The OECD has released its first set of ‘deliverables’ from its ongoing BEPS action plan. In a press conference which unveiled the first package of seven measures, OECD secretary-general Angel Gurría hailed the recommendations as ‘a historical achievement on the long road to global tax justice’, adding: ‘The G20 has identified base erosion and profit shifting (BEPS) as a serious risk to tax revenues, sovereignty and fair tax systems worldwide. Our recommendations constitute the building blocks for an internationally agreed and coordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment.’
Ahead of his detailed presentation of the 2014 BEPS package, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said: ‘We are half way through. We are delivering actions to produce change, not just producing reports … There will be a need to translate this into domestic legislation, but the change happens now.’
The first seven elements of the action plan aimed to focus on helping countries to:
The remaining eight elements of the project are due to be released in 2015.
The announcement prompted a flurry of comment from both tax campaigners and professionals alike. Poverty campaigners ActionAid criticised the package for ignoring the problems faced by developing countries. ActionAid tax policy adviser Anders Dahlbeck said: ‘The OECD’s proposals on how to tackle tax avoidance are wholly inadequate. They go nowhere near far enough in helping the world’s poorest countries make sure big businesses pay their fair share of tax. It is now time for other agencies – including the United Nations – to take the lead on reforming the international tax system to make sure it works for developing countries.’
However, Frédéric Donnedieu (Taxand) warned over the uncertainty facing business. ‘Multinationals should be concerned that, in many ways, the OECD action plan legitimises the aggressiveness we have already seen from tax authorities towards taxpayers, particularly in areas such as transfer pricing. Time will tell whether all of the OECD’s BEPS initiatives will be implemented and indeed how they will be enforced, but there is still cause for concern. Country by country reporting likely constitutes one of the most critical elements of the BEPS initiative.’
Chris Morgan (KPMG) said the recommendations ‘represented a balanced approach’, saying they sought to address the issues of BEPS and double non-taxation whilst also recognising the need for taxpayer certainty: ‘The proposals should not result in double taxation or hinder cross-border trade. 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 workstreams to ensure the overall package properly addresses the issues.’
Sandy Bhogal (Mayer Brown) said: ‘Most if not all of the proposals are ones that should not surprise people. For example, the OECD has accepted that it is very difficult to isolate the taxation of the digital economy from other parts of a domestic tax code, especially when you consider the importance of digital tools to all businesses. However, the quest to identify appropriate changes to the definition of a permanent establishment continues and means that this area will continue to be uncertain for a while yet.’
Several advisers suggested that the OECD’s renewed focus on harmful tax competition could include the UK patent box. Heather Self (Pinsent Masons) said that ‘the UK may come under pressure to tighten its qualifying conditions’.
The seven deliverables from the 2014 BEPS package will be presented to G20 finance ministers this weekend, and to G20 leaders in November. Work has already commenced for the remaining eight elements of the 2015 package, which the OECD Committee on Fiscal Affairs (CFA) will deliver, together with the resolution of pending technical issues and the completion of the implementation measures for the 2014 deliverables. A draft mandate is planned in January 2015 for the CFA’s consideration regarding the ‘negotiation of a multilateral convention to streamline the implementation of the BEPS action plan’, according to the OECD’s explanatory statement.
The statement added that: ‘Once finalised, these measures are expected to become applicable via changes to bilateral tax treaties or through the multilateral instrument, through changes in domestic laws and with support from internationally agreed guidance.’ However, the OECD has given no indication on the actual timing of implementation of the BEPS actions. With more work needed in 2015, it seems likely that 2016 or 2017 would be the earliest period for enactment, although the final action plan to be adopted by all countries involved will need to be translated into domestic legislation.
CIOT tax policy director Patrick Stevens said: ‘This first wave of reports is a significant step forward, 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.’
The OECD has released its first set of ‘deliverables’ from its ongoing BEPS action plan. In a press conference which unveiled the first package of seven measures, OECD secretary-general Angel Gurría hailed the recommendations as ‘a historical achievement on the long road to global tax justice’, adding: ‘The G20 has identified base erosion and profit shifting (BEPS) as a serious risk to tax revenues, sovereignty and fair tax systems worldwide. Our recommendations constitute the building blocks for an internationally agreed and coordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment.’
Ahead of his detailed presentation of the 2014 BEPS package, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, said: ‘We are half way through. We are delivering actions to produce change, not just producing reports … There will be a need to translate this into domestic legislation, but the change happens now.’
The first seven elements of the action plan aimed to focus on helping countries to:
The remaining eight elements of the project are due to be released in 2015.
The announcement prompted a flurry of comment from both tax campaigners and professionals alike. Poverty campaigners ActionAid criticised the package for ignoring the problems faced by developing countries. ActionAid tax policy adviser Anders Dahlbeck said: ‘The OECD’s proposals on how to tackle tax avoidance are wholly inadequate. They go nowhere near far enough in helping the world’s poorest countries make sure big businesses pay their fair share of tax. It is now time for other agencies – including the United Nations – to take the lead on reforming the international tax system to make sure it works for developing countries.’
However, Frédéric Donnedieu (Taxand) warned over the uncertainty facing business. ‘Multinationals should be concerned that, in many ways, the OECD action plan legitimises the aggressiveness we have already seen from tax authorities towards taxpayers, particularly in areas such as transfer pricing. Time will tell whether all of the OECD’s BEPS initiatives will be implemented and indeed how they will be enforced, but there is still cause for concern. Country by country reporting likely constitutes one of the most critical elements of the BEPS initiative.’
Chris Morgan (KPMG) said the recommendations ‘represented a balanced approach’, saying they sought to address the issues of BEPS and double non-taxation whilst also recognising the need for taxpayer certainty: ‘The proposals should not result in double taxation or hinder cross-border trade. 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 workstreams to ensure the overall package properly addresses the issues.’
Sandy Bhogal (Mayer Brown) said: ‘Most if not all of the proposals are ones that should not surprise people. For example, the OECD has accepted that it is very difficult to isolate the taxation of the digital economy from other parts of a domestic tax code, especially when you consider the importance of digital tools to all businesses. However, the quest to identify appropriate changes to the definition of a permanent establishment continues and means that this area will continue to be uncertain for a while yet.’
Several advisers suggested that the OECD’s renewed focus on harmful tax competition could include the UK patent box. Heather Self (Pinsent Masons) said that ‘the UK may come under pressure to tighten its qualifying conditions’.
The seven deliverables from the 2014 BEPS package will be presented to G20 finance ministers this weekend, and to G20 leaders in November. Work has already commenced for the remaining eight elements of the 2015 package, which the OECD Committee on Fiscal Affairs (CFA) will deliver, together with the resolution of pending technical issues and the completion of the implementation measures for the 2014 deliverables. A draft mandate is planned in January 2015 for the CFA’s consideration regarding the ‘negotiation of a multilateral convention to streamline the implementation of the BEPS action plan’, according to the OECD’s explanatory statement.
The statement added that: ‘Once finalised, these measures are expected to become applicable via changes to bilateral tax treaties or through the multilateral instrument, through changes in domestic laws and with support from internationally agreed guidance.’ However, the OECD has given no indication on the actual timing of implementation of the BEPS actions. With more work needed in 2015, it seems likely that 2016 or 2017 would be the earliest period for enactment, although the final action plan to be adopted by all countries involved will need to be translated into domestic legislation.
CIOT tax policy director Patrick Stevens said: ‘This first wave of reports is a significant step forward, 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.’
