With the bulk of the OECD’s work on the BEPS project complete, attention will now turn to the implementation of the recommendations by member countries and others.
The goal is to prevent firms from artificially shifting their profits out of countries in which they actually transact their business and registering them in jurisdictions that charge a lower, or even zero, rate of corporation tax.
The new standards, known as the base erosion and profit shifting (BEPS) project and expected to be adopted in November by G20 leaders, will require countries to amend their laws and practices accordingly.
The OECD says the plan could bring $100 billion to $240 billion into government budgets.
Experts groups say the rich country group OECD is not the appropriate body to set tax cooperation rules and a new global body which offers equal representation should be formed.
Any policy or proposal to change the company tax rules now will have a direct knock-on effect on the nation’s finances, and hence on the amount of income tax we pay and the services we receive. More profits will be taxed in the country of operation.
The OECD is anxious about companies using hybrid financial instruments and entities to achieve double non-taxation and recommends domestic law change to prevent this. Current tax authority concerns are primarily about preferential regimes that can be used for artificial profit shifting and about a lack of transparency in connection with certain rulings.
“Every year developing countries lose an estimated $200bn a year to corporate tax avoidance”.
“This sends a strong message”, Saint-Amans said.
“These measures were not helpful”, Mr Saint-Amans said.
“The tax world will not be the same after the Beps measures …”
Action 11: Monitoring BEPSThe report on Action 11 assessed now available data and concluded that significant limitations severely constrain economic analyses of the scale and economic impact of BEPS.
“But how do you measure that in a dynamic approach?” A few early adopters have already started passing legislation…
“We don’t expect any country not to implement”, he said.
Now it was about getting down to the “nitty-gritty” details and, down the track, ensuring countries make tax settings more attractive for investment and growth. “What we hear from our colleagues in the U.S.is that a number of them are being dismantled, so it’s happening”, Saint-Amans said.
“It largely depends on the economic situation”.
There is a lot of talk about how much Minister for Finance Michael Noonan will have to spend next week, particularly as tax receipts for 2015 are racing well ahead of the official estimates at budget time past year.
One of the most controversial parts of the plan relates to taxing the “digital economy”. The OECD has been single-mindedly focused on changing the rules and encouraging the exchange of information between tax authorities, so multinationals have to pay tax on their profits somewhere.
But there were “key features” that tax settings could address. They’ve done this by claiming they have no physical “permanent establishment” (PE) given their businesses are online. Instead, the OECD plan builds on a system which relies on paper transactions between different subsidiaries of the same company.
So, let me just give you an example.
Companies including Google, Apple and Amazon have been accused of using creative accounting techniques with comical names such as the “double Irish” and “Dutch sandwich” to move profits around the world and build up billions of dollars of cash reserves in tax havens.
The centre will be developing an inclusive framework for implementation by January and February next year.
Rebecca Reading, worldwide tax partner at Baker Tilly, said: ‘The question remains – will these proposals actually fix the global tax system and, in particular, will they solve the problem of tax avoidance by multinationals?’