(P) International Tax Alert: OECD releases Action Plan on Base Erosion and Profit Shifting (BEPS)

On 19 July 2013, the Organisation for Economic Cooperation and Development (OECD) issued a much-anticipated Action Plan on Base Erosion and Profit Shifting (the Plan). The Plan reiterates the themes of the initial report on BEPS, Addressing Base Erosion and Profit Shifting (the Report) which was issued in February 2013. In the OECD’s view, gaps in the interaction of domestic tax rules of various countries, the application of bilateral tax treaties to multijurisdictional arrangements, and the rise of the digital economy with the resulting relocation of core business functions have led to weaknesses in the international tax system. The Plan contains 15 Actions, each of which is linked to specific outputs that are to be completed in 2014 or 2015. Detailed aspects The Plan states that without coordinated action in the areas that give rise to policy concerns, countries that wish to protect their tax base may resort to unilateral action that could result in a resurgence of double taxation as well as global tax uncertainty. The 15 BEPS actions where the work of the OECD will be focused are as follows: 1. Address the tax challenges of the digital economy 2. Neutralize the effects of hybrid mismatch arrangements 3. Strengthen Controlled Foreign Corporation (CFC) rules 4. Limit base erosion via interest deductions and other financial payments 5. Counter harmful tax practices more effectively, taking into account transparency and substance 6. Prevent treaty abuse 7. Prevent the artificial avoidance of permanent establishment status 8. Transfer pricing for intangibles 9. Transfer pricing for risks and capital 10. Transfer pricing for other high-risk transactions 11. Establish methodologies to collect and analyze data on BEPS and the actions to address it 12. Require taxpayers to disclose their aggressive tax planning arrangements 13. Re-examine transfer pricing documentation 14. Make dispute resolution mechanisms more effective 15. Develop a multilateral instrument for amending bilateral treaties The Action Plan proposes approaches for involvement of nonmember countries in the OECD work on BEPS. The Action Plan also indicates that the business community will be invited to comment on the various proposals and that a consultative process will be used in this phase of the BEPS project. The expected outputs of the fifteen separate Actions include: - changes to OECD Transfer Pricing Guidelines; - changes to the OECD Model Treaty; - recommendations for domestic law rules, and - the development of novel approaches such as multilateral tax instruments. Companies should evaluate which aspects of the Plan could have the greatest impact on their businesses, stay informed about ongoing developments in the OECD and in individual countries, and determine how to participate most effectively in discussions regarding this project, and regarding the underlying international tax policy issues, with the OECD and with tax policymakers in their home countries and the countries where they invest. For additional information, please contact: