Base Erosion and Profit Shifting – an overall perspective

Today, ahead of the G20 Finance Ministers’ meeting in Lima on 8 October, the OECD Secretariat published thirteen papers and an Explanatory Statement outlining consensus Actions under the Base Erosion and Profit Shifting (‘BEPS’) Project.

Bill Dodwell, head of tax policy at Deloitte, said: ‘We support the BEPS actions published today by the OECD Secretariat. Control of the actions now passes to the individual countries and their own tax administrations. It will be important that the Actions are implemented over the next two or three years with consistency, so as to minimise the risk of double taxation.

‘Today’s announcement makes it clear that profits will need to be allocated to where people are carrying out valuable functions, rather than a company with legal rights but no staff. It should bring to an end to the idea that you can assign legal rights to a sandy island with no tax and no people and then have that company receive a lot of profits. The G20/OECD working group notes that the fiscal effects of BEPS are significant. This could mean that the tax rates for many multinationals will rise by several percentage points.”

Alison Lobb, tax policy group director at Deloitte, said: “The G20/OECD changes announced today will have a significant impact on multinationals and their cross-border trading. Businesses will have to consider firstly where their trading profits will be taxed, including where they have taxable presences (permanent establishments) as a result of cross-border activity, as well as where they have legal entities. Secondly businesses will need to analyse and understand the amount of trading profit that should be taxed in each country based on where value is added, under new (and more rigorous) transfer pricing approaches.

“There is no shortcut for businesses in implementing these changes, and their scale means that some multinationals will need to start afresh with analysis of their existing business models. The challenge will be in building a process that meets the new requirements (even as they are still evolving in some areas), and achieving, where possible, certainty around application of the new rules. This may mean, for example, working towards bilateral advance pricing agreements.”

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Notes to editors

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