The Organisation for Economic Co-Operation and Development (the “OECD”) has introduced new country-by-country reporting recommendations which provide for multinationals to disclose a breakdown of all countries in which their profits are made, where their taxes are paid and whether they are shifted elsewhere.
The commitment to implement this reporting template was made by the UK and 43 other countries at the recent G20 countries' meeting at Cairns, Australia. The UK Treasury went on to announce its commitment to the regime on 22 September 2014, being the first country to formally commit to the project.
OECD Action Plan On Base Erosion & Profit Shifting
The recommendations form part of the OECD’s Action Plan on Base Erosion and Profit Shifting (“BEPS”) which aims to implement common tax rules across various jurisdictions in ensuring that multinationals pay their share of tax.
The OECD secretary general Angel Gurria is quoted as stating that these “recommendations constitute the building blocks for an internationally agreed and co-ordinated response to corporate tax planning strategies that exploit gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favourable tax treatment”.
It is hoped that this reporting template will assist governments by creating a transparent environment in which to assess and plan for the prevention of tax avoidance measures. It is further hoped that a standardised reporting format across the jurisdictions will provide increased administrative efficiency and consistency for the tax authorities.
Irish Government Interest
The recommendations are of particular interest to the Irish government amid recent criticism of the tax advantages obtained in Ireland by a number of large American companies. Other recommendations put forward by the OECD include proposals to neutralise hybrid mismatch arrangements, to tackle transfer pricing rules and to combat abuse of tax treaties.
OECD Reporting On BEPS Project
Concern has been expressed as to the administrative and financial burden that the implementation of these recommendations will have on developing jurisdictions. The OECD is planning to report to the G20 leaders in November in relation to the involvement of developing countries in the BEPS project.
In this regard, the OECD has commented as follows: “Acknowledging that developing countries face specific policy issues and implementation challenges that are not always shared with developed countries, the report sets out areas where additional guidance and tools are required to ensure that the BEPS outcomes fully benefit lower capacity countries”.
With the recent implementation of US FATCA, the impending implementation of UK FATCA, the new standard of Automatic Exchange of Information and the Common Reporting Standards, the world, from a tax perspective, is certainly becoming a smaller place.