Following concerns expressed by the French, German and UK Governments about the use of Base Erosion and Profit Sharing schemes (“BEPS”) by multinational companies, the Organisation for Economic Co-operation and Development (“OECD”) has published a report detailing the pertinent issues involved.
Fundamentally, the report argues for greater international taxing powers to be given to governments around the world to generate more tax revenues from multinational companies and to combat the abuse of BEPS by multinational companies.
What Is BEPS?
The OECD define BEPS as “…tax planning strategies that exploit loopholes in tax rules to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity but where they are lightly taxed, resulting in little or no overall corporate tax being paid”.
International Concern About BEPS
The OECD is anxious about the abuse of BEPS among multinational companies. It is of the view that all international taxpayers should have confidence that international tax rules are equitable and transparent and do not place unfair burdens on some and not others.
The OECD has gained the support of many international organisations in its fight against BEPS with the G20 Leaders Declaration of 19 June 2012 mentioning the following “…We reiterate the need to prevent base erosion and profit shifting and we will follow with attention the on-going work of the OECD in this area.”
The OECD’s report identifies six key problem areas which are contributing to the growth of BEPS internationally. The OECD emphasises that reform of these matters is crucial to ensure a fair and balanced international tax system. The issues of concern are as follows:
Transfer pricing rules;
Effective anti avoidance;
Intra-group financial transactions;
Solutions to counter harmful tax regimes; and
Digital goods and services.
In order to address the main factors contributing to BEPS, the OECD report proposes the development of an action plan. The action plan will involve the OECD working closely with various international stakeholders to provide further information on the harmful effects of BEPS internationally, including an estimate of the international tax revenues lost.
The action plan will also include various solutions to address the abuse of BEPS by multinational companies and will set deadlines to implement any proposed course of action.
Reflecting on the OECD report, the OECD Secretary-General Angel Gurria stated, “…This report is an important step towards ensuring that global tax rules are equitable, and responds to the call that the G-20 has made for the OECD to help provide solutions to the global economic crisis”.
Impact For Ireland
It is anticipated that Ireland will work closely with its international partners in progressing the action plan suggested by the OECD. The Irish Government, like many other international governments, will monitor the evolution of discussions and the solutions reached to address the manipulation of BEPS by multinational companies.