On 1 October 2013, the Organization for Economic Cooperation and Development (OECD) held a meeting with the Business and Industry Advisory Committee (BIAC) to the OECD on the Action Plan on Base Erosion and Profit Shifting (BEPS).
The Action Plan, which identifies 15 focus areas for OECD work on BEPS over the next two and a half years, was issued by the OECD on 19 July 2013 in connection with a meeting of the G20 Finance Ministers and Central Bank Governors.
The OECD-BIAC meeting was the first formal opportunity for business representatives to engage with the OECD on the Action Plan and the 15 focus areas. In the Action Plan, the OECD expressed a commitment to consult with the business community as it works to develop recommendations in each of the focus areas.
Business representatives from around the world and from a range of industries participated in the 1st October meeting of BIAC and OECD on the BEPS Action Plan. The OECD was represented at the meeting by officials from 16 of the member countries, including Australia, Canada, France, Italy, Mexico, the Netherlands, Spain, and the United Kingdom. The Action Plan reflects the OECD’s view that 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 OECD acknowledges that in many circumstances existing domestic law and treaties yield the correct result, but states in the Action Plan 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 Action Plan thus concludes that fundamental, consensus-based changes are needed to address double non-taxation and cases of no or low taxation where taxable income is artificially separated from the activities that generate it.
The 15 focus areas – or Actions – set forth in the Action Plan, each of which is linked to specific outputs that are to be completed in 2014 or 2015, are as follows:
- Address the challenges of the digital economy
- Neutralize the effects of hybrid mismatch arrangements
- Strengthen CFC rules
- Limit base erosion via interest deductions and other financial payments
- Counter harmful tax practices more effectively, taking into account transparency and substance
- Prevent treaty abuse
- Prevent the artificial avoidance of permanent establishment status
- Assure that transfer pricing outcomes are in line with value creation – intangibles
- Assure that transfer pricing outcomes are in line with value creation – risks and capital
- Assure that transfer pricing outcomes are in line with value creation – other high-risk transactions
- Establish methodologies to collect and analyze data on BEPS and actions to address it
- Require taxpayers to disclose aggressive tax planning arrangements
- Re-examine transfer pricing documentation
- Make dispute resolution mechanisms more effective
- Develop a multilateral instrument for amending bilateral treaties
It was further noted that the BEPS project is about developing new tax policy tools that can be used to address deficiencies in the current system that may allow what the OECD refers to as “double non-taxation” while maintaining the historic focus on addressing double taxation.
The OECD issued a short document listing a series of key points on which business input is requested to be provided at the November consultation, including:
- What types of information regarding income should be required;
- What of information regarding taxes should be required;
- What other categories of location information, such as data on revenue by customer, tangible and intangible assets, employees and management, and research and marketing expenditures, should be required; and
- What mechanisms should be used for reporting and sharing this information.
At the close of the meeting, OECD representatives expressed appreciation for the productive dialogue, underscored the short timetable for the OECD to complete its work, and reiterated the need for input from the business community on many of the Actions. They indicated that they look forward to written submissions and other input into the drafts that are produced by the OECD as the project goes forward.
The discussion at the OECD-BIAC meeting highlighted the breadth and complexity of the work to be done by the OECD in connection with the Action Plan. While the project is extremely ambitious, the political level interest in this work and the commitments of all OECD and G20 countries mean that the work will advance consistent with the timetable set by the OECD. With the due dates for the first outputs from the OECD just one year away, it is important for companies to be focused now. Companies must keep informed about developments in the OECD and, importantly, about the perspectives of the countries in which they have operations or plan to invest. Companies also should consider how to participate in the broader global debate regarding the full range of potential international tax changes by engaging with OECD and country tax policy makers.
Finally, companies should begin evaluating the impacts for their business models and structures of potential changes in the areas under consideration by the OECD in connection with the Action Plan.