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Fifteen-part action plan against base erosion and profit shifting
The Organisation for Economic Co-operation and Development (OECD) has published a proposal that identifies 15 specific measures to give governments domestic and international instruments to prevent corporations from paying little or no taxes.
The Action Plan on Base Erosion and Profit Shifting was produced at the request of the G20 nations with the objective of developing a set of standards to prevent double non-taxation.
Existing tax treaties and transfer pricing rules can in some cases facilitate the separation of taxable profits from the value-creating activities that generate them.
The OECD’s plan aims to align tax with substance, ensuring taxable profits cannot be artificially shifted away from countries where the value is created through the transfer of intangibles such as patents or copyrights, risks or capital.
The report states that greater transparency and improved data are needed to evaluate, and stop the growing disconnect between the locations in which financial assets are created and investments take place, and those in which multinational enterprises report profits for tax purposes.
Requiring taxpayers to report their aggressive tax-planning arrangements and rules about transfer pricing documentation, breaking-down the information on a country-by-country basis, is expected to governments identify risk areas and focus their audit strategies.
Chris Morgan, head of tax policy at KPMG in the UK, said the plan “creates a road map that should help companies to plan their future tax strategies”.
He added, “It is particularly welcome that there will be involvement of a wide range of stakeholders, including non-OECD G20 members, the UN, business and civil society, so the rules can be developed to address real rather than perceived problems, and will carry broad support.”
Morgan ended with a note of caution by saying, “It is important that the OECD’s work concentrates on the future and is not used to reinterpret existing laws and practice as this would create uncertainty and so harm economic growth.”
The OECD has also presented G20 finance ministers with proposals for a new single global standard on the automatic exchange of information.
It is expected to be endorsed by the G20, which will call on all jurisdictions to commit to its implementation.
The standard, which is expected to be operational in 2014, will be based on a three-tier proposal:
- a definition of the financial information to be exchanged automatically: interest, dividends, account balance and income from certain insurance products;
- the development of an operational platform to ensure confidentiality and to avoid misuse of the data transmitted;
- the establishment of a multilateral, legal platform to allow signatories of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to opt into automatic exchange of information.
