Canada: BEPS: A Spent Force Or Radical Change?

On October 5, the OECD presented its final package of measures attacking base erosion and profit shifting.1 Undertaken at the request of the G-20 leaders, the efforts to address BEPS are based on the G-20 and OECD's BEPS action plan from July 2013, which identified 15 actions to end what is perceived by the OECD as unacceptable international tax planning.

On four prior occasions since the advent of the BEPS project in February 2013, we have offered both a general and a Canadian perspective on various aspects of this unprecedented attack on international tax management (including strategic planning and structuring) by multinational enterprises.2 The release of the final reports gives occasion to revisit our prior views and offer new commentary on the BEPS initiative.


Simply put, the BEPS project aims to provide governments with tools to increase income taxation of multinationals, despite the OECD's view that corporate taxation is the most harmful form of taxation for economic growth.3

The BEPS project is unique in that it reflects a massive, concerted effort by G-20 and OECD nations against cross-border corporate tax planning; it has arisen out of the confluence of several factors:

  • decreasing tax receipts of G-20 and OECD state treasuries, driven by economic stagnation after the 2008 global economic crisis;
  • rising costs of the welfare state in many developed nations, driven by aging populations putting pressure on healthcare systems and state-sponsored defined benefit pension systems;
  • a citizenry exposed to more (though not necessarily better) information from the media and public interest groups on the taxation and finances of multinationals; and
  • politicians searching for new, expedient sources of government funding without causing a backlash at the polls.4

These elements appear to have led governments and the citizenry of G-20 and OECD countries to conclude that multinationals are both the source of and the solution to their financial woes; hence, the BEPS project.

What is not unique about the BEPS project, however, is the substance of its proposals, which have been criticized as being based on the ''same old paradigm.''5 It was not without reason that we titled our first commentary on this subject ''BEPS: The OECD Discovers America,''6 demonstrating our view that there are few anti-international tax planning rules and principles that had not already been implemented by countries involved in the BEPS project. This view was based on our review of the action plan in light of historical elements, most notably:

  • the formation of transfer pricing principles in the 1920s and 1930s7 and their crystallization in the 1960s and 1970s;8
  • the 1962 adoption of controlled foreign corporation rules in the U.S. and their adoption in Canada in 1972 (effective 1976);
  • the 1972 adoption of mechanical debt-to-equity thin capitalization rules in Canada9 and the 1986 adoption of an anti-earnings-stripping rule (based on a percentage of earnings before interest, tax, depreciation, and amortization) in the U.S.;10
  • the 1997 enactment in the U.S. of the world's first anti-hybrid rule;11
  • the 1990 adoption of mandatory transfer pricing contemporaneous documentation and penalty rules in the U.S.; and
  • successful anti-treaty-shopping attacks based on beneficial ownership, as seen in the U.S. decision in Aiken Industries v. Commissioner12 from 1971 and the Canadian decision in McMillan Bloedel Ltd. v. MNR,13 as well as the U.S. policy of incorporating elaborate limitation on benefits provisions in its treaties since 1993.

Aside from the relative novelty of action 15 (proposing a multilateral instrument with the promise of quick and broad-based implementation of agreed tax treaty changes), we doubted that the project could offer any anti-BEPS solutions that countries could not have already adopted on the basis of preexisting principles and rules.

Notwithstanding this, the BEPS initiative is unique in its context involving a G-20 mandate to the OECD to develop the action plan, and in the OECD's highly charged accompanying rhetoric that countries are under a moral and political obligation to implement the BEPS project outcomes. The OECD's rhetoric raised the prospect of a tsunami of harmonized tax reform across the globe that would effectively end international tax planning.


What has transpired or will transpire as a result of the final BEPS package? The answer to this question fundamentally depends on the level of support that G-20 and OECD nations give to the individual measures in the final package. Paragraph 11 of the explanatory statement accompanying the final package is most revealing:

A comprehensive package of measures has been agreed upon. Countries are committed to this comprehensive package and to its consistent implementation. These measures range from new minimum standards to revision of existing standards, common approaches which will facilitate the convergence of national practices and guidance drawing on best practices. Minimum standards were agreed in particular to tackle issues in cases where no action by some countries would have created negative spill overs (including adverse impacts of competitiveness) on other countries. Recognising the need to level the playing field, all OECD and G-20 countries commit to consistent implementation in the areas of preventing treaty shopping, Country-by-Country Reporting, fighting harmful tax practices and improving dispute resolution. Existing standards have been updated and will be implemented, noting however that not all BEPS participants have endorsed the underlying standards on tax treaties or transfer pricing. In other areas, such as recommendations on hybrid mismatch arrangements and best practices on interest deductibility, countries have agreed a general tax policy direction. In these areas, they are expected to converge over time through the implementation of the agreed common approaches, thus enabling further consideration of whether such measures should become minimum standards in the future. Guidance based on best practices will also support countries intending to act in the areas of mandatory disclosure initiatives or controlled foreign company legislation. There is agreement for countries to be subject to targeted monitoring, in particular for the implementation of the minimum standards. Moreover, it is expected that countries beyond the OECD and G-20 will join them to protect their own tax bases and level the playing field.14

The above statement distinguishes between:

  • new minimum standards;
  • revised existing standards;
  • common approaches that will facilitate the convergence of national practices; and
  • guidance drawing on best practices.

Importantly, only ''new minimum standards'' are backed by a commitment of all OECD and G-20 countries to consistent implementation. We next examine the action items that fall under each of the above four categories.

To read this Report in full, please click here.


1 See OECD and G-20, ''BEPS 2015 Final Reports,'' available at The final package contains a report for each of the 15 action items, together with Executive Summaries, available at; Explanatory Statement, available at; and various other incidental documents.

2 See Nathan Boidman and Michael Kandev, ''BEPS: The OECD Discovers America?'' Tax Notes Int'l, Dec. 16, 2013, p. 1017; Boidman and Kandev, ''BEPS Action Plan on Hybrid Mismatches: A Canadian Perspective,'' Tax Notes Int'l, June 30, 2014, p. 1233; Boidman and Kandev, ''The BEPS Deliverables: A Macro Critique,'' Tax Notes Int'l, Nov. 17, 2014, p. 611; and Boidman and Kandev, ''BEPS and Acquisitions of Canadian Targets,'' Tax Notes Int'l, Aug. 3, 2015, p. 431.

3 See OECD, ''Tax Policy Reform and Economic Growth,'' 2010, at 3.

4 Politically speaking, foreign multinationals are likely the weakest constituency. But they can certainly vote with their feet, so to speak.

5 See ''Corporate Taxation: New Rules, Same Old Paradigm,'' The Economist, Oct. 10, 2015.

6 For a recent similar sentiment, see David Ernick, ''OECD BEPS Project: Nothing New Under the Sun?'' Tax Notes Int'l, Aug. 10, 2015, p. 511.

7 In Canada, for example, these principles date back to 1939: Canada's transfer pricing rule was originally introduced by S.C. 1939, c. 46, section 13 as section 23B of the Income War Tax Act of 1939.

8 See Hofert v. MNR, 62 DTC 50 (TAB), Canada's first transfer pricing case from 1962, which applied the rule, supra note 7. See also IRC section 482 regulations from 1968 and the first OECD transfer pricing guidelines from 1979 (basically modeled on the U.S. regulations).

9 Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), section 18(4).

10 Internal Revenue Code, 26 U.S.C. (1986), section 163(j).

11 IRC section 894(c).

12 56 T.C. 925 (1971).

13 79 D.T.C. 297 (TAB).

14 See Explanatory Statement, supra note 1 at para. 11.

Originally published in Tax Notes International, December 7, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions