OECD presents ‘building blocks’ for tax reformby
The OECD’s first recommendations for action to tackle “base erosion and profit shifting” (BEPS), released today, are the “building blocks” for an internationally agreed and co-ordinated response to corporate tax planning strategies, OECD secretary-general Angel Gurría has declared. Tax professionals have welcomed today’s announcement, one expert suggesting it marks a “significant turning point in the history of international co-operation on taxation”.
The OECD/G20 BEPS project is designed to create a single set of international tax rules to “end the erosion of tax bases and the artificial shifting of profits to jurisdictions to avoid paying tax”.
The first seven elements of the 15-point action plan will be a “key item” on the agenda at the G20 finance ministers’ meeting in Cairns, Australia, on 20-21 September. UK chancellor George Osborne will not attend, however. He is reported to have decided to remain in the UK for the outcome of the Scottish referendum.
The seven elements 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 (Action 2);
- “realign taxation and relevant substance” to restore the intended benefits of international standards and to prevent the abuse of tax treaties (Action 6);
- ensure that transfer pricing outcomes are “in line with value creation”, through actions to address transfer pricing issues in relation to intangibles (Action 8);
- improve transparency for tax administrations and increase certainty for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting to tax authorities (Action 13);
- address the challenges of the digital economy (Action 1);
- facilitate “swift implementation of the BEPS actions” through a report on the feasibility of a multilateral instrument to amend bilateral tax treaties (Action 15); and
- counter harmful tax practices (Action 5).
Gurría said the G20 had identified base erosion and profit shifting as “a serious risk to tax revenues, sovereignty and fair tax systems worldwide”.
The OECD has published an explanatory statement and seven reports outlining the “2014 deliverables”. The recommendations may be impacted by decisions taken on the remaining elements of the action plan, set to be presented to G20 governments for final approval in 2015, the OECD said. “At that point governments will also address implementation measures for the action plan as a whole.”
The OECD has covered “a lot of ground” and has managed to keep to its timetable of deliverables so far, said Ian Young, international tax manager at ICAEW. “The next challenge will be to maintain momentum over the coming 15 months, stay on track with the next set of deliverables and secure political buy-in and agreement to the proposals so that they make a difference in practical terms.”
But ActionAid said the BEPS process has “failed to consider a series of key issues vital to stopping tax avoidance in developing countries”. ActionAid tax policy adviser Anders Dahlbeck said the proposals “go nowhere near far enough in helping the world’s poorest countries make sure big businesses pay their fair share of tax”.
Tim Davies, head of tax at the accountancy firm Mazars, said: “Today is a very important day for the international tax world, and is a significant turning point in the history of international co-operation on taxation.”
The OECD should continue its engagement with developing countries, which have made a “valuable contribution” to the discussions so far, he said. Many developing countries were keen to “expand their influence”.
A sense of ‘common purpose’
Patrick Stevens, tax policy director at the Chartered Institute of Taxation, said: “This first wave of reports is a significant step forward in the process of modernising the international tax system, but the test will be getting international agreement for and implementation of a set of rule changes where there are a range of different perspectives and interests.”
Reaching consensus would not be easy, Stevens said. “Nevertheless I see a sense of common purpose which gives us an opportunity to modernise the international corporate tax system, rebuilding public confidence in it, while giving nations, taxpayers, businesses and investors the certainty they need to flourish and grow. It is important that we take it.”
Richard Collier, tax partner at PwC, said the BEPS project “marks the most significant change to international tax in modern times”. The scale and scope of the proposed reform “surpasses what many people had anticipated at the outset”, he added.
Chris Morgan, head of tax policy at KPMG in the UK, said a first read showed that today’s reports were “balanced”. They recognised that taxpayers “need certainty”.
He added: “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.”