About | Deliverables | CFA | Developing countries | Key areas of work
Base erosion and profit shifting (BEPS) is a global problem which requires global solutions. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
In an increasingly interconnected world, national tax laws have not always kept pace with global corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps that can be exploited to generate double non-taxation. This undermines the fairness and integrity of tax systems. Fifteen specific actions are being developed in the context of the OECD/G20 BEPS Project to equip governments with the domestic and international instruments needed to address this challenge. The first set of measures and reports were released in September 2014. Combined with the work to be completed in 2015, they will give countries the tools they need to ensure that profits are taxed where economic activities generating the profits are performed and where value is created, while at the same time give business greater certainty by reducing disputes over the application of international tax rules, and standardising requirements. For the first time ever in tax matters, non-OECD/G20 countries are involved on an equal footing.
For more detailed information, read our Frequently Asked Questions.
The BEPS Action Plan provides for 15 actions scheduled to be finalised in three phases: September 2014, October 2015 and December 2015. Deliverables are expected:
- An in-depth report identifying tax challenges raised by the digital economy and the necessary actions to address them (Action 1);
- Recommendations regarding the design of domestic and tax treaty measures to neutralise the effects of hybrid mismatch arrangements, both from a domestic and treaty law perspective (Action 2);
- Finalise the review of member country regimes in order to counter harmful tax practices more effectively (Action 5);
- Recommendations regarding the design of domestic and tax treaty measures to prevent abuse of tax treaties (Action 6);
- Changes to the transfer pricing rules in relation to intangibles (Action 8);
- Changes to the transfer pricing rules in relation to documentation requirements (Action 13); and
- A report on the development of a multilateral instrument to implement the measures developed in the course of the work on BEPS (Action 15).
- Recommendations regarding the design of domestic rules to strengthen Controlled Foreign Companies (CFC) Rules (Action 3);
- Recommendations regarding the design of domestic rules to limit base erosion via interest deductions and other financial payments (Action 4);
- Strategy to expand participation to non-OECD members to counter harmful tax practices more effectively (Action 5);
- Tax treaty measures to prevent the artificial avoidance of permanent establishment status (Action 7);
- Changes to the transfer pricing rules in relation to risks and capital, and other high-risk transactions (Actions 9 and 10);
- Recommendations regarding data on BEPS to be collected and methodologies to analyse them (Action 11);
- Recommendations regarding the design of domestic rules to require taxpayers to disclose their aggressive tax planning arrangements (Action 12);
- Tax treaty measures to make dispute resolution mechanisms more effective (Action 14).
- Changes to the transfer pricing rules to limit base erosion via interest deductions and other financial payments (Action 4);
- Revision of existing criteria to counter harmful tax practices more effectively (Action 5); and
- The development of a multilateral instrument (Action 15).
The role of the OECD Committee on Fiscal Affairs
The technical work on BEPS is being undertaken by the OECD Committee on Fiscal Affairs (CFA) through its subsidiary bodies, namely:
- Working Party 1 (Tax Conventions and Related Questions), in relation to part of action 2 (Neutralise the Effects of Hybrid Mismatch Arrangements), action 6 (Prevent Treaty Abuse), action 7 (Prevent the Artificial Avoidance of PE Status), and action 14 (Make Dispute Resolution Mechanisms More Effective);
- Working Party 2 (Tax Policy Analysis and Tax Statistics), in relation to action 11 (Establish Methodologies to Collect and Analyse Data on BEPS);
- Working Party 6 (Taxation of Multinational Enterprises), in relation to part of action 4 (Limit Base Erosion via Interest Deductions and Other Financial Payments), actions 8 (Assure that Transfer Pricing Outcomes are in Line With Value Creation / Intangibles), 9 (Assure that Transfer Pricing Outcomes are in Line With Value Creation / Risks and Capital), 10 (Assure that Transfer Pricing Outcomes are in Line With Value Creation / Other High-Risk Transactions), and 13 (Re-examine Transfer Pricing Documentation);
- Working Party 11 (Aggressive Tax Planning), established by the CFA to carry out the work in relation to part of action 2 (Neutralise the Effects of Hybrid Mismatch Arrangements), action 3 (Strengthen CFC rules), part of action 4 (Limit Base Erosion via Interest Deductions and Other Financial Payments), and action 12 (Require Taxpayers to Disclose their Aggressive Tax Planning Arrangements).
- Forum on Harmful Tax Practices (FHTP), in relation to action 5 (Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance); and
- Task Force on Digital Economy (TFDE), established by the CFA to carry out the work in relation action 1 (Address the Tax Challenges of the Digital Economy).
The BEPS Project and developing countries
Engagement with developing countries has been extensive since the beginning of the Project. Over 80 developing countries and other non-OECD/non-G20 economies have been consulted through four in-depth regional consultations and five thematic global fora, attended by more than 110 jurisdictions as well as representatives from civil society and the business community. The input received from developing countries has been fed into the development of the BEPS Action Plan (such as in relation to the template for Country-by-Country reporting, or to the work on treaty abuse and the considerations to enter into tax treaty relationships) the technical groups carrying out the work on BEPS. Further, it has informed the development of a dedicated two-part report prepared by the OECD under a mandate from the G20 Development Working Group, outlining the specific challenges and priorities of low-income countries faced with BEPS issues, as well as how they can best be supported in addressing those challenges.
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Key areas of work
There are number of key areas of work on which the OECD Committee on Fiscal Affairs, through its subsidiary bodies, is currently focusing on. These include: