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Base Erosion and Profit Shifting - An Irish Perspective


BEPS the OECD and Tax.jpgThe Organisation for Economic Co-operation and Development describe Base Erosion and Profit Shifting as tax planning strategies that either –

  1. exploit loopholes in tax rules to make profits disappear for tax purposes, or
  2. shift profits to low tax jurisdictions where there is little or no real activity resulting in low or no corporate tax being paid.

The OECD explain that when multinational companies are involved in cross border activities,  the interaction of domestic tax systems can lead to gaps which result in income not being taxed anywhere.  BEPS strategies abuse the gaps between the different tax systems in order to achieve double non-taxation.

The OECD’s role to date

Following concerns expressed by the French, German and UK Governments in late 2012 about the use of BEPS by multinational companies, the OECD published its report on addressing BEPS in February 2013.

Fundamentally, the report argued for greater international taxing powers to be given to governments around the world to generate more tax revenues from multinational companies and to prevent the abuse of BEPS by multinational companies.

In July 2013, the OECD published the BEPS Action Plan which detailed 15 specific actions intended to give international governments the requisite powers to tackle BEPS strategies.

In October 2015, the fifteen recommendations or action points were finalised by the OECD.

Related: OECD Report Addressing Base Erosion And Profit Sharing

Combatting the use of BEPS

The main objective of the OECD is to:

  1. Close loopholes that allows some companies to artificially shift income to locations where little or no economic activity takes place, and
  2. Realign taxation with economic substance and value creation, while preventing double taxation.

Related: Base Erosion & Profit Sharing - An Overview

Support and implementation

The OECD has gained the support of many international organisations and governments in its fight against BEPS including the G20. 

Currently, all the action points suggested by the OECD are still only proposals and will depend on co-ordinated action by OECD members. However, various countries have already adopted legislative changes to implement a number of the BEPS measures.

Related: The OECD Implements New Country-By-Country Reporting

The impact for Ireland of the OECD’s BEPS project

The Irish Government is fully committed to the OECD’s BEPS project and in particular the OECD’s efforts to tackle harmful tax competition.

Ireland has a transparent tax regime which supports the BEPS measures and this is being enhanced on a continual basis.  For example the Finance Act 2015 recently introduced into the Irish tax legislation-

  1. The Knowledge Development Box in line with the OECD’s modified nexus approach, and
  2. Country by country reporting in accordance with Action 13.

With regard to the Irish corporation tax rate of 12.5%, the Irish government has advised that the current BEPS project will not alter this.

Also, the OECD has explicitly stated that taxation is at the core of countries’ sovereignty, and that each country is free to set up its corporate tax system as it chooses, including charging the rate it chooses.

Please note that this commentary does not purport to be a comprehensive review of Base Erosion and Profit Shifting from an Irish perspective.  Detailed appropriate advice should be taken before any particular transaction is entered into.

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