Base Erosion and Profit Shifting (BEPS) Action Plan

With the debate over base erosion and profit shifting (BEPS) having reached the highest levels of governments, and with growing attention from the media and the public on perceived international tax avoidance techniques of high-profile multinationals, the Organisation for Economic Cooperation and Development (OECD) has taken up the matter of BEPS.

The OECD’s Action Plan on BEPS was published in July 2013 with a view to addressing perceived flaws in international tax rules. The 40 page Action Plan, which was negotiated and drafted with the active participation of its member states, contains 15 separate action points or work streams, some of which are further split into specific actions or outputs. The Plan is squarely focused on addressing these issues in a coordinated, comprehensive manner, and was endorsed by G20 leaders and finance ministers at their summit in St. Petersburg in September 2013.

The first stage of work under the Action Plan has resulted in reports on seven of the 15 workstreams. While agreed and approved by the G20 finance ministers in September 2014, the proposed measures are not yet finalised as they may be impacted by further deliverables.

Explore the latest developments and PwC’s global tax specialists’ perspectives on each action point below, and read our responses to the current discussion drafts here.

Explore additional BEPS action plans:

  • The digital economy
  • Hybrid mismatch arrangements
  • Controlled foreign companies (CFC) regimes
  • Financial payments
  • Harmful tax practices
  • Treaty abuse
  • Permanent establishment (PE) status
  • Transfer pricing and intangibles
  • Transfer pricing and risks/capital
  • Transfer pricing and other high risk transactions
  • Data and methodologies
  • Disclosure of aggressive tax planning
  • Transfer pricing documentation
  • Dispute resolution mechanisms
  • A multilateral instrument
  • Completion of all 15 actions will take until December 2015. While it may take considerably longer for the impact of these changes to be fully applied in practice, the BEPS project and related developments are already leading to the need for business to take action (in some cases, urgent action) both to comply with new requirements and to consider the ways in which they do business in different countries. To the extent that the changes relate to the OECD’s Model Tax Convention and Transfer Pricing Guidelines, their implementation is assured and should follow fairly quickly. The speed with which they are then implemented in existing bilateral tax treaties will be heavily linked with the success of the OECD’s proposed “multilateral instrument”, which the OECD has reported can be applied without any obvious technical barriers (though practical issues may be of more concern). The proposed OECD rule changes that involve amendments being made by individual territories to domestic tax rules are likely to be widely but not universally adopted, though consistency and timing is uncertain.

    Governments, revenue authorities and business will all have a material role to play over coming months if the proposed changes are to be effective.

    Why focus on BEPS?

    • Countries experiencing fiscal deficits
    • Climate of austerity and renewed focus on the contribution from business
    • Attention from politicians and the media

    What is the goal of BEPS?

    • Focus on double non-taxation (or less than single taxation) through “cracks” in the interaction of domestic tax systems
    • Primary aim is to address situations where profits are perceived as geographically divorced from activities

    What are the time frames?

    • 2014 - Projected completion of approximately half of Action Plan (September)
    • 2015 - Completion of remainder of Action Plan (September/ December)
    • 2016 onwards - Monitoring, additional/ on-going actions

    Will it be effective?

    • Some important changes were already agreed by the OECD in the run up to BEPS
      • Threshold PE changes
      • Beneficial ownership changes
    • Material work has been in progress pre-BEPS on what are now central BEPS issues
      • IP and TP
      • Transparency and disclosure measures
    • A clear behavioural shift by tax authorities in many areas has already been seen
    • There is unprecedented political backing so no/little movement on BEPS package seems very unlikely – and there is the continuous spectre of unilateral taxation if the package falters
    • Overall, there is a high likelihood of there being a material impact from all these factors

    What next?

    • Concentrated work on the action points by the OECD and Member States
    • Business Consultation
    • OECD reporting in the short term

    What action might you take?

    • Be aware of OECD work in progress/areas of focus
    • Input into business consultation
    • Identify significant risk areas and begin remediation as required, based on current actions of tax authorities and the future impact of OECD work
    • Monitor the domestic impact of BEPS work – especially on behavioural changes