After two years of work, on October 5, 2015 the OECD presented the final package of the 15-action Base Erosion and Profit Shifting (BEPS) Action Plan, which three pillars are: coherence in the domestic rules that affect cross-border activities, alignment of taxation with the location of economic activity and value creation and improving transparency and certainty both for businesses and governments.
The OECD will present the BEPS measures to G20 Finance Ministers during the meeting to be held on October 8 and following, during the G20 members annual summit on November 15-16, they will design and put in place an inclusive framework for monitoring BEPS and supporting implementation of the measures.
According to the OECD, the final package of BEPS measures includes new minimum standards on country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises; treaty shopping, to put an end to the use of conduit companies to channel investments; curbing harmful tax practices, in particular in the area of intellectual property and through automatic exchange of tax rulings; and effective mutual agreement procedures, to ensure that the fight against double non-taxation does not result in double taxation.
The OECD further states that the BEPS package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called "cash box" entities to shelter profits in low or no-tax jurisdictions, and redefines the key concept of Permanent Establishment, to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.
Derived from the above, governments are invited to implement through domestic law, changes to strengthen rules on Controlled Foreign Corporations and to apply a common approach to limiting base erosion through interest deductibility. Also, these BEPS measures propose to amend the domestic rules to prevent hybrid mismatch arrangements from making profits disappear for tax purposes through the use of complex financial instruments.
Accordingly, there will be amendments to the OECD Model Tax Convention and amendments to the existing tax treaties may also be expected to incorporate rules to avoid treaty abuse, which will restrict the granting of treaty benefits. Regarding the amendments to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, these would become applicable immediately. Last, in 2016 a multilateral instrument will be open for signature which will incorporate the tax treaty- related BEPS measures into the existing network of bilateral treaties, on which development nearly 90 countries are working together.
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