2013 saw the G20 & the OECD join forces to create a set of rules to help governments clamp down on tax avoidance strategies. Recommendations to reform the global tax system, prioritising the notion of substance and driving greater transparency on a global level.
15 action points were included in the OECD’s base erosion and profit shifting (BEPS) project released in 2015. Authorities around the world are now utilising such reforms. However, it is important to note that several actions are having greater importance placed upon them. In addition, certain countries are pushing ahead with their implementation at a faster rate than many others.
- ACTION 1 – Tax challenges arising from digitalisation
- ACTION 2 – Neutralising the effects of hybrid mismatch arrangements
- ACTION 3 – Controlled Foreign Company
- ACTION 4- Limitation on interest deductions
- ACTION 5 – Harmful tax practices
- ACTION 6 – Prevention of tax treaty abuse
- ACTION 7 – Permanent establishment status
- ACTION 8-10 – Transfer Pricing
- ACTION 11 – BEPS data analysis
- ACTION 12 – Mandatory Disclosure Rules
- ACTION 13 – Country-by-Country Reporting
- ACTION 14 – Mutual Agreement Procedure
- ACTION 15 – Multilateral Instrument
SUMMARY
Action 13 has received the most attention. The OECD has recommended that all multinationals must adopt greater transparency through the creation of country-by-country reports with aggregate data on the global allocation of income, profit, taxes paid and economic activity across the markets they serve.
Research has shown that there is a link between GDP and the countries that are adopting these strategies, with the US, China and much of Western Europe leading from the front.
Several South American countries and much of Asia have been slower in implementing reforms. Their involvement in the OECD’s “inclusive framework” agreement does, however, request they meet the minimum standards set (Actions 5, 6, 13 & 14).
The tax landscape is continually evolving, which brings a fresh set of challenges for today’s senior tax leaders, especially when considering the release of BEPS 2.0 earlier this year (January 29th). Globalisation, digitalisation and the increased media scrutiny placed on companies means controversy is ever-present. The evolution of local rules is continual, and we expect 2020 to be no different, with numerous reforms taking place. Ensuring the function is best prepared to meet the increased demands of authorities is a continual challenge.
Tax functions must, therefore, consider their current tax strategy whilst ensuring they have developed a sustainable framework to ensure a cooperative relationship is in place with authorities. In addition, ensuring the function has a blend of skills, notably those with digital experience who can understand and produce real-time data, will help safeguard the function for the year ahead.