Base Erosion and Profit Shifting (BEPS) Action Plan


10Minutes on the OECD's BEPS project

The OECD’s base erosion and profit shifting (BEPS) project is likely to spur the most significant changes to the taxation of international business in nearly 30 years.

The international tax system is changing rapidly as a result of coordinated actions by governments and of unilateral measures designed by individual countries, both intended to tackle concerns  over base erosion and profit shifting (BEPS) and perceived international tax avoidance techniques of high-profile multinationals. The recommendations of the BEPS Project led by the Organisation for Economic Cooperation and Development (OECD)  and published in October 2015 are at the root of much of the coordinated activity, although the timing and methods of implementation vary. At the completion of this scheduled programme, it started to be recognised as the end of phase one of the project and the start of phase two, dealing with outstanding or additional work, implementation and monitoring.

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, contained 15 separate action points or work streams, some of which were further split into specific actions or outputs. The Plan was 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 BEPS Project had been initiated by the G20 countries but it effectively also encompassed the other OECD Member States from the outset. As the project progressed, engagement in the discussions was extended to other large non-OECD states and representatives of developing countries. The OECD published over 1600 pages in the ‘final’ reports in relation to all 15 BEPS Action items in October 2015. The UN, IMF, World Bank and OECD are developing toolkits to assist “lowest income countries” in implementing the outcomes of the BEPS Project, so far as they are relevant to those countries or to address related issues. A framework has been agreed for all countries to participate in further BEPS work on an equal footing, , broadly if they commit to implementing the minimum standards (see our Tax Policy Bulletin of 25 February 2016)

Explore the latest developments and PwC’s global tax specialists’ perspectives on each action point below (our written responses to the discussion drafts as various proposals were originally made are still available here).

It may take some while for the impact of these recommendations to be fully applied in practice, but the BEPS Project and related developments are constantly 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 it is planned should be available for signature by 31 December 2016. The proposed OECD rule changes that involve amendments being made by individual territories to domestic tax rules are being widely but not universally adopted, though consistency remains a challenge.

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
    • Intellectual property and transfer pricing
    • 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