On 5 October 2015, the OECD published the final reports of the OECD/G20 Base Erosion and Profit Shifting (“BEPS”) project, which is consists of a package of measures for a coordinated international approach to reform the international tax system. The BEPS refers to the global effect of multinational companies’ tax avoidance strategies on national tax bases. For instance, in the US, the country’s biggest 500 companies hold over 2.1 trillion dollars in offshore accounts, causing a 620 billion dollars in losses for the US government.
The package offered by the BEPS project, will be discussed by the G20 ministers of finance on 8 October 2015. The combination of proposed anti-abuse rules and increased transparency will have significant implications for numerous companies operating in multiple jurisdictions. The OECD/G20 member states have committed to consistent implementation in the areas of preventing tax treaty shopping, Country-by-Country Reporting, combatting harmful tax practices and improving dispute resolution, whereas in other areas, such as hybrid mismatch arrangements, CFC and interest deductibility, they have agreed on a “softer” general tax policy direction.
Furthermore, the OECD/G20 member countries are intending to develop a framework for extending the implementation of BEPS measures to non-OECD and non-G20 countries. It is still difficult to predict whether and to what extent countries will accept harmonization of international tax standards, in particular with regard to the Actions that have not resulted in minimum standards. The reports specify the final BEPS package for reform of the international tax system to tackle tax avoidance. The package includes 15 actions that will be on the agenda:
- Action 1: Addressing tax challenges of Digital economy.
- Action 2: Neutralizing the effects of hybrid mismatch arrangements.
- Action 3: Designing effective controlled foreign policy rules.
- Action 4: Limiting base erosion involving interest deductions and other financial payments.
- Action 5: Countering harmful tax practices more effectively, taking into account transparency and substance.
- Action 6: Preventing the granting of treaty benefits in inappropriate circumstances.
- Action 7: Preventing the artificial avoidance of permanent establishment status.
- Actions 8-10: Guidance on transfer pricing aspects of intangibles.
- Action 11: Measuring and monitoring BEPS.
- Action 12: Mandatory disclosure rules.
- Action 13: Guidance on transfer pricing documentation and country-by-country reporting.
- Action 14: Making dispute resolution mechanisms more effective.
- Action 15: Developing a multilateral instrument to modify bilateral tax treaties.