The Organisation of Economic Cooperation and Development (OECD) on Monday unveiled a set of measures, including country-by-country reporting, framework to end treaty shopping and curbing harmful tax practices through automatic exchange of information, in an effort to bring transparency in international taxation norms for multinationals.
According to the Paris-based organisation, artificial profit shifting has caused an estimated loss of $240 billion annually, and the final guidelines on Base Erosion and Profit Shifting (BEPS) are aimed at ensuring “comprehensive, coherent and co-ordinated reform of the international tax rules” the OECD said in a statement. The action plan has been drafted after an exhaustive process involving 23 discussion drafts, 11 public consultations and over 12,000 pages of stakeholder comments.
The measures come even as India has enacted a new black money law to deal with illegal overseas assets following huge political uproar.
“Revenue losses from BEPS are conservatively estimated at $100-240 billion annually, or anywhere from 4-10 per cent of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant,” the statement added.
Among the various measures, the OECD has revised the guidance on the application of transfer pricing rules to prevent taxpayers from using “cash box” entities to shelter profits in low or no-tax jurisdictions. The concept of Permanent Establishment has also been redefined to curb arrangements which avoid the creation of a taxable presence in a country by reliance on an outdated definition.
This package of new standards will be discussed at this week’s meeting of G20 Finance Ministers and Central Bank Governors in Peru, which will also be attended by finance minister Arun Jaitley. The meet is scheduled for October 8.
The OECD/G20 project on BEPS provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to artificially shift to low or no-tax environments, where little or no economic activity takes place.
OECD Secretary-General Angel Gurria said BEPS is depriving countries of precious resources to jump-start growth and tackle the effect of the global economic crisis. “BEPS has been also eroding the trust of citizens in the fairness of tax systems worldwide. The measures we are presenting today represent the most fundamental changes to international tax rules in almost a century: they will put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation, and when fully implemented, these measures will render BEPS-inspired tax planning structures ineffective,” Gurria said.
Undertaken at the request of the G20 leaders, the work to address BEPS is based on the 2013 G20/OECD BEPS Action Plan, which identified 15 steps to put an end to international tax avoidance.
“The BEPS package offers a series of new measures to be implemented through domestic law changes, including strengthened rules on Controlled Foreign Corporations, a common approach to limiting base erosion …,” the statement added.