The measure

As part of Budget 2014, the UK government has published a paper that outlines the UK's priorities for the international Base Erosion and Profit Shifting (BEPS) project

The G20 asked the Organisation for Economic Co-operation and Development (OECD) to reform the international tax rules (some of which were written in the 1920s), to ensure that the taxation of international businesses is in line with where value is created and to prevent tax avoidance.

The OECD and G20 published an Action Plan in July 2013 setting out 15 actions to reform and update the international tax system.  The outcomes from the first tranche of work will be published in September 2014, with the remainder being finalised in 2015. The paper sets out that some discussion drafts have already been released (and others are expected imminently) for September 2014 actions relating to:

  • The fundamental principles that underpin the international tax framework;
  • The objectives of the BEPS project;
  • Multilateral solutions rather than unilateral responses by individual countries; and
  • The core principles for reform: neutrality and equity between businesses, a clear and simple framework, effective and efficient for tax authorities and taxpayers, flexibility, and rules capable of application in all territories.

The UK government also outlines steps that HMRC is taking in response to BEPS concerns. Specifically, HMRC is:

  • Working to extend the model for enhanced exchange of tax information between tax authorities to a wider group; and
  • Working with other tax authorities to identify risks posed by cross-border operations in the digital sector.

Additionally, the UK government outlines some priorities in relation to the 2014 actions, and confirms that it is committed to being the most competitive tax regime in the G20, whilst reducing avoidance opportunities and taking action to ensure that all taxpayers pay the amount of tax that they owe.

Who will be affected?

All businesses with multinational operations.

When?

The OECD timetable splits the actions across 2014 and 2015. The first group of actions will be completed in September 2014. Many of these consist of proposals for domestic rules and treaty changes, which will then take time to be implemented into each country's laws and international agreements.

Our view

It is helpful that the UK government has set out its support for the BEPS project and how its objectives should be achieved. For example, the UK government sets out that it is:

  • Supportive of free trade and fair competition between countries, including in relation to mobile business investment, whilst preventing companies from gaining unfair commercial advantages through double non-taxation;
  • Committed to promoting UK growth and competitiveness and advancing international cooperation while respecting tax sovereignty; and
  • Committed to ensuring effective compliance, whilst recognising that the compliance burden should be proportionate and efficient.

Specifically, businesses will be pleased to see:

  • The government's commitment to considering the balance between the compliance burden that country-by-country reporting to tax authorities will place upon business with the need to ensure that high level, useful information is provided; and
  • The UK government is also seeking to ensure that the work on hybrids considers the complex capital requirements that some businesses such as banks and insurance companies are subject to for regulatory purposes.

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