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OECD Transfer Pricing on Financial Transactions

In early July, as follow up work in relation to the BEPS project, the OECD issued a new public discussion draft paper (the “Draft Paper”) regarding the transfer pricing aspects of financial transactions. The Draft Paper seeks to clarify principles previously included in the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Transfer Pricing Guidelines”) in relation to four areas. Further detail on each of these topics and the implications for Financial Services groups appears below.


As you may have recently seen, on 25 May 2018, the Economic and Financial Affairs Council (“ECOFIN”) formally adopted rules regarding the mandatory automatic exchange of information in relation to reportable cross-border arrangements.

Changes to rules on Hybrid and Other Mismatches in draft Finance Bill 2018/19: considerations for banking and capital markets institutions

Hybrid legislation came into effect as of 1 January 2017, and was drafted closely in line with the recommendations of the BEPS Action 2 report. While the UK considered its rules consistent with the ATAD and ATAD 2[1] for the most part (which is unsurprising given these too were aligned with the Action 2 report principles), the UK government has now proposed some changes with the aim of ensuring its legislation fully conforms with the Directive requirements. Notwithstanding that the UK is scheduled to leave the EU on 29 March 2019, the UK is still proposing to adopt those minimum standards required to be implemented by Member States by 1 January 2020. (It is likely that the UK will be required to comply with the Directives during any Brexit transition period, and this period is currently anticipated to last from 29 March 2019 to 31 December 2020.)

Financial Transaction Tax Developments

Five years on since the EU Commission first proposed the introduction of a wide ranging EU Financial Transactions Tax (FTT), rumours occasionally resurface to suggest a new momentum for introduction of the tax. Differing views across Member States on the scope and form of the tax, and the practical challenges of implementing the tax as originally proposed, suggests it is unlikely that the required consensus across those Member States in support of such a tax would ever be achieved.

IFRS 16 - (Draft) Finance Bill proposed tax changes

The draft clauses of Finance (No.3) Bill released on 6 July 2018 covered the taxation of leases for accounting periods beginning on or after 1 January 2019. Despite the Government’s intention that the legislative changes proposed would ensure that the leasing rules continue to work as originally intended, the draft legislation will have a significant impact on the ‘status quo’ and place a heavy compliance burden on lessees, particularly on transition.