INTERNATIONAL APPROACH TO COMBAT TAX AVOIDANCE BY MULTINATIONALS

Recently, the OECD released its first recommendations for an international approach to combat tax avoidance by multinational enterprises, under the OECD/G20 Base Erosion and Profit Shifting Project (BEPS) designed to create international tax rules to end the erosion of tax bases and the artificial shifting of profits to offshore jurisdictions in order to avoid tax payment.

Major elements of the Action Plan focus on the following:

• Ensure the coherence of corporate income taxation at international level, through new model tax and treaty provisions to neutralise hybrid mismatch arrangements;
• Realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties;
• Assure that transfer pricing outcomes are in line with value creation, through actions to address transfer pricing issues in the key area of intangibles;
• Improve transparency for tax administrations and increase certainty for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting;
• Address the challenges of the digital economy;
• Facilitate swift implementation of the BEPS actions through a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties;
• Counter harmful tax practices.

These recommendations may be impacted by decisions taken with respect to the remaining elements of the BEPS Action Plan, which are scheduled to be presented to G20 Governments for final approval in 2015.