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The Organisation for Economic Cooperation and Development (OECD) has revealed the opening strategies of its much-anticipated action plan for a coordinated international fight against tax avoidance by multinational enterprises.
The Organisation for Economic Cooperation and Development (OECD) has revealed the opening strategies of its much-anticipated action plan for a coordinated international fight against tax avoidance by multinational enterprises.
A bundle of recommendations come as part of the base erosion and profit shifting (BEPS) project, which aims to help governments protect their tax bases and offer increased certainty and predictability to taxpayers, while guarding against domestic rules that result in double taxation, unwarranted compliance burdens and restrictions to legitimate cross-border activity.
The first seven elements of the OECD’s plan focus on helping countries to:
- ensure the coherence of corporate income taxation at the international level, through new model tax and treaty provisions to neutralise hybrid mismatch arrangements;
- realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties
- assure transfer pricing outcomes are in line with value creation, through actions to address transfer pricing issues in the key area of intangibles;
- improve transparency for tax administrations and increase certainty and predictability for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting;
- address the challenges of the digital economy;
- facilitate swift implementation of the BEPS actions through a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties; and
- counter harmful tax practices.
The suggested measures come after a consultation process between the OECD, the G20 and developing countries and stakeholders from business, labour, academia and civil society organisations.
KPMG’s head of tax policy, Chris Morgan, said the anti-avoidance documents “recognise that taxpayers need certainty”, adding ,“It is very welcome that the proposals are in draft so that they can be reviewed and amended, if necessary, as part of the 2015 work streams, to ensure the overall package properly addresses the issues.
“The challenge is now whether, and to what extent, countries will adopt into local legislation the recommendations that have been made, particularly where the recommendations are, by the OECD’s own admission, not formally finalised.”
Heather Self, partner at law group Pinsent Masons, noted a “focus on harmful tax practices, which could include the UK's patent box regime. The emphasis will be on ensuring that incentives are only given for real activity, and the UK may come under pressure to tighten its qualifying conditions to meet this.”
The impact on businesses will depend in part on how the OECD measures are implemented by tax authorities across the world, claimed Richard Collier, tax partner at PwC.
“If they take an iron fist, standard trading structures could be affected, regardless of tax avoidance motive. More disputes between businesses and tax authorities are inevitable as the rules are amended, particularly where authorities previously blessed the arrangements in question. The OECD's work to improve dispute resolution will be a crucial next phase of the BEPS project to ensure a smooth transition,” said Collier.
