Base Erosion and Profit Shifting
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Summary • On 19 July, OECD presented a 15 point plan to the G20 on BEPS • At its heart, the action plan looks at how to align taxation with the substance that creates the economic value to a multinational company • The growth of the digital economy has opened up opportunities for multinationals to greatly minimise their tax burden • A combination of measures will be reviewed to increase transparency of information provided to tax authorities and disclosure of aggressive avoidance schemes • The timetable is ambitious with a 12-18 month timeline proposed for the first actions • The key impact for most Countries is likely to be around changes to transparency and disclosure require- ments BASE EROSION AND PROFIT SHIFTING (BEPS) Organisation for Economic Cooperation and Development (OECD) Action Plan Informations Management & Consulting
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Transcript of Base Erosion and Profit Shifting
Summary
• On19July,OECDpresenteda15pointplantotheG20onBEPS• Atitsheart,theactionplanlooksathowtoaligntaxationwiththesubstancethatcreatestheeconomic
valuetoamultinationalcompany• Thegrowthofthedigitaleconomyhasopenedupopportunitiesformultinationalstogreatlyminimisetheir
taxburden• Acombinationofmeasureswillbereviewedtoincreasetransparencyofinformationprovidedtotax
authoritiesanddisclosureofaggressiveavoidanceschemes• Thetimetableisambitiouswitha12-18monthtimelineproposedforthefirstactions• ThekeyimpactformostCountriesislikelytobearoundchangestotransparencyanddisclosurerequire-
ments
BaSe eroSion and Profit Shifting (BePS)organisation for economic Cooperation and development (oeCd) action Plan
InformationsManagement&Consulting
On19July, theOrganisationforEconomicCo-operationandDevelopment(“OECD”)presentedtheiractionplanformultilateralco-operationtoaddressBaseErosionandProfitShifting(“BEPS”)totheG20FinanceMinisters.Insimplewords,theOECDisplanningtoupdateandco-ordinatenationaltaxlawssotheyalignwiththeeconomiesandtradingactivitythatnowexist.
Atitsheart,theactionplanonBEPSseekstoensurealignmentbetweentaxationandtherelevantsubstancethatcreateseconomicvalue.Globalisation,combinedwithincreasinglycomplexoperatingmodelsalongsidethegrowthofthedigitaleconomy,hasopenedupopportunitiesforcompaniestogreatlyminimisetheirtaxburden.Theactionplanlookstolaunchaglobalcollaborativeefforttomodernisetheinternationaltaxsystemandidentifies15keyar-easwheretheOECDproposechangestothewaymultinationalsaretaxed.
OECDhascommentedthattheinternationaltaxrulescurrentlyinplaceweredesignedtoensurethatbusinessesdidnotpaytaxesin2countriesonthesamerealisedprofit.Theserulesarenowbeingusedbymultinationalcompaniestoreducetheirtaxliabilitiesacrosstheglobe.Asaresult,OECDhaspresenteda15pointplantoupdatetheinternationaltaxframeworkthathasbeeninplaceformanydecades.The15pointscanbegroupedasfollows:
Considerationistobegiventothechallengesofwherebusinessisundertakenandconcluded,whatconstitutesafixedplaceofbusinessinaparticularjurisdictionandhowanyprofitallocationshouldbecalculated.
review of the Challenges of taxing the digital economy
Tolookatneutralisingeffectsofhybridinstrumentswheretheinstrumentachievesamismatchandtakesadvantageofadoublededuction.
Specific mismatch/ tax asymmetry
Theprinciplesaroundinterestdeductibilityandtaxlegislationusedindifferentcountriestobringprofitsarisingin“lowtax”jurisdictionsintochargewillbereviewed.
Legislative rewrite
Remove the potential to realise benefits from transactions by amending the currentmodel and introducing an-ti-abuseprovisions.Specificattentionwillfocusonwhatconstitutesataxablepresenceinacountry(permanentestablishment)andhowanyincomeisallocatedtothattaxablepresence.
anti-avoidance
Workwillbeundertakentolookatsituationswhereprofitscanbeshiftedbymeansofallocationofintangibles,cap-italandrisksamonggroupmembers,aswellastransactionsthattakeplacebetweenconnectedentitiesthatwouldrarelybeseenoccurringbetweenthirdparties.TheOECDwillfocusonlimitingareaswhereprofitshiftingcanoccurbylookingtostrengthentransferpricingrules.
transfer pricing
TheOECDwilllookatwhatsharingofdata,methodologiesanddocumentationcantakeplacetoensureallrelevantgovernmentshaveinformationonglobalallocationofincome,economicactivityandtaxespaidinthevariousjuris-dictionsbymultinationalcompanies.
TheworkarisingfromtheBEPSreportislikelytoresultingreatersophisticationfromtaxauthoritiesinassessingglobaltaxrisk.OneimpactthatcouldarisefromtheBEPSworkmaybetofurtheralignsubstancetoprofit–poten-tiallyleadingtoashiftinactivityfromlowtaxjurisdictionstowherethereisgreatereconomicsubstance.
Atimeframeof12-18monthsforcompletionofthefirstactionswiththeremainderbeingaddressedbytheendof2016hasbeenproposedbytheOECD.
disclosure and transparency
introduction
oeCd action plan
impact at country level
FormanyCountriesthesenewswillnothaveamaterialimpactfromalegislationpointofview,butonlyfromatrans-parencyanddisclosureperspectivetoensurethatassociatedtransferpricingrulesareappropriate.
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impact at business levelWhenanorganisationhasan international footprint, thepotential to “shift”profits toother jurisdictionsbecomesrealisticandthereforeitisforthistypeoforganisationsthattheimpactisgoingtobebiggest.Transparencyaswellasrationalisationofbusinessmodelswillbeincreasinglynecessaryforalargenumberoffirmstoensurethatallnecessaryrequirementsaremet.
