International tax developments

Embracing the global economy

In an increasingly global marketplace, governments around the world are focussing on where profits are taxed and where they should be taxed. In 2013, the OECD and G20 countries agreed to adopt a 15 point action plan to address tax base erosion and profit shifting (“BEPS”). The first set of reports and recommendations to address seven of these actions has been released this week.

The BEPS project is the most significant reform of international tax ever and will have an impact on every global business. The released reports confirm the strong and, on some points, aggressive stance that the international community is taking in respect of the project as, despite contrary expectations, there has been no “watering down” of the original proposals.

This initial set of reports and recommendations contain a fundamental change for global businesses, requiring country-by-country reporting to provide governments with information on the global allocation of profits, economic activity and taxes. It also addresses common abuses of the tax systems and looks at the legal aspects of actually implementing the changes, as well as assessing which challenges of the digital economy need to be addressed in subsequent reports.

The reports achieve a consensus on key measures to address BEPS but are also mindful of the need to provide certainty for taxpayers and a fair tax environment for businesses.

Our corporate tax expert, Helen Mallalieu, commented: “This publication represents an important milestone in the BEPS project and sends a strong message on the commitment of the OECD and the G20 to it. The next stage contains some more controversial areas and will require continued commitment and collaboration from all parties to ensure its success.”

Reports addressing the other action points and any further impact that these will have on the released recommendations are due to be published by September 2015. Once these have been finalised, the measures will be implemented in each jurisdiction, although countries will retain their sovereignty over tax matters and may implement the measures in different manners. It therefore remains to be seen whether this will create additional administration for businesses, for example if different jurisdictions require different information for the country-by-country reporting.