OECD: offshore indirect transfers

As part of a series of toolkits to ‘help guide developing countries in the implementation of policy options for issues in international taxation of greatest relevance to these countries’, the OECD’s Platform for Collaboration on Tax (PCT) has published a Toolkit on the taxation of offshore indirect transfers.

Offshore indirect transfers (OITs) are sales of an entity owning an asset located in one country by a resident of another. The toolkit addresses the issue taxation rights where, for example, the country in which the underlying asset is located wishes to tax gains realised on transfer. While this may apply already to direct transfers of immovable assets, the toolkit considers the application of similar treatment to a wider class of assets.

The taxation of indirect transfers of assets such as mineral rights, and other assets generating location-specific rents such as licensing rights for telecommunications is a concern in many developing countries, magnified by the revenue challenges that governments around the world face as a consequence of coronavirus. The PCT toolkit gives practical guidance for developing countries on considerations that might arise when deciding to tax offshore indirect transfers, including the types of assets to tax and how to design and implement OIT taxation in domestic law. It also proposes two models for domestic legislation which countries might consider adopting to tax such transfers: (1) the OIT is treated as a deemed disposal of the underlying asset, and (2) the transfer is treated as being made by the actual seller, offshore, but sources the gain on that transfer within the location country and so enables that country to tax it.