on improving procedures should
be carried forward. Because the development of standardized documentation is
useful only if the documentation is widely accepted by business and governments,
the CFA has decided to invite comments from all interested parties before further
consideration of the Implementation Package.
Interested parties are therefore invited to send their comments on the Implementation
Package before August 31, 2010.
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