OECD unveils final package of BEPS measures

Organisation sets out reform programme to align national tax regimes and boost transparency

Finance professionals in multinational firms are about to face a whole new set of compliance obligations, following the announcement of a final package of measures to harmonise tax regimes under the Base Erosion Profit Shifting (BEPS) scheme.

Spearheaded by the Organisation for Economic Co-operation and Development (OECD), the initiative aims to set a range of common disclosure rules for financial activities that are the preserve of global companies with divisions and affiliates scattered in a range of locations.

In particular, BEPS seeks to clamp down on abuses in which a company transfers profits made in one country to a subsidiary in another, specifically to take advantage of preferential local tax laws.

Unveiled on 5 October, the BEPS final package includes new, minimum standards for transparency in:

  1. Country-by-country reporting – which will, for the first time, enable tax authorities to have a global ‘map’ of a multinational’s operations;
  2. Treaty shopping, to end the use of shell companies designed as conduits for channelling investments;
  3. Improper leveraging of intellectual property assets, which in some countries are shielded from taxation via national ‘patent box’ arrangements; and
  4. Mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.

The package also revises guidelines on the application of transfer-pricing rules, to prevent firms from using so-called ‘cash box’ entities to shelter their profits in low- or no-tax jurisdictions.

It also redefines the key concept of Permanent Establishment, in order to curb arrangements that avoid the creation of a taxable presence in any country on the basis of what the OECD considers an outdated definition.

Reacting to the package, European taxation and customs commissioner Pierre Moscovici said: “This is a major step in combating aggressive tax planning, creating greater transparency in corporate taxation and in providing fairer competition for both businesses and consumers.

“The OECD package published today, which identifies measures towards fairer and more effective corporate taxation worldwide, is a very important milestone towards greater transparency and efficiency.”

Speaking to Accountancy Age, BEPS project leader Raffaele Russo said that only figures in corporate finance who “take aggressive positions and walk on the thin line between what is legal and what is not” would find the measures “a pain”.

He warned: “[Those individuals] will find many bumps on the road, be subject to constant scrutiny and face significant financial risks.”

In Forbes, however, Adam Smith Institute fellow Tim Worstall wrote that BEPS would have “pernicious effects in the poorest countries, all the while making little or no difference to the total amount that government confiscates to spend upon buying votes”.

In May, The Treasurer reported that almost half of CFOs polled by tax-advisory firm Taxand thought that, in practice, the BEPS reforms were unachievable.

Visit this OECD web page for full details of the BEPS final package.

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