BEPS ( "Base Erosion and Profit Shifting") is a tax
strategy which is driven by asymmetries and mismatches amongst
different jurisdictions in terms of tax issues. In general,
mainstream of this strategy is benefiting from the difference
between actual business operations and tax reporting domicile. As a
consequence of these strategies, corporate tax income of
governments have been dramatically decreasing which force them to
increase indirect taxes such as VAT and special consumption taxes.
Thus, an unbalanced tax liability emerges through taxpayers across
OECD revealed an action plan against to BEPS threatening in July
2013,is mostly lead by double non-taxation approaches by
multinational companies. This plan includes 15 related actions for
the purpose of preventing operations related to inappropriate
taxable profit separation. G20 Countries including Turkey has
welcomed this report and three substantial concepts came into
prominence which are coherence, substance and transparency.
Impacts of OECD "BEPS" Action Plan
Digital Economy: Upward trend on digital
operations demonstrated the importance of developments on
international tax rules including direct and indirect taxation.
Cross-border supply of digital goods and services causes issues on
collection of VAT that will resolved by alternative actions.
Limitations on Hybrid Funds Instruments: New
provisions will be designed domestically by OECD countries oppose
to non-taxation and double deduction issues which are mostly
subject to hybrid fund instruments. A compliance between local laws
and Model Tax Convention of OECD is highly expected by September
Combating Interest Rate Deductions:
Controlling the excessive interest rate deductions which are
related to third-party debts, will increase the effectiveness of
transfer pricing mechanism.
Transfer Pricing Supervision for Intangibles:
These rules will define intangibles clearly and bring new
developments on pricing of intangibles that will ensure profits are
in line with the value creation by intangibles use.
Risk and Return Balance on Transferring: OECD
"BEPS"action will also cover accuracy of returns with
appropriate risk matters on transfer pricing.
Transparency: Recommendations are designed to
disclosure of aggressive tax planning arrangements by taxpayers.
Furthermore, a common template will be applied on transfer pricing
documentation amongst countries that will enhance transparency of
Multilateral Instrument: A
multi-jurisdictional guideline will enable to standardize the
international tax matters and streamline adaptation of the
countries without obliged to carry on treaty-by treaty route.
Effects on Private Equities
Transfer pricing actions will be taken by 2015 that Turkish
companies are highly recommended to review their transfer pricing
policies. "BEPS" action plan will examine the companies
which are lack of value creation although they have excessive
profits. Corporations which are operating in Turkey, will be
scrutinized in the event that they make substantially high payments
to their offices are locating outside of Turkey. In line with these
circumstances, Private equities are forecasted to be under the
spotlight in terms of their capital gains and allocations by new
reporting requirements which will be implemented by different tax
authorities from different countries. Turkish private equities will
be affected by "BEPS" provided that their fund
structuring is situated in tax haven countries.
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.
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