UK and International Tax news
OECD Releases Final BEPS Package
Monday 5th October 2015
The OECD has released the final package of measures for a comprehensive, coherent and coordinated reform of the international tax rules to be discussed by G20 Finance Ministers at their next meeting on 8 October, in Lima, Peru.
The BEPS project now provides governments with solutions for closing the gaps in existing international rules which allow corporate profits to disappear or be artificially shifted to low or no tax environments, where little or no economic activity takes place.
Revenue losses from BEPS have been estimated at USD 100-240bn annually, or 4-10% of global corporate income tax revenues (CIT). Given developing countries’ greater reliance on CIT revenues as a percentage of total tax revenue, the impact of BEPS on these countries is particularly significant.
The final package of BEPS measures covers all 15 Action Points and includes new minimum standards on: CbC Reporting, which for the first time will give tax administrations a global picture of the operations of MNEs; treaty shopping, to put an end to the use of conduit companies to channel investments; curbing harmful tax practices, in particular in the area of IP and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non taxation does not result in double taxation.
The BEPS package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called “cash box” entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of Permanent Establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.
The BEPS package offers governments a series of new measures to be implemented through domestic law changes, including strengthened rules on CFCs, a common approach to limiting base erosion through interest deductibility and new rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.
Nearly 90 countries are working together on the development of a multilateral instrument capable of incorporating the tax treaty-related BEPS measures into the existing network of bilateral treaties. This instrument will be open for signature by all interested countries in 2016.
Following delivery of the BEPS measures to G20 Leaders during their annual summit on 15-16 November in Antalya, Turkey, the focus will shift to designing and putting in place an inclusive framework for monitoring BEPS and supporting implementation of the measures, with all interested countries and jurisdictions invited to participate on an equal footing.
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