OECD calls time on revenue erosion

19 Aug 2013

"The response of the OECD is more likely to be built around modifications to existing rules to bring in further anti-avoidance measures and possibly specific rules for ‘special situations’ such as internet businesses. But it remains unclear whether digital business will, as initially indicated, be dealt with by specific rules as a special case or whether any changes intended to apply to e-commerce will apply across the board". Richard Collier, tax partner at PwC

The erosion of tax bases and the shifting of profits is a very current, very critical concern among many of the G20 nations, as well as some individual governments. The Organisation for Economic Co-operation and Development (OECD) has released a report comprehensively diagnosing the situation around base erosion and profit shifting (BEPS) and proposing the need for an action plan to tackle some key pressure points.

The report suggests that the loss of tax revenue by profit-shifting to lower- tax jurisdictions is an unsustainable symptom of the changing global business environment – particularly the development of the digital economy.

The report acknowledges that there is no silver bullet for addressing BEPS, but positions the OECD as ideally placed to advance a collaborative solution.

The report solicits input for an action plan that the OECD hopes to have fully developed by June 2013. Particular areas of focus include:

  • Instruments to end/neutralise the effects of hybrid mismatch arrangements
  • Improvements to and clarifications of current transfer pricing rules
  • Updated solutions to ‘jurisdiction to tax’ issues, in particular, for digital goods and services
  • More effective anti-avoidance measures
  • Rules on the treatment of intra- group financial transactions
  • Solutions to counter harmful tax regimes more effectively