BEPS Project marks its first turning point in the history of international co-operation on taxation

BEPS Project marks its first turning point in the history of international co-operation on taxation

Tue 16 Sep 2014

We welcome the OECD announcement on OECD BEPS project and deliverables. Today is a landmark day for the international tax world and it is expected that the BEPS project marks its first turning point in the history of international co-operation on taxation.



 

Tax avoidance and aggressive tax planning by MNES is an international issue that will require a coordinated and comprehensive approach to come up with effective solutions. We strongly believe the OECD work will modernise the international tax rules to tackle base erosion and profit shifting, through preventing MNEs from manipulating internal transactions, ensuring that a significant economic presence in a country gives rise to taxation in that country, preventing the establishment of shell companies to exploit tax treaties between countries, and ensuring that companies disclose more information to tax authorities and that tax authorities share that information with each other where it is relevant.

OECD members and the BEPS Associates have now agreed by consensus the first seven deliverables of the Action Plan. We are very excited about the first set of BEPS deliverables that will be presented to the G20 Meeting of Finance Ministers on 20-21 September in Cairns, Australia. The instruments and reports relate to: The Tax Challenges of the Digital Economy; Hybrid Mismatch Arrangements; Harmful Tax Practices, Tax Treaty Abuse; Transfer Pricing & Intangibles; Transfer Pricing Documentation and Country-by-Country Reporting and The Feasibility of Developing a Multilateral Instrument on BEPS.

Implementation of the measures will go a long way in addressing some of the key BEPS challenges, with the 2014 deliverables including model rules to neutralise hybrid mismatches (Action 2), putting an end to costly multiple deductions for a single expense or deductions in one country without corresponding taxation in another. The work under Action 5 targets harmful tax practices, focusing on the distortionary influence of tax on the location of service activities with progress being made on the transparency of tax rulings and a methodology to assess substantial activity in intellectual property, and other, preferential regimes. Treaty shopping and other forms of treaty abuse have been targeted under Action 6, with all countries agreeing that anti-treaty abuse provisions should be included in tax treaties. Under Action 8, the work on ensuring that value creation is aligned with taxation under transfer pricing rules has begun with a focus on intangibles and a consensus was reached that the artificial shifting of profits to no or low-tax jurisdictions, for example through cash boxes, can no longer be tolerated. This work on the transfer pricing rules will continue to progress, including under Actions 9 and 10 as foreseen in the Action Plan, in 2015.

Major progress has been achieved in improving transparency for tax administrations while limiting compliance costs for businesses, with agreement reached on transfer pricing documentation, including country by country reporting of the profits, economic activity and taxes of multinational enterprises. More broadly, there has been a clarification of the tax challenges raised by the digital economy, which will see this work given further specific attention through 2015. Overall, the issue of implementation of the BEPS measures has seen countries agree on the feasibility of implementing BEPS measures through a multilateral instrument, under Action 15.

These measures across seven areas of the Action Plan are an important step forward in fighting BEPS. Viewed together with the 2015 deliverables, and once implemented to double tax treaties and domestic laws, the measures will ensure the coherence of corporate tax systems in a cross-border environment, introduce substance requirements in the area of tax treaties and transfer pricing, and ensure transparency while promoting certainty and predictability

The first set of BEPS deliverables that will be presented to the G20 Meeting of Finance Ministers on 20-21 September in Cairns, Australia. The instruments and reports relate to: The Tax Challenges of the Digital Economy; Hybrid Mismatch Arrangements; Harmful Tax Practices, Tax Treaty Abuse; Transfer Pricing & Intangibles; Transfer Pricing Documentation and Country-by-Country Reporting and The Feasibility of Developing a Multilateral Instrument on BEPS.

The Explanatory Statement provides an overview of the three reports and four instruments. Mazars Tax Policy Team will publish separate reports on the deliverables. For the full published recommendations please click on:

the tax challenges of the digital economy
hybrid mismatch arrangements
harmful tax practices
tax treaty abuse
transfer pricing and intangibles
transfer pricing documentation and country-by-country reporting
the feasibility of developing a multilateral instrument on BEPS.

Mazars Tax Policy Team will publish separate reports on the deliverables.

* pictures: OECD website

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