The OECD held a webcast on 8 June 2015 to provide another update on progress on the action plan on base erosion and profit shifting (BEPS).

Roadmap to delivery

A roadmap was provided for delivery of the project. The working parties are currently holding meetings on BEPS issues and a package consisting of an explanatory statement and fifteen reports (corresponding to the BEPS action points) will be adopted on 22 and 23 September 2015. Formal approval by the G20 Finance Ministers will be requested from their meeting of 8 October 2015 and the G20 leaders will be asked to give their approval to the package at their meeting in November 2015. The G7 communiqué issued on 8 June 2015 gave support to the progress on the BEPS project and mentioned in particular the importance of mandatory arbitration in disputes.

Multilateral instrument

With regard to the multilateral instrument for amendment of tax treaty provisions it was determined that this was feasible and the OECD is therefore going ahead with the negotiations. A Chair and three vice Chairs have been appointed and the first meeting on this instrument will be in November 2015. Various international organizations have been invited as observers and it is expected that around 100 countries will begin negotiations on a multilateral instrument in November 2015.

CbC reporting

The two important issues on country by country (CbC) reporting are for the tax administration to obtain the information on the multinational group and for tax administrations to exchange the information through the multilateral competent authority agreement. The ultimate parent company of a group should comply with the requirement for CbC reporting and there is back-up for situations when the parent is in a jurisdiction that does not require the CbC report – in that case a subsidiary would be required to submit the report. Also to reduce potential compliance costs there is a provision for the MNE to elect a surrogate parent to submit the report. Confidentiality and data safeguards are included in the model competent authority agreements that have been issued.

Data analysis

Action 11 concerns the methodologies to collect and analysis date on BEPS. This involves looking at existing data sources and finding indicators that will measure BEPS. The indicators need to show the scale of BEPS and measure the effectiveness of the action to counter BEPS. Conclusions can then be reached about the effectiveness of the various BEPS countermeasures and any adjustments that need to be made to them. The feedback from commentators indicates a consensus that the current data sources are insufficient. There is support for the use of multiple indicators to estimate the fiscal effects.

Transfer pricing – Hard to Value Intangibles

Transfer pricing for hard to value intangibles (HTVIs) is a challenge for tax administrations due to information asymmetry. Third parties use different types of strategies for HTVIs such as contingency provisions and this is often necessary because the income streams may be years into the future. The definition of HTVI in the discussion draft includes the lack of comparable transactions, the lack of reliable projections of cash flows and the uncertainty of the assumptions use in the valuation. Where these features are present the tax administration could require adjustments based on actual results. Comments are required from interested parties on additional exemptions from the rules and on the implementation guidance.

Cost contribution arrangements

Comments received on the discussion draft were published on 1 June 2015. The draft contained more rigorous rules for cost contribution arrangements (CCAs) including a requirement for participants in a CCA to have certain capabilities and a requirement for contributions to the CCA to be measured at value rather than at cost. This reduces the scope for profit shifting through the transfer of undervalued intangibles using a CCA. There is strong interest from commentators in the grandfathering provisions that would be included in the measures in view of the long term nature of many CCAs.

Post-BEPS agenda

Following the approval of the BEPS package in September to November 2015 there will be further work in 2016 on the post-BEPS agenda including work on profit attribution to permanent establishments (PEs) as a following project.

Work done will include monitoring and reporting to G20 and the implementation of standards especially for developing countries in terms of limiting compliance costs. There will be a focus on the ability to administer the standards. There will be a focus on inclusiveness and a level playing field for all countries. Monitoring will take place by a type of arrangement similar to the Global Forum.

The indicators will be used to assess if the BEPS measures are producing an effect or not. The recent IMF working paper produced an estimate of the effect of base erosion and profit shifting on OECD and non-OECD countries and this suggested that the cost of BEPS behavior is much higher for developing countries.