The OECD is to give a presentation on the project on base erosion and profit shifting (BEPS) to the G20 Finance Ministers when they meet on 9 and 10 February 2015. The OECD has agreed with the G20 countries on three important elements that will move forward the implementation of the BEPS project. These are:
- A mandate permitting the launch of negotiations on a multilateral instrument to put into practice the parts of the BEPS action plan concerning tax treaties.
- A package to enable the implementation of country by country reporting in 2016 and a related mechanism for government to government exchange of information.
- Formulation of criteria for assessing patent box regimes (special tax regimes for intellectual property) to determine if they amount to harmful tax practice.
Multilateral Instrument
The implementation of the action plan on base erosion and profit shifting will result in amendments to the OECD Model Treaty and commentary in areas such as the definition of a permanent establishment. The action plan will also require amendments to existing tax treaties and as there are more than 3,000 bilateral tax treaties in existence this can only be done quickly if there is a multilateral instrument that provides a single tool for quickly updating the tax treaties.
The mandate on the multilateral instrument authorizes the formation of a negotiating group hosted by the OECD that will be open to all states to join. This ad hoc negotiating group would hold its first meeting by July 2015 and would finish drafting the multilateral instrument by December 2016.
Country by Country Reporting
The implementation of country by country reporting is important for the part of the action plan that is related to transfer pricing. The template will require multinationals to provide tax administrations with information on revenue, profits, taxes accrued and paid and some indicators of activity in all the jurisdictions in which the group operates. The plan is for tax administrations to begin exchanging country by country reports by 2017. The confidential exchange of information between tax administrations would be done under the provisions of bilateral double tax treaties, the multilateral convention on mutual administrative assistance in tax matters, or tax information exchange agreements. Other methods such as local filing of information by multilateral enterprises could be used in exceptional circumstances.
Patent Box Regimes
An important aim of the BEPS project is to determine which patent box regimes or other special tax regimes can be considered to be harmful tax practice. The G20 has already endorsed a proposal to assess whether there is substantial activity in an intellectual property regime. This would enable a company to receive benefits from the regime in line with the amount of expenditure incurred in generating the income, a so-called nexus approach, and this has been approved by all the OECD and G20 countries. There would be transitional provisions for existing regimes including a limit on accepting new regimes after June 2016.
Developing Countries
Developing countries have contributed to the discussions on the implementation of the BEPS action plan under the strategy agreed for deepening their engagement in the project. There will be dialogue with tax administrations from each region of the world and with regional tax organizations.
A webcast is to be held on 12 February 2015 by the OECD’s Centre for Tax Policy and Administration on the progress towards implementation of the BEPS action plan.
