Tax memo: OECD report on “base erosion and profit shifting” looks to action plan (Memo No. 2013-04)

Memo No. 2013-04

On February 12, 2013, the OECD released a lengthy report on its base erosion and profit shifting (BEPS) work. Arising from the concern of tax authorities that corporate tax planning is causing substantial losses in tax revenues, the report:

  • assesses the current position; and
  • considers how BEPS could be addressed using a collaborative solution.

In the current climate of intense criticism and media scrutiny of corporate tax practices, this is a welcome review of the common principles by which taxing rights are divided between states, and one that will have widespread implications.

As highlighted in the report, the OECD has committed to develop an action plan within six months to address the issues.

The BEPS project stems from the concerns of tax authorities that substantial tax revenue is being lost due to corporate planning that, although generally legal, is aimed at eroding the taxable base and/or shifting profits to locations that provide more favourable tax treatment.

At the same time, there is also the more fundamental concern that the common principles by which taxing rights are shared between states have not kept pace with the changing business environment – especially given the nature of globalized business (including the ability to transact business across the internet) and the increased importance of intellectual property as a value driver.

The BEPS project has also received much political attention, including backing from the G20 and various individual governments.