BEPS – Explained

BEPS Final Report

Final BEPS package for reform of the international tax system to tackle tax avoidance

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 will subsequently be presented to G20 Leaders at their summit in Antalya on 15 -16 November 2015.

Arrow actions 13 2015 Explanatory Statement 2015 Explanatory Statement 2015 (EN / FR / ES / DEU)
Arrow Action 1 Action 1: Addressing the Tax Challenges of the Digital Economy
Arrow Action 2 Action 2: Neutralising the Effects of Hybrid Mismatch Arrangements
Arrow Action 3 2015 Action 3: Designing Effective Controlled Foreign Company Rules
Arrow Action 4 2015 Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
Arrow Action 5 Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
Arrow Action 6 Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
Arrow action 7 2015 Action 7: Preventing the Artificial Avoidance of Permanent Establishment Status
Arrow Action 8 Actions 8-10: Aligning Transfer Pricing Outcomes with Value Creation
Arrow actions 11 2015 Action 11: Measuring and Monitoring BEPS
Arrow actions 12 2015 Action 12: Mandatory Disclosure Rules
Arrow Action 13 Action 13: Guidance on Transfer Pricing Documentation and Country-by-Country Reporting
Arrow actions 14 2015 Action 14: Making Dispute Resolution Mechanisms More Effective
Arrow Action 15 Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties