First steps towards implementation of OECD/G20 efforts against tax avoidance by multinationals
06/02/2015 - The OECD will present the latest developments in the OECD/G20 project to combat base erosion and profit shifting (BEPS) by multinational enterprises during a G20 Finance Ministers meeting on 9-10 February in Istanbul, Turkey. Read the report.
OECD and G20 countries have agreed three key elements that will enable implementation of the BEPS Project:
- a mandate to launch negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures;
- an implementation package for country-by-country reporting in 2016 and a related government-to-government exchange mechanism to start in 2017;
- criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful or not.
“These are important steps forward, which demonstrate that progress is being made toward a fairer international tax system,” OECD Secretary-General Angel Gurría said. “These decisions signal the unwavering commitment of the international community to put an end to base erosion and profit shifting, in line with the ambitious timeline endorsed by G20 leaders.” Read the full speech.
The G20-OECD BEPS Action Plan sets out 15 key elements of international tax rules to be addressed by year-end 2015. The project aims to help governments protect their tax bases and offer increased certainty and predictability to taxpayers, while guarding against new domestic rules that result in double taxation, unwarranted compliance burdens or restrictions to legitimate cross-border activity. The OECD presented 7 of the 15 elements of the Action Plan to the G20 Leaders Summit in Brisbane, Australia in November 2014, and is scheduled to present the remaining elements by the next Leaders Summit in Antalya, Turkey in November 2015.
The implementation of the BEPS Action Plan will require modifications to the existing network of more than 3,000 bilateral tax treaties worldwide. The planned multilateral instrument will offer countries a single tool for updating their networks of tax treaties in a rapid and consistent manner.
The agreed mandate authorises the formation of an ad-hoc negotiating group, open to participation from all states. The group will be hosted by the OECD and will hold its first meeting by July 2015, with an aim to conclude drafting by 31 December 2016.
Another key objective of the BEPS project is to increase transparency through improved transfer pricing documentation standards - including through the use of a country-by-country reporting template that requires multinationals to provide tax administrations with information on revenues, profits, taxes accrued and paid, along with some activity indicators. The new guidance presented to the G20 requires country-by-country reporting by multinationals with a turnover above EUR 750 million in their countries of residence starting in 2016.. Tax administrations will begin exchanging the first country-by-country reports in 2017 . Countries have emphasised the need to protect tax information confidentiality.
The guidance confirms that the primary method for sharing such reports between tax administrations is through automatic exchange of information, pursuant to government-to-government mechanisms such as bilateral tax treaties, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, or Tax Information Exchange Agreements (TIEAS). In certain exceptional cases, secondary methods, including local filing can be used.
Determining which intellectual property regimes (patent boxes) and other preferential regimes can be considered harmful tax practices is another key objective of the BEPS Project. In Brisbane, G20 Leaders endorsed a solution proposed by Germany and the UK on how to assess whether there is substantial activity in an intellectual property regime. The proposal – based around a “nexus approach,” which allows a taxpayer to receive benefits on Intellectual Property income in line with the expenditures linked to generating the income - has since been endorsed by all OECD and G20 countries. Transitional provisions for existing regimes, including a limit on accepting new entrants after June 2016, have been agreed, and work on implementation is ongoing.
Officials from more than a dozen developing countries participated in the discussion, of the new BEPS implementation guidance, in line with the broader strategy for deepening engagement of developing countries in the BEPS Project, which was launched on 12 November 2014 and welcomed by the G20 Leaders in Brisbane. This direct participation will be complemented by dialogues with tax administration and policy officials from all countries in each region, as well as regional tax organisations. This broader engagement is consistent with the global effort to mobilise resources for financing the Post-2015 Framework.