OECD_BEPS_Ireland_spin_tax_Sept172014

IMPROVING THE COHERENCE OF INTERNATIONAL TAX RULES & TAXING MULTINATIONAL ENTERPRISES : OECD / G20 BASE EROSION & PROFIT SHIFTING PROJECT ( BEPS ).

 

 

International tax issues have never been as high on the political agenda as they are today.

The integration of national economies and markets has increased substantially in recent years.

This put a strain on the international tax framework, which was designed more than a century ago.

The current rules have revealed weaknesses that create opportunities for Base Erosion and Profit Shifting ( BEPS ), thus requiring a bold move by policy makers to restore confidence in the system and ensure that profits are taxed where economic activities take place and value is created.

The BEPS Project delivered its 15 final outputs in October 2015, two years after its launch in 2013, representing the most fundamentals changes to international tax rules in a century.

The overall aim of the BEPS measures is to close gaps in international tax rules that allow multinational enterprises to legally put artificially shift profits to low or no-tax juridictions.

OECD and G20 countries developed the measures on an equal footing, with extensive engagement by developing countries and regional tax organisations.

The focus now shifts to designing an inclusive framework for monitoring and supporting implementation, with all interested countries and juridictions invited to participate on an equal footing.

  • How big is the BEPS problem ? :

BEPS is an issue that affects everyone, developed and developing countries alike : based on current data, BEPS is conservatively estimated at anywhere between 4% and 10% of global corporate income tax ( CIT revenues ), representing USD100 to USD240 billion annually.

Developing countries have a greater reliance on CIT revenues from MNEs as a percentage of tax revenue, while the impact on developed countries in absolute terms is significantly higher.

  • Why worry about BEPS now ? :

The global economic crisis squeezed public finances, forcing many governments to cut spending and services or raise taxes to boost revenues.

In this climate, BEPS has a particularly negative impact on the overall fairness of the tax system.

Individual taxpayers and domestic businesses may shoulder a greater share of the tax burden when international corporate taxpayers are able to pay no or low tax.

MNEs themselves face significant reputational risk, given the attention paid to their tax affairs, while domestic companies face unfair competition when their MNE competitors use BEPS to tilt the playing field in their direction.

Governments receive lower revenues.

  • What about BEPS risks attributed to technology companies ? :

The BEPS package provides a detailed analysis of the digital economy, including its business models and key features.

While the Digital Economy does not create unique BEPS issues, some of its features exacerbates existing ones.

These have been addressed via the modifications to the definition of permanent establishment, the new transfer pricing rules, in particular regarding hard – to – value intangibles and recommendations on how to strengthen so – called « Controlles Foreign Corporation » rules.

Building on the OECD International VAT / GST Guidelines, the BEPS package also recommends that VAT on digital transactions be collected in the country where the customer is located and provides agreed mechanisms to do so in an efficient manner.

  • What’s next ? :

The focus now shifts towards swift implementation of the measures.

Work to develop a new multilateral instrument for the implementation of the treaty – related BEPS measures into the existing network of bilateral tax treaties has already started with around 90 countries negotiating on an equal footing, and the instrument will be open for signature to all interested countries in 2016.

www.oecd.org/tax/beps.htm