BEPS & Tax

In recent years, stories about global companies paying little or no tax in certain jurisdictions have become regular front page fixtures in many countries. The issue of a perceived "tax gap" between what has been paid and what should be paid by these companies has caught the public imagination and political leaders have responded by pushing corporate tax reform to the top of the international agenda.

Governments around the world realise that since business today is truly global, any policy response needs to be internationally coordinated if it is going to be successful.

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 particular significance for developing countries due to their heavy reliance on corporate income tax from multinational companies.

The OECD’s Action Plan on BEPS was first published in July 2013 with a view to addressing government concerns and international tax reform. The Action Plan, containing 15 separate action points or work streams, was endorsed by G20 leaders and finance ministers at their summit in St. Petersburg in September 2013.

The Action Plan provides for 15 actions that were finalised in October 2015. The final reports contain proposals which, if implemented, would significantly change the way in which multinational companies approach future tax planning and seriously challenge current structures.

In parallel, the European Commission has been looking at tax transparency as part of its work on tackling tax fraud and evasion in connection with its political priority to ensure a fairer Single Market.

In this regard, the Commission presented a package of measures to boost tax transparency on 18 March 2015. A key element of this Tax Transparency Package is the automatic exchange of information between Member States on their tax rulings. The package also contains other tax transparency initiatives.

The European Commission has also opened a series of investigations to examine whether decisions by tax authorities in certain states within the EU have breached rules on state aid by granting "overly favourable" tax rulings or other arrangements to certain multinational companies.

Addressing tax evasion and avoidance through use of tax havens has been the subject of a number of proposals in Congress and by the President and there is general agreement that business tax reform is a priority issue.

The Senate Finance and House Ways and Means Committees have held more than 50 hearings combined in recent years, examining every aspect of tax reform, with a particular focus on Tax Havens & Abusive Tax Schemes and several key reports have been released that may provide a roadmap for reform.

A large number of countries have now announced plans to implement the country-by-country reporting template developed by the OECD (effective from 1 January 2016 or 1st January 2017). Final legislation has been enacted in many countries and draft legislation is published in many more. CBC reporting will fundamentally change the level of information tax authorities and other stakeholders (potentially public actors in some parts of the world) have to evaluate where a multinational company pays tax and whether this is in-line with perceived value creation / revenue generation.