OECD presents new international tax proposals
The OECD has released the final package of measures that will put a new tax net around multinational companies.
Known as “base erosion and profit shifting” (Beps), the long-awaited proposals will form the basis for reform of the international tax rules to be discussed by G20 finance ministers in Lima, Peru, on October 8.
The OECD says Beps provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low/no tax environments, where little or no economic activity takes place.
The final package of Beps measures includes new minimum standards on:
- country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises;
- treaty shopping, by putting an end to the use of conduit companies to channel investments;
- curbing harmful tax practices, in particular in the area of intellectual property and through automatic exchange of tax rulings; and
- effective mutual agreement procedures, to ensure the fight against double non-taxation does not result in double taxation.
The Beps package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called “cash box” entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of Permanent Establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.
Other proposals offer governments a series of new measures to be implemented through domestic law changes, including strengthened rules on Controlled Foreign Corporations, a common approach to limiting base erosion through interest deductibility and new rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.
Revenue losses from Beps are conservatively estimated at $US100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of Beps on these countries is particularly significant.
“Base erosion and profit shifting affects all countries, not only economically but also as a matter of trust,” OECD Secretary-General Angel Gurría says.
“Beps is depriving countries of precious resources to jump-start growth, tackle the effects of the global economic crisis and create more and better opportunities for all. But beyond this, Beps has been also eroding the trust of citizens in the fairness of tax systems worldwide.
"The measures we are presenting today represent the most fundamental changes to international tax rules in almost a century: they will put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation and, when fully implemented, these measures will render Beps-inspired tax planning structures ineffective.”
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