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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 and mismatches that can be exploited to generate double non-taxation. This undermines the fairness and integrity of tax systems.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit these 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).
Research undertaken since 2013 confirms the potential magnitude of the BEPS problem. Estimates conservatively indicate annual losses of anywhere from 4 - 10% of global corporate income tax (CIT) revenues, i.e. USD 100 to 240 billion annually.
BEPS is a global problem which requires global solutions. For the first time ever in tax matters, OECD and G20 countries worked together on an equal footing. More than a dozen developing countries have participated directly in the work and more than 80 non-OECD, non-G20 jurisdictions have provided input.
Fifteen actions equip governments with the domestic and international instruments needed to tackle BEPS. The final BEPS package gives 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 compliance requirements.
The BEPS Action Plan endorsed by the G20 in July 2013 identified 15 key areas to be addressed.
The final BEPS package, which includes and consolidates the 2014 interim reports has been developed and agreed in just two years. This package was presented by OECD Secretary-General Angel Gurría to G20 Finance Ministers at their 8 October meeting in Lima (read press release) and subsequently be presented to G20 Leaders at their summit in Antalya on 15-16 November 2015 (read press release).
|Explanatory Statement 2015 Explanatory Statement 2015 (EN / FR / ES / DEU)|
|||Action 1: Addressing the Tax Challenges of the Digital Economy|
|||Action 2: Neutralising 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: Aligning Transfer Pricing Outcomes with Value Creation|
|Action 11: Measuring and Monitoring BEPS|
|Action 12: Mandatory Disclosure Rules|
|||Action 13: Guidance on Transfer Pricing Documentation and Country-by-Country Reporting|
With the adoption of the BEPS package, OECD and G20 countries, as well as developing countries that participated in its development, will lay the foundations of a modern international tax framework under which profits are taxed where economic activity and value creation occur. Work will be carried out to support all interested countries in implementing the rules and applying them in a consistent and coherent manner, particularly those for which capacity building is an important issue.
Monitoring implementation and the impact of the different BEPS measures is another key element of the work ahead. Following the G20 and OECD call for even increased inclusiveness, the OECD has established an inclusive framework for implementing BEPS. Countries and jurisdictions are invited to express their interest to join this framework as Associates to implement the comprehensive package on an equal footing with all interested countries and jurisdictions. As BEPS Associates, all countries and jurisdictions will work with OECD and G20 members on developing standards on BEPS related issues and on reviewing and monitoring the implementation of the whole BEPS package (this will include peer review of the four BEPS minimum standards, in the areas of harmful tax practices, tax treaty abuse, Country-by-Country Reporting requirements and improvements in cross-border tax dispute resolution).
Taxation plays a central role in promoting sustainable development, and developing countries face significant challenges in developing their tax capacities and mobilising domestic resources. Engagement of developing countries in the international tax agenda and on BEPS is important, in particular to ensure they receive appropriate support to address the specific challenges they face.
Developing countries have been engaged extensively since the beginning of the BEPS Project. Over 80 developing countries and other non-OECD/non-G20 economies have been participating and discussing the challenges of BEPS through direct participation in the CFA, regional meetings in partnership with regional tax organisations, and thematic global fora. Interested developing countries can also join the newly established framework for BEPS implementation in which all interested countries and jurisdictions, collaborating to tackle tax avoidance, to improve the coherence of international tax rules, and to ensure a more transparent tax environment.
The technical work on BEPS is undertaken by the OECD Committee on Fiscal Affairs (CFA) , with all Associates on an equal footing, through its subsidiary bodies: