Base Erosion and Profit Shifting BEPS

Solving gaps between tax rules of the several countries

Purpose of this project is to solve gaps between tax rules of the several countries used by multinationals to legally transfer their benefits to countries with a minimal or no taxation. BEPS is today supported by around 90 countries. Launched in 2013, the OECD /G20 BEPS leads to a release of 15 final reports delivered in October 2015. 

 

Principles are declined in fifteen actions defined at the beginning of the project in 2013. The objective is to provide governments with domestic and international instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating the profits are performed and where value is created. These fifteen actions are:

1. Digital Economy

2. Hybrids

3. CFC Rules

4. Interest Deductions

5. Harmful Tax Practices

6. Treaty abuse

7. Permanent Establishment Status

8-10. Transfer Pricing

11. BEPS Data Analysis

12. Disclosure of Aggressive Tax Planning

13. Transfer Pricing Documentation

14. Dispute Resolution

15. Multilateral instrument

 

Impacts of this project are based on three principles:

Increase coherence:

Standards rules have been elaborated to:

  • avoid hybrid measures

  • precise components of an efficient regime applicable to foreign controlled companies

  • build a common approach for the question of interest deductibility

Best practices on mandatory communication of information was also defined and exchanges of information on some tax rulings set up.

 

Reinforce regulatory on substance:

  • improvement of rules applicable for transfer pricing to be sure that results are adapted to the reality of economic activity,

  • due to the difficulty of evaluation of intellectual property rights, finalisation of a method of assets estimation particularly for assets which are difficult to assess,

  • proposition of simplification mechanisms for transactions on raw materials and low value added services, and particularly those at destination of developing countries,

  • establishment of a minimum standard in the domain of possible treaty abuse, in order to be sure of the right utilisation of treaties,

 

Ensure more transparency and legal protection:

  • definition of indicators on magnitude and economic impact of BEPS trends. They will be used to proceed to an evaluation of the effectiveness of the measures implemented,

  • recommendation formulation on the content of the rules on the mandatory communication of information,

  • review of the requirements on transfer pricing documentation and establishment of a template form for declaration country by country, which indicates the location of the economic activities,

  • adoption of minimum standards in the area of treaties abuse, country by country declaration, conflicts settlement and harmful tax practices.

 

OCDE’s opinions are only recommendations which then need to be transposed into national laws.

 

 

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