This Aminews is to inform you about recent trends in international taxation for corporations. In particular, we would like to draw your attention to the “Base Erosion and Profit Shifting” (BEPS) project that is being developed by the OECD and sponsored by the G20.
BEPS refers to tax planning strategies that exploit gaps, mismatches and loopholes in tax rules and tax treaties in order to make profits “disappear” for tax purposes or to shift profits to locations where there is little or no real activity but where the taxes are low, resulting in little or no overall corporate tax being paid. In most of the cases, these tax planning strategies are nevertheless legitimate and hard to combat by jurisdictions.
Fifteen BEPS action plans
The debate over BEPS tax planning strategies has now reached the front pages of the newspapers (i.e. Luxembourg leaks, Apple, Starbucks) and also the agendas of the OECD members and non-OECD countries governments. Upon request of the G20, the OECD published in July 2013 a document identifying the 15 Actions through which these BEPS tax strategies can be tackled. These 15 Action Plans are focused on:
- Establishing coherence in international taxation;
- Aligning taxing rights with substance; and
- Improving transparency
In essence, the BEPS project attempts to align taxation with activity. Companies should be taxed in the country or countries in which the activities take place.
Recommendations to modify domestic law and tax treaties
The outcome of the BEPS projects would be the delivery of recommendations per each of the 15 detailed Action Plans. Part of these recommendations were published in September 2014 while others will be published in September and December 2015.
The BEPS recommendations will be modifications to domestic tax laws of each country or their bilateral tax treaties. Also a multilateral instrument will be developed in order to swiftly implement the tax treaty related BEPS measures in a consistent manner with respect to potentially more than 3,000 tax treaties currently in force.
The G20 endorsed during various recent occasions the BEPS action plans and is pushing all developed countries and also developing countries to participate. Already 60 countries are participating in the BEPS project. A list of participating countries can be found at www.OECD.org.
Tax professionals have expressed their concerns regarding the uncertainty of timing and level of implementation of the BEPS recommendations by each of the countries in the foreseeable future. While there are countries that are already introducing tax reforms in line with BEPS initiatives, other countries may postpone such implementation and / or may only partially implement recommended adjustments.
Impact on many tax planning structures
The implementation of the BEPS recommendations will be a game changer in international taxation. The BEPS project will not only impact the biggest multinational groups such as Apple or Starbucks, it will also affect almost all multinational groups (i.e. groups with entities in more than one jurisdiction).
Holding, royalty and finance structures which lack economic substance and are set up for treaty shopping purposes may be impacted by the recommended introduction of Limitation on Benefits provision (LoB) and/or the Principle Purpose Test in tax treaties. Hybrid mismatch arrangements and thinly capitalized entities will be combatted.
Transfer pricing structures and the allocation of taxable profits needs to be aligned with economic activities and value creation in the respective countries. Aggressive structures have to be disclosed and transfer pricing transactions needs to be properly documented and filed to give tax authorities more transparent information.
Amicorp helps you to respond to the new BEPS environment
It is now time to analyze the potential impact of BEPS actions on your structures and implement improvements where needed. In relation to the BEPS project Amicorp can assist you with:
- Determining which of the BEPS action plans may affect your structure;
- Improving factual and economic substance and alignment of taxation with economic activities and value creation; and
- Complying with some of the Transfer Pricing documentation that will be required (i.e. master file, local file, country by country report)
For more information on how to respond to the global BEPS project, and take advantage of Amicorp’s services, please contact your Amicorp Account Manager, Sales Manager or your closest Amicorp office.