Corporate tax avoidance has been thrust into the mainstream in recent years as governments struggle to manage vast public debts. Public services in many countries have endured ongoing austerity cuts and many consumers had to tighten their belts in the years following the great financial crisis, which inevitably meant focus turned to corporates and their contributions to governments' tax purses.
This culminated in the Organisation for Economic Co-operation and Development (OECD) launching its Base Erosion and Profit Shifting (BEPS) Action Plan in 2012. BEPS refers to "tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations" and is a common strategy among multinationals to minimise their tax bills and maximise shareholder value. The International Monetary Fund estimates that around $600bn is lost to profit shifting every year.
Finalised in 2015, the plan seeks to limit BEPS with 15 specific Actions:
- Action 1: Addressing the Tax Challenges of the Digital Economy
- Action 2: Neutralising the Effects of Hybrid Mismatch Arrangements
- Action 3: Designing Effective Controlled Foreign Company Rules
- Action 4: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
- Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
- Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
- Action 7: Preventing the Artificial Avoidance of Permanent Establishment Status
- Actions 8–10: Aligning Transfer Pricing Outcomes with Value Creation
- Action 11: Measuring and Monitoring BEPS
- Action 12: Mandatory Disclosure Rules
- Action 13: Transfer Pricing Documentation and Country-by-Country Reporting
- Action 14: Making Dispute Resolution Mechanisms More Effective
- Action 15: Developing a Multilateral Instrument to Modify Bilateral Tax Treaties
The full BEPS Action Plan text can be found here.
The precedent-setting framework is a starting point for global tax coordination and as at January 2018 a total of…