BEPS Actions

Perspective

BEPS Actions

Base Erosion and Profit Shifting

There are 15 BEPS Actions that are currently being considered and worked on by the OECD. For each of the Actions, there are factors to consider such as the timing, impact and potential impact on policy. The OECD/G20 has set a number of deadlines to conclude on the BEPS Actions.

Final package of measures

On 5 October 2015, the OECD published 13 final reports and an explanatory statement outlining consensus actions under the base erosion and profit shifting (BEPS) project. Links to the final reports can be found below under the relevant Actions. The OECD's explanatory statement can be accessed here.

Action 1: Digital economy

Deloitte Action 1 Overview 

Action 1 addresses the tax challenges of the digital economy and aims to identify and address the main challenges that the digital economy poses for the existing international tax rules.

A discussion draft was released by the OECD in Spring 2014. Following comments from interested parties and a public consultation meeting in April 2014, the OECD paper on Action 1 was published in September 2014. It should be noted that the G20 and OECD intend that final recommendations will form a comprehensive and cohesive approach. As a result, while some of the proposed solutions have been agreed, they are not yet finalised and may be affected by other Actions or decisions and future work on BEPS in 2015.

An additional discussion draft was released by the OECD in December 2014 and comments on the discussion draft were published in February 2015.

A final report on Action 1 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 2: Hybrids

Deloitte Action 2 Overview 

Action 2 aims to neutralise the effects of hybrid mismatch arrangements. The OECD intends to do this by making changes to the model tax convention and providing recommendations on the design of domestic rules to prevent hybrids from being a source of ‘double non-taxation’.

Discussion drafts on Action 2 were released by the OECD in Spring 2014. Following comments from interested parties, the OECD paper on Action 2 was published in September 2014. Part 1 of the paper contains recommendations for the design of domestic rules and Part 2 of the paper contains the OECD’s recommendation on treaty issues.

A final report on Action 2 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 3: CFCs

Deloitte Action 3 Overview 

Action 3 aims to develop recommendations regarding the design and strengthening of controlled foreign company rules, to address concerns over the possibility of creating affiliated non-resident taxpayers and routing income of a resident enterprise through the non-resident affiliate to reduce or avoid taxation.

A discussion draft was released by the OECD in April 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place.

A final report on Action 3 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 4: Interest deductions

Deloitte Action 4 Overview 

Action 4 aims to limit base erosion via interest deductions and other financial payments. Recommendations are expected to be published for domestic law limitations on tax deductions for both related and unrelated party interest expense and economically equivalent payments. The workstream will also develop guidance for the transfer pricing of debt.

A discussion draft was published by the OECD in December 2014. Interested parties were invited to submit comments by 6 February 2015 and a public consultation was held in February 2015.

A final report on Action 4 was released by the OECD on 5 October 2015 as part of its final package of measures.

The G20/OECD will undertake further work in 2016 on Action 4, specifically in relation to finalising the design of the group carve-out ratio and special rules for banking and insurance.

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Action 5: Harmful tax practices

Deloitte Action 5 Overview 

Action 5 aims to identify and counter harmful tax practices, taking into account transparency and substance. The Action Plan will look at developing recommendations on the definition of harmful tax practices, and developing a strategy to expand to non-OECD members.

An interim report was issued by the OECD in September 2014, setting out the progress made to date on Action 5.   Its main focus was on intangible regimes such as patent boxes.  Following the report, the UK and Germany put forward proposals endorsing the ‘modified nexus’ approach, which is predicated on a link between the expenditure incurred to develop patents and the income that those patents generate.  On 6 February 2015, the OECD announced that the proposals have now been agreed by all OECD and G20 countries, and therefore present a consensus position.

A final report on Action 5 was released by the OECD on 5 October 2015 as part of its final package of measures.

The G20/OECD will undertake further work in 2016 on Action 5, specifically in relation to revision of criteria and expanding the participation of non-OECD countries.

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Action 6: Prevent treaty abuse

Deloitte Action 6 Overview 

Action 6 aims to prevent treaty abuse, through developing model treaty provisions and recommendations regarding the design of domestic rules to prevent the granting of treaty benefits in inappropriate circumstances.

A discussion draft was released by the OECD in March 2014. Following comments from interested parties, the OECD paper on Action 6 was published in September 2014. The report contains model provisions and related Commentary, but these should be considered as drafts that are subject to refinement. Final versions are expected to be released in September 2015.

A discussion draft on follow-up work was released in November 2014. Comments received from interested parties in response to this draft were published in January 2015, following which a public consultation took place at the end of January 2015.

A further discussion draft was released by the OECD in May 2015, including proposals on how to deal with the follow-up work on Action 6. Interested parties were invited to submit comments by 17 June 2015 and the OECD confirmed that they do not intend to hold a public consultation on the revised discussion draft.

A final report on Action 6 was released by the OECD on 5 October 2015 as part of its final package of measures.

The G20/OECD will undertake further work in 2016 on Action 6, specifically in relation to the treaty entitlement of certain funds.

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Action 7: Permanent establishment status

Deloitte Action 7 Overview

Action 7 aims to prevent the artificial avoidance of Permanent Establishment (“PE”) status, by redefining the threshold for creating a  PE to prevent base erosion and profit shifting.  The work includes a focus on the use of commissionaires and keeps some specific activity exemptions, including for warehousing.

A discussion draft was released by the OECD in October 2014. Comments received from interested parties in response to this draft were published in January 2015, following which a public consultation took place at the end of January 2015.

A further discussion draft was released by the OECD in May 2015. Interested parties were invited to submit comments by 12 June 2015 and the OECD confirmed that they do not intend to hold a public consultation on the revised discussion draft.

A final report on Action 7 was released by the OECD on 5 October 2015 as part of its final package of measures.

The G20/OECD will undertake further work in 2016 on Action 7, specifically in relation to profit attribution rules.

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Actions 8, 9 and 10: Transfer Pricing

Actions 8, 9 and 10  objective is that transfer pricing outcomes are in line with value creation,  by requiring that the attribution of value for tax purposes is consistent with economic activity generating that value.

It should be noted that the G20 and OECD intend that final transfer pricing recommendations will form a comprehensive and cohesive approach. As a result, where proposed solutions have been agreed, they are not yet finalized and may be affected by decisions and future work on BEPS in 2015. 

A discussion draft on revisions to Chapter 1 of the OECD’s Transfer Pricing Guidelines (including risk, recharacterisation and special measures) was released in December 2014. This draft covers Actions 8, 9 and 10. Interested parties were invited to submit comments by 6 February 2015 and a public consultation was held in March 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

The G20/OECD will undertake further work in 2016 on transfer pricing, specifically in relation to financial transactions and use of the profit split method.

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Action 8: Transfer pricing – intangibles

Deloitte Action 8 Overview 

Please refer to comments above in relation to Actions 8, 9 and 10 collectively. Action 8 looks specifically at intangibles and will develop rules to prevent base erosion and profit shifting where intangibles are owned by, used by, contributed to or moved among group members.

A discussion draft was released by the OECD in July 2013 following on from earlier work to modernise this area before the start of the BEPS project. Comments received from interested parties in response to this draft were published in October 2013 and a public consultation took place in November 2013. The OECD released their paper on Action 8 in September 2014.

A discussion draft on cost contribution arrangements was released by the OECD in April 2015. Interested parties were invited to submit comments by 29 May 2015 and a public consultation was held at the beginning of July 2015. 

A discussion draft on hard-to-value intangibles was released by the OECD at the beginning of June 2015. Interested parties were invited to submit comments by 18 June 2015 and a public consultation was held at the beginning of July 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 9: Transfer pricing – risk & capital

Deloitte Action 9 Overview 

Please refer to comments above in relation to Actions 8, 9 and 10 collectively. Action 9 looks specifically at risks and will develop rules to prevent base erosion and profit shifting by transferring risks among, or allocating excessive capital to, group members.

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Action 10: Transfer pricing – high-risk transactions

Deloitte Action 10 Overview 

Please refer to comments above in relation to Actions 8, 9 and 10 collectively. Action 10 looks specifically at other high-risk transactions and will develop rules to prevent base erosion and profit shifting by engaging in transactions which would not, or would only very rarely, occur between third parties.

Various discussion drafts have been released by the OECD in relation to Action 10:

  • A discussion draft on low value-adding intra-group services was released in November 2014. Comments submitted by interested parties were published by the OECD in January 2015.
  • A discussion draft on cross-border commodity transactions was released in December 2014. Interested parties were invited to submit comments by 6 February 2015. 
  • A discussion draft on the use of profit splits in the context of global value chains was released in December 2014. Interested parties were invited to submit comments by 6 February 2015.

Final reports on Actions 8-10 were released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 11: BEPS data collection

Deloitte Action 11 Overview

Action 11 aims to establish methodologies to collect and analyse data on BEPS and the actions to address it. The OECD intends to do this by developing recommendations regarding indicators of the scale and economic impact of BEPS and ensure that tools are available to monitor and evaluate the effectiveness and economic impact of the actions taken to address BEPS on an ongoing basis.

In August 2014, interested parties were invited to comment on Action 11 and the comments received were published in October 2014. A discussion draft was subsequently published in April 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place.

A final report on Action 11 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 12: Disclosure of aggressive tax planning

Deloitte Action 12 Overview 

Action 12 aims to require taxpayers to disclose their aggressive tax planning arrangements. This will be addressed through the development of recommendations regarding the design of mandatory disclosure rules for aggressive or abusive transactions, arrangements, or structures, taking into consideration the administrative costs for tax administrations and businesses and drawing on the experiences of the increasing number of countries that already have such rules.

A discussion draft was released by the OECD in March 2015. Public comments were released by the OECD in May 2015, following which a public consultation took place. 

A final report on Action 12 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 13: Transfer pricing documentation

Deloitte Action 13 Overview 

Action 13 aims to re-examine transfer pricing documentation and will develop rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into consideration the compliance costs for business.

A white paper on transfer pricing documentation was released by the OECD in July 2013, with a discussion draft in January 2014 followed by a public consultation. A report was published in September 2014 containing guidance on transfer pricing documentation and country-by-country reporting. This report proposed a new three tier global standard for transfer pricing documentation, including a common template for country-by-country information to be reported to tax authorities and in transfer pricing master and local files.

In February 2015, the G20 and OECD released further guidance on the implementation of transfer pricing documentation and country-by-country reporting. The guidance covers implementation of country-by-country reporting including the timing of introduction, application to ‘large’ businesses and filing mechanisms.

The OECD released an Implementation Package for country-by-country reporting on 8 June 2015. The package consists of model legislation requiring the ultimate parent entity of an multinational group to file the country-by-country report in its jurisdiction of residence, including backup filing requirements when that jurisdiction does not require filing. The package also contains three Model Competent Authority Agreements to facilitate the exchange of country-by-country reports among tax administrations.

A final report on Action 13 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 14: Dispute resolution

Deloitte Action 14 Overview 

Action 14 aims to make dispute resolution mechanisms more effective, through developing solutions to address issues that prevent countries from resolving treaty-related disputes under mutual agreement procedures.

A discussion draft was released in December 2014. Comments from interested parties were published in January 2015, followed by a public consultation.

A final report on Action 14 was released by the OECD on 5 October 2015 as part of its final package of measures.

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Action 15: Multilateral instrument

Deloitte Action 15 Overview 

Action 15 aims to develop a multilateral instrument to enable jurisdictions to implement measures developed in the course of the work on BEPS and to amend bilateral tax treaties.

A report was released by the OECD in September 2014, identifying the issues arising from the development of a multilateral instrument that modifies bilateral tax treaties. The report concluded that a multilateral instrument is desirable and feasible, and that negotiations for such an instrument should be convened quickly.

Work on the development of the Multilateral Instrument began on 27 May 2015, with over 80 countries participating in the ad hoc Group that will complete the work under Action 15. A number of procedural issues have been agreed, with the substantive work expected to begin at an Inaugural Meeting in November 2015.

A final report on Action 15 was released by the OECD on 5 October 2015 as part of its final package of measures.

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