Traditionally, companies are only interested in transfer pricing and country by country reporting (“CbC”) measures. This is because these measures have been labeled “aggressive tax avoidance" by governments and consultants. However, there are several BEPS measures which companies should be focusing on.
This article only describes some of the BEPS measures as they apply to the business of sourcing, buying, selling, and delivering physical commodities. These BEPS measures relate only to the trade of physical commodities and don't apply to derivatives trading. The remainder of the article uses the following facts:
CTCo may have representatives at the Buyer's office in State B to market the product or facilitate delivery of products. As this is part of CTCo's business model, such representatives may also be present at buyer's warehouse, should the need arise collect.
The Pre BEPS World for Tax Compliance
Traders can maintain a substantial physical presence in a jurisdiction, and certain activities are required to maintain and operate a
commodity supply chain (e.g. storage facilities, representative offices, or some other form of presence to conduct preparatory and auxiliary
activities) without triggering a PE. Accordingly, commodities traders can optimize their tax footprints in both sources and established
delivery jurisdictions if the operations were to extend further upstream beyond the FOB point at the source and extend further downstream
beyond DAP at the buyer’s destination.
According to the scenario outlined above, if CTCo,a commodity trader, is able to sidestep the regulatory framework in State S and State B for commodity trading, this allows CTCo to structure its business in a way that allows it to trade without a taxable presence in either State, despite a physical presence in both those jurisdictions. Consequently, the majority of the profit arising from the sale of commodities is taxed in State H, which may have a very competitive tax rate.