After the release of the Organisation for Economic Cooperation and Development's base erosion and profit shifting recommendations in November 2015, countries internationally are taking forward specific actions where there is consensus: on the four areas for which the OECD has released "minimum standards."
The BEPS project was launched by the OECD on behalf of the G-20 countries and OECD member states to tackle the deficiencies of current international tax rules and to modernize rules to keep pace with the evolution of the digital economy.
The OECD's minimum standards are recommendations, which are not legally binding, but the body says "there is an expectation that they will be implemented accordingly by countries that are part of the consensus." To level the playing field, all OECD and G20 countries have committed to consistent implementation of BEPS Actions in four key areas: on harmful tax practices (Action 5), on country-by-country reporting (Action 13), on tackling tax treaty abuse (Action 6), and on making dispute resolution mechanisms more effective (Action 14).
To be successful, the BEPS project needs a global scope and, so, soon after releasing its proposals, the OECD launched an Inclusive Framework. Those "BEPS Associates" that have agreed to take part in this Framework, of which there are now more than 100, have agreed to implement these minimum standards too, and to contribute to the development of further BEPS measures and engage in peer reviews of their own and other countries' responses.
Each of the four BEPS minimum standards is to be subject to peer review. In early February the OECD began this process, with the release of the Terms of Reference for three out of four of the areas. The fourth is expected soon.
Harmful Tax Practices
On harmful tax practices, under Action 5, the OECD's minimum standard provides that countries should adopt provisions for the spontaneous exchange of information on tax rulings, under a new "transparency framework." Tax rulings are intended to provide companies with certainty on the future (and sometimes retroactive) taxation of their tax arrangements.
The European Union has taken the lead on announcing measures on this front, with a mandatory tax ruling information exchange mechanism, which is to go into operation this year.
The OECD has confirmed that it will begin reviewing countries' work on this front, beginning with a handful of territories. It will review countries' information-gathering process; how they exchange information; the confidentiality safeguards for information received; and the quality of statistics collated.
The OECD also released Terms of Reference for peer reviews under Action 13 of the BEPS plan on country-by-country (CbC) reporting, another area subject to a minimum standard. Under its proposals covering transfer pricing documentation, the OECD has proposed a standardised three-tier format for reporting, comprising a master file, a local file, and a CbC reporting template.
The master file should include an overview of an MNE's affairs, while the local file should include a detailed transfer pricing study, a group organisation chart, and the taxpayer's financial statements. The CbC report should contain – for each jurisdiction in which the group operates – details such as aggregate information relating to the amount of revenue, profit, or loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets other than cash and cash equivalents.
Under the minimum standard, CbC reports will need to be filed within 12 months from the last day of a financial year and the obligation covers multinationals with a turnover of EUR750m or more, or the local equivalent.
Further, the minimum standard provides for the exchange of such reports either on a bilateral or multilateral basis. Under the Multilateral Competent Authority Agreement on country-by-country (CbC) reports, CbC reports will be automatically exchanged multilaterally with other signatories to the Convention. However, territories can instead opt to exchange such reports bilaterally through new or existing tax information exchange agreements and double tax agreements.