OECD unveils first elements of proposed global corporate tax overhaul
posted Oct 6, 2014 by Paul Oliveira, CPA
The Organisation for Economic Cooperation and Development (OECD) recently released its first recommendations for an international approach to combat tax avoidance by multinational enterprises.
The proposals are the first seven steps in a project designed to create a single set of international tax rules to help end the erosion of tax bases and the artificial shifting of profits to avoid paying tax.
These recommendations “constitute the building blocks for an internationally agreed and co-ordinated response to corporate tax planning strategies that exploit the gaps and loopholes of the current system,” said OECD Secretary-General Angel Gurría.
The OECD’s work is based on the Action Plan on Base Erosion and Profit Shifting, commonly referred to as BEPS, which outlines 15 key elements to be addressed by 2015. The project aims to help governments protect their tax bases and offer increased certainty and predictability to taxpayers.
At the same time, the plan will help guard against new domestic rules that result in double taxation, unwarranted compliance burdens or restrictions on legitimate cross-border activity.
The first steps
The recently unveiled seven elements of the Action Plan focus on:
- Neutralizing hybrid mismatch arrangements to help ensure the coherence of international corporate income taxation through new model tax and treaty provisions,
- Ending tax treaty abuse by realigning taxation to restore the intended benefits of international standards,
- Addressing transfer pricing and intangibles to help guarantee that pricing outcomes are in line with value creation,
- Improving transfer pricing documentation and country-by-country reporting to boost transparency for tax administrations and increase certainty and predictability for taxpayers,
- Considering the feasibility of developing a multilateral instrument to amend bilateral tax treaties to help facilitate swift implementation of BEPS,
- Countering harmful tax practices, and
- Dealing with tax challenges of the digital economy by identifying features that exacerbate existing issues. In the context of VAT, the report concludes that VAT collection in the business-to-consumer context urgently needs to be addressed, and work in this area will be completed by the end of 2015. This work will realign taxation of the digital economy with economic activities and value creation.
The proposed measures were agreed to after a transparent and intensive consultation process between OECD, G20 and developing countries and stakeholders from business, labor, academia and civil society organizations.
Down the road
The recent set of measures, combined with the work to be completed in 2015, is expected to give countries the tools they need to ensure that profits are taxed where activities generating profits are performed and value is created, while providing businesses with greater certainty by reducing disputes over the application of international tax rules.
These recommendations may be affected by decisions taken with respect to the remaining elements of the BEPS Action Plan, which are scheduled to be presented to G20 governments for final approval in 2015. At that point, governments will also address implementing measures for the Action Plan as a whole.
Frequently asked questions on the recent recommendations can be found on the OECD website.