The problem of Base Erosion and Profit-Shifting (BEPS) has been a major concern for many years in the G20 and many other governments. The Organisation for Economic Cooperation and Development (OECD) have a long running project to solve this problem. They are making significant progress. 

The project plan

In February 2013 BEPS outlined the 15 separate workstreams under five broad categories needed to complete this work. On July 19, the (OECD) issued a Comprehensive Action Plan (Plan) for the BEPOS project:

Source & Copyright©2014 - OECD 

The work involving all the OECD 44 member countries and other observer countries have been fully supported and the project team can now see the end to its work. 

Progress briefing and the multilateral instrument

At the latest 26 May progress online briefing from the OECD BEPS task force, they outlined significant progress they had made on implementation plans for international rules, including a legal framework for multi-lateral instrument amendments to bilateral trade agreements, as well as a political plan to win over lawmakers, This development of a multilateral instrument is the cornerstone of their approach, because:

• it will address treaty-based BEPS issues efficiently while respecting sovereign autonomy in tax matters and preventing uncertainty 
• they believe that the multilateral instrument is not only feasible but also desirable (numerous benefits, also for developing countries)
• it can be a targeted instrument that coexists with bilateral tax treaties and national tax laws.

“The objectives of fighting BEPS will be achieved through killing 3,000 birds with one stone,” Pascal Saint-Amans director of the OECD’s centre for tax policy and administration said. “Countries sending individual teams around the world to update bilateral treaties creates gaps between treaties and takes single countries decades to update all treaties. It’s good for no one.”

The BEPS team also described:

• their plan for a multi-lateral agreements convention that would go into effect in coordination for countries that represent 85% of the world economy. Whilst stressing that the plan was both feasible and desirable as the multi-lateral framework would allow sovereign states to continue to honour previous treaties while still combating transfer pricing tax avoidance strategies
• their progress on updating agreements for arm’s length principals and definitions of intangible assets, as well as potential digital permanent establishment rules for selling goods online.
• the work on so-called hybrid mismatch arrangements and detailed plans for linking rules that align the tax treatment of instruments or entities in sovereign jurisdictions with the tax outcomes of counterparty jurisdictions.

There were questions at the 26 May briefing as to how the BEPS team would cope with one country/member not agreeing with the proposals. The eloquent reply was that there is so much consensus amongst the members that they were sure a way would be found to ‘overcome’ any minor disagreements.

Further work

The task force will release the draft rules defining intangible assets for comment on June 6, and the confirmation of required documentation in transfer pricing last week on May 23. They will present the details of multilateral instruments at the G20 finance meeting to be held in September later this year and to the G20 leaders meeting in November.

So it was not surprising that the BEPS teams members believe that new rules could come into effect internationally in just two to three years.

---

CTMfile take: Normally international tax treaties take decades to happen and only affect a few countries or just one region. In the briefing, the BEPS team members talked about 100% penetration of all countries. The multi-lateral tax instruments could be part of your daily life in 2-3 years. How will it affect your organisation?