On 16 April 2015 the OECD released a discussion draft on improving the analysis of base erosion and profit shifting (BEPS) actions. This relates to action 11 of the BEPS action plan that concerns improving the availability and analysis of data on BEPS, monitoring the implementation of the BEPS action plan and evaluating the effectiveness and economic impact of the actions taken to combat base erosion as the action plan is implemented.
The discussion draft considers the following issues:
- The currently available data for analyzing BEPS and possible countermeasures;
- Best practices in government for collecting and making available relevant data;
- Additional indicators that could be provided;
- Enhancements to the “signal to noise” ratio of existing indicators;
- Additional empirical analyses of BEPS, particularly in developing countries; and
- Alternatives or refinements to the proposed approaches to analyzing BEPS.
The discussion draft begins by assessing the existing sources of data that could be used for BEPS analysis. This involves a description of the data and discussion of the limitations of the data for performing an economic analysis of the scale and impact of BEPS and the countermeasures taken. Current data sources include national accounts and balance of payments information; statistics on foreign direct investment and on trade; corporate income tax revenue; customs data; publicly available company data; company data from government sources; corporate income tax information from tax returns; and specific details of company tax available as a result of enquiries. An annex gives information on the available databases.
The next section of the discussion draft sets out the potential indicators of the economic impact of the measures and of their strengths and weaknesses. Although there is no single indicator that can give an accurate picture of the scale of BEPS, it is possible to use a range of indicators to provide a broad analysis of the economic impact of BEPS and assist in designing policy over time. The discussion draft provides examples of calculations that could be done on existing data to provide insights on BEPS.
Finally Chapter 3 of the discussion draft sets out existing empirical analyses of BEPS and puts forward approaches to estimating the scale of BEPS. A list of potential BEPS indicators is provided.
The disconnect between financial and real economic activity could be revealed by high levels of foreign direct investment relative to GDP. Profit rate differentials within the large multinationals could be indicated by comparing profit rates to tax rates or comparing profit rates in low tax jurisdictions to global profit rates. Further indicators could look at the differential profit rates between multinational domestic and foreign operations; or differential effective tax rates between affiliates of multinational groups and comparable domestic companies.
Profit shifting involving intangibles could be detected by looking at the level of royalty payments compared to spending on research and development. Profit shifting through leverage could be detected by the ratio of interest expense to income of multinationals in high tax locations.
The draft includes questions on which comments are required from interested parties Comments are to be submitted by 8 May 2015. A public consultation meeting on the topic is to be held on 18 May 2015. The BEPS action plan requires the work on this topic to be completed by September 2015.
