Our biweekly newsletter tracks developments that are inspired or driven by BEPS, both at the OECD and country level.
In 2013, the G20 finance ministers asked the Organisation for Economic Co-operation and Development (OECD) to provide recommendations to reform the global tax system by improving the coherence of international tax rules, creating greater transparency, and reinforcing the focus on economic substance.
The final action points contained in the OECD’s base erosion and profit shifting (BEPS) project, released in 2015, provide governments with tools to curtail tax-avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low- or no-tax locations. Many countries around the world are starting to adopt these reforms.
Since 2014, we have published a biweekly newsletter and annual edition that track developments inspired or driven by BEPS, both at the OECD and country level. Entries in these newsletters provide insight into which BEPS recommendations are being implemented the fastest, and where.
The graph below shows the most activity has been around Action 13, which recommends that countries adopt new transparency rules through the creation of country-by-country reports and enhanced documentation requirements for transfer pricing.
Action 13 is aimed at the development of rules regarding transfer pricing documentation that enhance transparency for tax administrations, taking into consideration the compliance costs for business. The second-highest categories in terms of activity are Action 2 and 6, which aim to neutralize branch mismatch hybrid arrangements and prevent tax treaty benefits from being granted inappropriately, respectively.
Our newsletter entries also reveal which jurisdictions have been the most active in adopting the BEPS tax reforms.
The map below shows that the busiest countries are among those with the highest gross domestic product (GDP), with the world’s two largest economies (US and China) in the group, as well most of Western Europe, the Nordic countries, Australia, New Zealand, Russia, India, South Africa and Brazil.
Canada, Argentina, Colombia, Chile, Portugal, Malaysia and Greece were slightly less active, while some countries in Eastern Europe and Asia were slower to implement reforms.
More change ahead
Most of Africa and parts of South America and Asia have yet to implement BEPS actions. But many countries on these continents are among the 110 jurisdictions that have so far committed to the implementation of the reforms through either their original participation in the BEPS project or their membership in the Inclusive Framework on BEPS.
While the Inclusive Framework is not legally binding, countries are committed to a timely and consistent implementation of the BEPS minimum standards.
As shown in the charts above, local tax rules are evolving rapidly year by year. In 2018, numerous changes and reforms of domestic and international corporate tax law are expected to be implemented.
Considering this new environment, businesses need to stay informed and consider operational and financing structures, identify communications strategies and assess their tax strategy, all with the aim of developing a sustainable tax framework.
Businesses and tax administrations should also prepare for a possible uptick in tax controversy stemming from the BEPS measures, including the sharing of information contained in the country-by-country reports by different tax administrations.
The OECD and G20 are aware of these challenges, and efforts are underway to improve tax certainty for businesses.
An overview of the latest activity on BEPS can be found in our annual review of all-BEPS related activity in 2017.
How we can help: Global Focus on Base Erosion and Profit Shifting (BEPS)
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