On Monday October 5, 2015, the Organization for Economic Cooperation and Development (OECD) released its final recommendations on a set of measures to combat what it perceives as potentially abusive Base Erosion and Profit Shifting (BEPS) behaviors that were enabled by an out of date and uncoordinated system of international tax regulations. The recommendations are trumpeted by the organization as the first renovation of international tax standards in over a century. Along with corresponding changes to the OECD Transfer Pricing Guidelines, these recommendations are meant to reinforce international standards as well as provide concrete measures to help countries tackle BEPS.
The full 13-report final package relates to the 15-point action plan (three of the action items have been consolidated into a single report) under the BEPS Project initiated roughly two years ago. The final deliverables are a result of collaboration between the OECD and the Group of 20 major economies (G-20), in direct coordination with 14 developing countries and indirectly with over 60 additional countries via regional networks. The level of interest in participation from non-governmental organizations and the private sector is reflected in the over 1,200 pages of feedback on the 23 discussion drafts released for public commentary during the two-year period.
Focus will now turn to effective implementation, which in some cases may be through tax treaties and/or require amendments to domestic laws. While implementation will ultimately be done at the country level, the OECD expects countries to maintain their commitment to a coordinated and consistent implementation plan. The OECD will monitor developments and the impact of the BEPS measures, analyzing data as it becomes available. The OECD and G-20 have agreed to cooperate in areas that require further work in 2016 and 2017.
Please click here for a link to each of the 13 reports that have been released. They are as follows:
- Action 1: Addressing the Tax Challenges of the Digital Economy
- Action 2: Neutralizing the Effects of Hybrid Mismatch Arrangements
- Action 3: Designing Effective Controlled Foreign Company Rules
- Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
- Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
- Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
- Action 7: Preventing the Artificial Avoidance of Permanent Establishment Status
- Actions 8-10: Guidance on Transfer Pricing Aspects of Intangibles
- Action 11: Measuring and Monitoring BEPS
- Action 12: Mandatory Disclosure Rules
- Action 13: Guidance on Transfer Pricing Documentation and Country-by-Country Reporting
- Action 14: Making Dispute Resolution Mechanisms More Effective
- Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties
The news conference and technical presentation for the launch of the final BEPS package are available to the public.
Duff & Phelps will release a more detailed discussion on the contents of the final BEPS package, including an overview of the key reports related to transfer pricing, later this month. In the meantime, contact us with any questions.