Base Erosion and Profit Shifting (BEPS)
At a multilateral level, the OECD has been busy over the last few weeks on the base erosion and profit shifting front, and on December 23 released new tools for tax administrations to gauge how they are performing in the area of tax debt management and the reduction of compliance burdens.
It announced that it has developed new “maturity models,” featuring performance benchmarks against which tax agencies can better self-assess how their processes are performing against best standards and their peers.
Tom Boelaert, the Administrator General of the Belgian Debt Management Agency, which led the work on this model, explained that: “Tax debt management plays a crucial role in ensuring the effective and fair operation of the tax system. We should therefore always challenge ourselves to do better. Within my own agency, this new maturity model has facilitated frank and in-depth conversations … Read More »
The United States Internal Revenue Service has issued final regulations and proposed regulations on the base erosion and anti-abuse tax (BEAT) under section 59A of the tax code, which provide guidance for taxpayers affected by the tax provision.
Added to the tax code by the Tax Cuts and Jobs Act of 2017, the BEAT is designed to penalize those companies that make deductible payments to foreign affiliates to substantially reduce their exposure to US taxation. The BEAT is calculated by adding back certain deductible payments made to foreign affiliates and applying a minimum tax to a percentage of the difference between the taxpayer’s modified taxable income and their regular tax liability, at a rate of five percent for 2018, 10 percent from 2019, and 12.5 percent from 2025.
The provision primarily affects corporate taxpayers with gross receipts averaging more than USD500m over … Read More »
We all know that corporate taxation entails more than just a simple percentage of a company’s profits; it is far, far more involved than that. The 15 weighty tomes that are the final reports of the base erosion and profit shifting project – the fruits of the OECD’s countless hours of labor – are a testament to that.
At the heart of it all is transfer pricing. But, mention the phrase “transfer pricing” to the uninitiated, and they will probably return a blank, bovine stare, almost puppy-like in its wide-eyed, head-slightly-tilted innocence. You’d almost see cartoon-esque question marks forming in their eyes. Start to talk about transfer pricing to them for any length of time, and you might be in danger of losing a valued friend or acquaintance (“where’re you going? I haven’t finished explaining the comparable uncontrolled transaction method yet!”). … Read More »
There are plenty of things in this life that can do us harm. One of them can be taxation. But not, as conventional wisdom might have it, because taxes are too high, and too difficult to work out. No, in the world of BEPS and uber-transparency, taxes become harmful when they are too low. Or, as the European Union’s Code of Conduct Group (Business Taxation), a body tasked with rooting out harmful tax regimes, puts it, when tax measures “unduly affect the location of business activity.” Which is quite ironic really, given that the mysterious and shadowy Code Group has itself been accused of operating in a less-than-transparent fashion.
However, despite the time and resources devoted to this matter, the war against harmful taxation has yet to be won. Although, if recent OECD figures are anything to go by, the final … Read More »
Here’s a conundrum: How do you go about BEPSifying the entire global network of double tax avoidance treaties – or the majority of them at least – without testing out the theory that time is infinite? You use an instrument of course! By which I don’t mean you rewrite the world’s tax treaties using the power of song. This is the OECD’s BEPS Multilateral Instrument, which is considerably less entertaining. But more effective. Probably.
Given that the MLI went into effect on July 1, it’s too early to tell how the changes to be brought about will work in practice. But while it’s likely to shorten the global treaty reform process by several years, the process isn’t going to be an easy one by any stretch of the imagination.
Here’s the thing about the MLI: it’s not a one size fits all … Read More »
For better or worse, BEPS has permeated deep into the fabric of the world’s tax regimes. You can tell this by the sheer volume of tax developments that are related to, directly or indirectly, the issues discussed in the OECD’s BEPS report each week. And the remainder of those tax developments that aren’t exclusively about BEPS likely still reference them in one way or another.
From Liechtenstein to Luxembourg, from Andorra to Anguilla, the list of jurisdictions now incorporating new international standards on tax avoidance and tax transparency tells you all you need to know about how far the BEPS project’s tentacles have spread into the tiniest jurisdictional nooks and crannies.
Combined with tax reform in the United States and elsewhere, for tax commentators, this is boom time – a fiscal Klondike Gold Rush, if you like, with a rich, golden seam … Read More »
Maybe it’s because we now live in increasingly fast-paced, on-demand economies, but there seems to be a growing sense of impatience at the pace – or lack thereof – of the OECD’s work on some crucial areas of the BEPS project – notably around the taxation of the digital economy.
That the European Union went charging into this matter like the proverbial bull in a china shop can be put down to its usual enthusiasm for fixing international tax problems. But even the saintly United Nations now can’t wait any longer, having decided to press ahead with its own work on digital taxation. When the UN can bear the OECD’s procrastination no more, you know the game’s up. The patience of saints is only finite, it transpires.
The official line of most governments is that it is preferable to work in conjunction … Read More »
Are we in danger of seeing the wheels fall off the BEPS vehicle? If multilateralism is supposed to the be lynchpin holding the whole thing together then some members of the international community, intentionally or not, seem to be doing their best to pull it out. And the danger is that the wheels could go careering off in different directions, which surely helps nobody.
The European Union is one party in an awful hurry to find solutions to the riddle of the digital economy. Indeed, EU Competition Commissioner Margrethe Vestager more or less threatened to wrest the digital taxation project from the OECD last week, when she said that the Commission would publish its own proposals for more effective taxation of the digital economy early next year if the OECD hadn’t got its act together by then.
Some would applaud the European Commission for … Read More »
It’s been an interesting few days for the European Union, or more specifically its executive arm, the European Commission.
First came the announcement of a screening framework for FDI. This is intended to shine a light on the more shadowy sources of foreign investment into the EU. It’s quite ironic really; after all, the European Commission is hardly the most democratic and transparent of governmental organizations. More on the matter of transparency later.
The other notable development was the publication by the Commission of its vision for “fair” taxation of the digital economy, which came after France, Germany, and other influential member states had been pushing the issue of digital taxation for a number of weeks.
We can’t say for sure whether the Commission’s announcement is the result of increasing political pressure for solutions to tax issues in the digital economy, or whether it was working towards … Read More »
The word substance has become integral to the base erosion and profit shifting project. But it’s also one that appears to be causing businesses and tax authorities the world over significant problems.
Of course, one of the core aims of BEPS is to prevent situations whereby taxpayers get away with double non-taxation. However, as the International Chamber of Commerce pointed out last week, the increased focus by revenue authorities on economic substance combined with a lack of clarity on the definition of the term across jurisdictions is leading to more cases of income being doubly taxed, rather than the other way around.
Facing the prospect of being wrongly taxed, taxpayers have little choice but to fight it out in the tax tribunals and appeals courts, which even in the most advanced countries is usually an expensive, time-consuming process, and risky if litigation … Read More »