G-20 finance ministers and central bank governors recently committed to monitoring the outcome of the base erosion and profit shifting (BEPS) project, particularly when it comes to the exchange of information on cross-border tax rulings.
BEPS is a project of the Organisation for Economic Co-operation and Development (OECD) that brought together OECD nations as well as additional countries that supposedly all participated on an “equal footing” in the development of the BEPS measures.
Call for an OECD framework
In a communiqué highlighting the actions required to achieve the international forum’s goals for this year, the G-20 leaders said: “We call on the OECD to prepare a framework by early 2016 with the involvement of interested non-G-20 countries and jurisdictions, particularly developing economies, on an equal footing.” They added that they welcomed the efforts by the International Monetary Fund, World Bank Group, United Nations, and the OECD to provide technical assistance to interested developing economies in tackling the domestic resource mobilization challenges they face, including from BEPS.
The two-year BEPS project is based on a 15-point action plan designed to:
- Ensure the coherence of corporate tax systems in a cross-border environment,
- Introduce substance requirements in the area of tax treaties and transfer pricing, and
- Ensure transparency while promoting certainty and predictability.
The G-20 leaders indicated that they are in the final phase of delivering the BEPS action plan.
In a report to the ministers and central bank governors, OECD Secretary General Angel Gurria noted that the adoption of the final BEPS package will impose minimum standards to “stopping opaque rulings through the automatic exchange of such rulings as well as curbing harmful tax practices, in particular in the area of intellectual property.”
The road ahead
The final package of 15 action items is expected to be reviewed at the G-20’s October meeting in Lima, Peru. The final package will be submitted to the G-20 leaders for approval at their November summit in Antalya, Turkey.
Sidebar: BEPS action items
The 15 BEPS action items are:
Action 1: Address the tax challenges of the digital economy.
Action 2: Neutralize the effects of hybrid mismatch arrangements.
Action 3: Strengthen rules on controlled foreign companies.
Action 4: Limit base erosion via interest deductions and other financial payments.
Action 5: Counter harmful tax practice more effectively, taking into account transparency and substance.
Action 6: Prevent tax treaty abuse.
Action 7: Prevent the artificial avoidance of permanent establishment status.
Action 8: Assure that transfer pricing outcomes are in line with value creation intangibles.
Action 9: Assure that transfer pricing outcomes are in line with value creation: risks and capital.
Action 10: Assure that transfer pricing outcomes are in line with value creation: other high-risk transactions.
Action 11: Establish methodologies to collect and analyze data on BEPS and the actions to address BEPS.
Action 12: Require taxpayers to disclose their aggressive tax planning arrangements.
Action 13: Re-examine transfer pricing documentation (includes country-by-country reporting).
Action 14: Make dispute resolution mechanisms more effective.
Action 15: Develop a multilateral instrument capable of implementing the tax treaty-related BEPS measures.