The OECD/G20 project on base erosion and profit shifting is important not just to developed countries but to the developing countries which rely on corporate income tax collected from large companies, including multinationals, to fund their development plans. Developing countries often take a higher proportion of government revenue from corporate tax than is the case in developed countries even though the tax base for this tax is often small. The developing countries therefore need to take steps to ensure that they protect that tax base. Multinational groups often use tax planning strategies to take advantage of mismatches in tax rules and shift profits to low tax locations, paying minimal corporate tax. The BEPS project is therefore of concern to developing countries and the OECD recognizes the need to consult with these countries and encourage their participation in the action plan on base erosion and profit shifting (BEPS).

A Strategy for Deepening Developing Country Engagement in the BEPS Project was released by the OECD on 12 November 2014. Many developing countries are developing their capacity to collect the appropriate amount of tax and to mobilize their domestic resources to achieve sustainable development. They therefore need to participate in international discussions on BEPS and to receive support in tackling the challenges posed by profit shifting.

There have been four regional consultations involving more than 80 countries in the developing world during the course of the BEPS project, and there have been global forums on five specific themes connected to the project. Developing country input has therefore been received on issues such as the country by country reporting for transfer pricing, the abuse of tax treaties or the considerations to be taken into account when negotiating a tax treaty with another country.

The OECD issued a report for the G20 in September 2014 on the challenges and priorities faced by low income countries. This project identified certain specific issues of concern to low income countries including base erosion through interest deductions and other financial payments; the prevention of treaty abuse; artificial avoidance of permanent establishment status; and the importance of transfer pricing documentation and country by country reporting. These issues would need to be tackled with the support of capacity building measures and political backing from other countries.

In addition to the above issues that are within the scope of the BEPS project other issues have been identified as important to developing countries. These include the use of wasteful tax incentives to attract investment and the lack of comparable data for transfer pricing studies. These issues will be studied in the course of the ongoing work of the Task Force on Tax and Development.

In September 2014 the G20 requested that the OECD should develop a process of structured dialogue with developing countries, offering ways for these countries to work together and give input to the BEPS project.

Also by working with other regional and international organizations the OECD can develop methods for building practical support for the developing countries as part of the BEPS project. This is to be delivered in 2016 and there will be three pillars to the process. These are direct participation by developing countries in the OECD’s Committee on Fiscal Affairs; policy input through regional networks of officials involved in tax policy and administration; and support for developing countries in their capacity building programs.

Regional bodies such as the African Tax Administration Forum are to take part in the proceedings of the technical working groups and participate in the CFA. Also, regional networks of tax policy and administration officials are to be set up to take part in a more structured dialogue with a wider group of developing countries. The regional groups will be based on Africa, Asia, Latin America and the Caribbean, French speaking countries, and Central Europe and the Middle East. These regional groupings can develop the necessary tools for implementing the BEPS measures and taking forward other priority issues for developing countries.

Also, the OECD already has the OECD Global Relations Tax Programme and the Tax and Development Programme which offer other opportunities for dialogue on issues concerning the BEPS project, within training events and bilateral programmes. These will be coordinated with input from the UN, IMF and World Bank to provide support to the developing countries.