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ICC calls for consistency on ‘economic substance’ requirements

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The International Chamber of Commerce (ICC) has warned of the risks from inconsistent definitions and interpretations of ‘economic substance’ and ‘economic activity’ in the context of BEPS, which could lead to double taxation and obstacles to cross-border trade and investment.

In its ‘Policy statement on substance requirements for transfer pricing’, the ICC calls for:

  • consistent, well-balanced and uniform application of existing definitions and standards on economic substance for tax and transfer pricing purposes to avoid misinterpretations and subsequent double taxation risks;
  • establishment of appropriate dispute resolution mechanisms; and
  • aligned and overarching application of existing principles on economic substance for corporate income tax, VAT and transfer pricing.

The ICC notes the ‘absence of clear standards on how economic substance can be understood in the context of BEPS’. This is likely to ‘create new conflicts in the near future with evident risks of uncertainty and interpretation’.

The ICC says governments must look at different perspectives when considering economic substance; namely, that of the parent country state, the source state and any intermediary company state.


Issue: 1358
Categories: News , International taxes