UK and International Tax news
OECD Action Plan On BEPS
Monday 22nd July 2013
The OECD has issued its Action Plan on Base Erosion and Profit Shifting [BEPS], produced at the request of the G20 and introduced at the G20 Finance Ministers’ meeting in Moscow in February 2013. The Action Plan identifies 15 specific actions that are intended to give governments the domestic and international instruments to prevent corporations from paying little or no taxes.
The OECD recommends that fundamental changes are needed to effectively prevent double non-taxation, as well as cases of no or low taxation associated with practices that artificially segregate taxable income from the activities that generate it. The Action Plan calls for changes to the current mechanisms and the adoption of new consensus-based approaches, including anti-abuse provisions, designed to prevent and counter BEPS.
In particular, new international standards must be designed to ensure the coherence of corporate income tax at the international level given BEPS issues may arise directly from the existence of loopholes, as well as gaps, frictions or mismatches in the interaction of countries’ domestic tax laws.
A realignment of taxation and relevant substance is needed to restore the intended effects and benefits of international standards, which may not have kept pace with changing business models and technological developments.
The actions implemented to counter BEPS cannot succeed without further transparency, nor without certainty and predictability for business.
The 15 specific actions which have been tabled include:
Address the tax challenges of the digital economy.
Neutralise the effects of hybrid mismatch arrangements.
Strengthen CFC rules.
Limit base erosion via interest deductions and other financial payments.
Counter harmful tax practices more effectively taking into account transparency and substance.
Prevent treaty abuse.
Prevent the artificial avoidance of PE status.
Assure that transfer pricing outcomes are in line with value creation, in relation to intangibles, risks and capital and other high risk transactions.
Establish methodologies to collect and analyse date on BEPS and the actions to address it.
Require taxpayers to disclose their aggressive tax planning arrangements.
Re examine transfer pricing documentation.
Make dispute resolution mechanisms more effective.
Develop a multilateral instrument.
The OECD expects that the Action Plan will largely be completed in a two year period, recognising that some actions will be addressed faster as work has already been advanced, while others might require longer term work.
Amongst the actions more likely to be delivered in 12-18 months are those in the areas of hybrid mismatch arrangements, treaty abuse, the transfer pricing aspects of intangibles, documentation requirements for transfer pricing purposes, a report identifying the issues raised by the digital economy and possible actions to address them, as well as part of the work on harmful tax practices.
Actions to be delivered in two years relate to CFC rules, interest deductibility, preventing the artificial avoidance of PE status, the transfer pricing aspects of intangibles, risks, capital and high risk transactions, part of the work on harmful tax practices, data collection, mandatory disclosure rules, and dispute resolution.
Actions that may require more than two years include the transfer pricing aspects of financial transactions, part of the work on harmful tax practices and the development of a multilateral instrument to swiftly implement changes to bilateral treaties. Although these actions are considered as key items of the Action Plan, it is recognised that this work will have to be developed in different stages, starting with a thorough analysis of the issues.Contact Us