BEPS, ATAP, and the New Tax Dialogue: A Transatlantic Competition?

Since its launch in 2013, the US actively participated in all aspects of the BEPS project. However, until recently, the general view was that following the conclusion of the BEPS negotiations and the change of Administration the US is stepping back from the BEPS process. While the EU was charging ahead with implementing BEPS through the Anti-Tax Avoidance Directive (ATAD), the US stated that it was already in compliance with all BEPS minimum standards and therefore other than Country-by-Country Reporting (CbCR) it had no further BEPS obligations. The US decided not to sign the Multilateral Instrument (MLI) to implement BEPS into tax treaties, and did not join the Common Reporting Standard (CRS) to further automatic exchange of information, leading the EU to call it a tax haven. The US did adopt BEPS provisions in its model tax treaty, but those have not been implemented in any actual US treaty. Thus, most observers believe that the US has abandoned the BEPS effort. But this view is partially wrong. The current tax reform legislation clearly relies on BEPS principles and in particular on the single tax principle. This represents a triumph for the G20/OECD and is incongruent with the generally held view that the US will never adopt BEPS. This Article proceeds in four parts. Part II will analyse the three BEPS provisions included in TRA17: a one-time ‘transition tax’ on untaxed accumulated earnings and profits (E&P) of certain non-US corporations (new section965); and two anti-base erosion and income shifting provisions, namely a foreign minimum tax on 10% US shareholders of CFCs to the extent the CFCs are treated as having ‘global intangible low-taxed income’ (GILTI) (newsection 951A) and a base erosion and anti-abuse tax (BEAT) that will be imposed in relation to deductible payments made by certain corporations to their non-US affiliates (new section 59A). Part III will discuss one of the key BEPS action items that caused the most concern in the US, i.e. action 6 on the prevention of treaty abuse through inclusion of a principal purposes test. In part IV, authors will argue that Congress could have done more, especially with regard to the anti-hybrid rules for certain related party amounts of new section 267A since it does not have any significant impact on foreign-to-foreign hybrid planning. To this extent, it should be noted that, in order to limit the application of subpart F exceptions to transactions that use reverse hybrids to create stateless income, Obama administration proposed a rule that would provide that sections 954(c) and 954(c)(6) do not apply to payments made to a foreign reverse hybrid held directly by a US owner when those amounts are treated as deductible payments received from foreign related persons. Parts IV concludes