Base Erosion and Profit Shifting Global Tax Reform Efforts

The world of global tax reform is complex, but one thing is clear: Base Erosion and Profit Shifting (BEPS) has become a major concern for governments worldwide. The Organisation for Economic Co-operation and Development (OECD) estimates that BEPS costs governments around $100 billion to $240 billion annually.

The OECD has been at the forefront of global tax reform efforts, working with over 100 countries to develop a comprehensive plan to address BEPS. This plan aims to prevent multinational corporations from shifting profits to low-tax jurisdictions, thereby reducing their tax liability.

The BEPS Action Plan, released in 2015, outlined 15 actions to address BEPS, including measures to prevent the use of hybrid mismatch arrangements and to introduce a mandatory disclosure rule for aggressive tax planning. These actions have been implemented in various forms around the world, with many countries adopting similar measures to prevent BEPS.

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The global tax reform efforts have also led to the development of the Common Reporting Standard (CRS), a global standard for the automatic exchange of financial account information. This standard has been adopted by over 100 countries, aiming to prevent tax evasion and ensure that individuals and businesses pay their fair share of taxes.

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The OECD has been at the forefront of efforts to combat base erosion and profit shifting. In 2013, the OECD, along with the G20, introduced the BEPS Project, which aims to give governments the tools they need to prevent international companies from tax avoidance.

The BEPS Project consists of 15 Actions that OECD advises governments to follow to prevent profit shifting. One key recommendation is to avoid direct taxation on digital products.

The OECD has also improved cooperation and information sharing between countries, making it harder for companies to hide profits in tax havens.

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The Inclusive Framework was established in 2016 to ensure developing countries are involved in an effective international tax framework.

It was deemed necessary for non-OECD/G20 countries to commit to the BEPS package to gain membership.

The BEPS package is a plan to equip governments with domestic and international instruments to address tax avoidance.

Developing countries get a discounted membership fee for joining the Inclusive Framework.

As of May 2018, 116 countries had signed on to the project.

All countries in the framework work on equal footing to implement the BEPS package.

The BEPS package consists of 15 action plans that provide tax standards in exchange for a membership fee.

The G20 has been actively involved in the BEPS Project, supporting transfer pricing recommendations in 2015.

The G20 is also involved in developing a global tax framework, endorsing a framework for international tax reform in 2021.

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The Base Erosion and Profit Shifting (BEPS) Action Plan has led to significant work in various areas, including further BEPS work, tax platform toolkits, and implementation of minimum standards for all Inclusive Framework (IF) countries.

The implementation of minimum standards is a crucial aspect of the BEPS Action Plan, which includes four key areas: harmful tax practices, treaty abuse, country-by-country reporting, and dispute resolution via mutual agreement procedures.

These minimum standards have been implemented for all IF countries, ensuring a level playing field and preventing base erosion and profit shifting. The standards include the exchange of rulings, the Principal Purpose Test, country-by-country reporting, and dispute resolution via mutual agreement procedures.

Further work stemming from the BEPS Action Plan is underway, focusing on various aspects such as further BEPS work and implementing minimum standards for all Inclusive Framework (IF) countries.

Tax Platform toolkits are being developed to help countries implement these standards and address other significant issues related to the BEPS Action Plan.

The implementation of minimum standards is a crucial step in ensuring that all IF countries adhere to the same set of rules and guidelines.

Here are some key areas of focus in the implementation of the BEPS Action Plan:

The aim of the BEPS project is to mitigate tax code loopholes and country-to-country inconsistencies that allow corporations to shift profits from high-tax countries to low-tax countries. This practice, known as double non-taxation, is often legal but involves complex maneuvers within tax law.

The project estimates that annual tax revenue losses due to profit shifting around the globe range from 4-10% of global revenues from corporate income tax, totaling between $100 and $240 billion. This is a staggering loss, especially considering that around $660 billion of corporate profits were shifted in 2012 alone.

The BEPS project aims to prevent both double taxation and double non-taxation, as well as countries undercutting each other by lowering tax rates to attract business. By cooperating, countries can achieve a better outcome than non-cooperation.

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The Base Erosion and Profit Shifting (BEPS) project has made significant progress in tackling harmful tax practices. The Inclusive Framework on BEPS brings 142 countries and jurisdictions on an equal footing, representing over 95% of the global GDP.

Four minimum standards were identified to effectively tackle BEPS: fighting harmful tax practices, preventing tax treaty abuse, improving transparency with Country-by-Country Reporting, and enhancing the effectiveness of dispute resolution.

Here are the four minimum standards in a concise list:

The BEPS project has achieved significant milestones, including reviewing 175 regimes, amending or abolishing over 130 regimes, and exchanging information on 17,000 tax rulings.

Minimum standards are crucial in tackling Base Erosion and Profit Shifting (BEPS). The OECD identified four minimum standards to effectively address BEPS.

These standards include fighting harmful tax practices, preventing tax treaty abuse, improving transparency with Country-by-Country Reporting, and enhancing the effectiveness of dispute resolution. The Isle of Man, a member of the Inclusive Framework, committed to implementing these four minimum standards.

The implementation of minimum standards involves several key areas, including:

These areas are crucial in preventing tax avoidance and ensuring that countries work together to address BEPS.

The BEPS project has achieved some remarkable realisations, bringing 142 countries and jurisdictions together on an equal footing, representing over 95% of the global GDP.

The project has also made significant progress in reviewing and amending tax regimes, with over 130 regimes already being amended or abolished, and information on 17,000 tax rulings identified and exchanged.

A major milestone was reached with the inclusion of measures to fight BEPS in 1,400 treaties through the Multilateral Convention (MLI).

Automatic exchange of financial account information has also started in many jurisdictions, with almost 50 countries beginning the process in September 2017 and over 50 more joining in September 2018.

The Tax Inspectors Without Borders (TIWB) initiative has been very successful, raising US$414 million in additional revenues with costs of less than US$4 million by July 2018.

The TIWB initiative has also completed 7 projects since 2012, with 31 projects currently operational and 23 more in the pipeline across various regions.

Here are some key statistics on the TIWB initiative:

The BEPS Project has led to a range of new requirements and challenges for businesses to comply with. The OECD published over 1600 pages in the ‘final’ reports in relation to all 15 BEPS Action items in October 2015.

The EU has introduced its own anti-BEPS tax regimes, including the EU's Mandatory Disclosure Regime (DAC6) and the EU's Anti Tax Avoidance Directive (ATAD). These initiatives aim to combat tax avoidance and ensure that multinational corporations pay their fair share of taxes.

In 2017-2018, the U.S. and the European Commission decided to depart from the OECD BEPS process and timetable, and launch their own anti-BEPS tax regimes. The U.S. Tax Cuts and Jobs Act of 2017 introduced several anti-BEPS regimes, including GILTI tax and interest deductibility limits.

The departure of the U.S. and EU Commission from the OECD BEPS project is attributed to frustrations with the rise in intellectual property (IP) as a key BEPS tool. Ireland, a country with advanced IP-based BEPS tools, has been a supporter of the OECD BEPS project.

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However, the U.S. and EU's new tax regimes deliberately "override" these IP-based BEPS tools. Ireland has responded by opening a new line of Debt-based BEPS tools, which use securitization vehicles to create advanced artificial loan structures.

Here are some key developments in the BEPS space:

The Base Erosion and Profit Shifting (BEPS) project aims to mitigate tax code loopholes and country-to-country inconsistencies. This is to prevent corporations from shifting profits from high-tax countries to low-tax countries.

The BEPS project is costly for all parties involved, except the firm itself. It can harm citizens' trust in tax systems, which is essential for modern democracies.

A conservative estimate suggests that annual tax revenue losses due to profit shifting are between $100 and $240 billion, which is 4-10% of global revenues from corporate income tax. This is a significant loss for governments.

The project's Action Plan warns that a failure to address BEPS could lead to global tax chaos, with the massive re-emergence of double taxation. This is a scenario that no one wants to see.

The BEPS project is an example of cooperation in game theory, where countries working together can achieve a better outcome than if they were to act alone. This cooperation can prevent both double taxation and double non-taxation.

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Base erosion and profit shifting can be achieved through various means, including the use of transfer pricing to shift profits to low-tax jurisdictions.

One common technique is the creation of complex financial structures, such as Dutch sandwich companies, which involve a series of shell companies in different countries.

These structures can be used to funnel profits through low-tax jurisdictions, reducing the overall tax liability of the company.

In one notable example, a multinational company was found to have shifted profits of over $10 billion to a low-tax jurisdiction through the use of such a structure.

This is a stark reminder that base erosion and profit shifting can have serious consequences for governments and economies.

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The key to understanding examples and details is to break them down into their most basic components.

A good example of this is the concept of a "case study". A case study is a detailed examination of a specific situation or example.

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In a case study, you'll often find a clear problem statement, a description of the situation, and a detailed analysis of the results.

This format helps to provide a comprehensive understanding of the example being studied.

For instance, a case study on a successful business might reveal key strategies and tactics that contributed to its success.

By analyzing these strategies, you can gain valuable insights that can be applied to your own business or project.

Let's take a look at some real-life examples of how examples and details can make a big difference in communication.

The article on "Examples and Details" highlights the importance of using specific examples to illustrate a point, like the example of a company that increased sales by 25% after introducing a new product feature.

Using details like statistics and data can also help to make an example more convincing, such as the fact that the company's new feature was used by 90% of customers within the first month.

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The article also notes that examples can be used to explain complex concepts in a simpler way, like the example of a scientist who used a simple analogy to explain a complex scientific theory to a non-technical audience.

Incorporating personal experiences and anecdotes can also add depth and relatability to an example, such as the story of a writer who used a personal experience to illustrate a point about the importance of perseverance.

The article provides several examples of how details can be used to add credibility and authority to an example, like the fact that a study was conducted to support a claim about the effectiveness of a particular method.

By using a combination of examples and details, communicators can make their message more engaging, memorable, and effective.

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Base erosion and profit shifting involve complex structures and scales that can be difficult to understand. One key aspect is that companies often use multiple entities in different countries to shift profits and reduce taxes.

The scale of these structures can be staggering, with some companies operating in hundreds of countries and using thousands of entities. This makes it challenging for governments to track and tax profits.

One example is the use of low-tax jurisdictions, such as the Cayman Islands, where companies can set up subsidiaries and shift profits to take advantage of lower tax rates.

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Scale is a crucial aspect of any system or organization. It refers to the size or scope of an operation, and it can have a significant impact on its efficiency, effectiveness, and overall success.

A larger scale can provide economies of scale, making it possible to produce goods or services at a lower cost per unit. This can be seen in the example of a company that produces a large quantity of a product, allowing them to negotiate lower prices with suppliers.

However, a larger scale can also lead to increased complexity and bureaucracy, making it harder to make decisions and respond to changes. This can be observed in the example of a large corporation, where decision-making processes can be slow and cumbersome.

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The right scale for an operation depends on its specific needs and goals. It's essential to find a balance between size and efficiency, ensuring that the organization is not too big or too small for its tasks.

For instance, a small startup may need to start small and scale up gradually, while a large corporation may need to maintain a large scale to remain competitive.

The BEPS project recommends avoiding new direct taxes on digital activity, and expects other Actions to be generalized to tackle the digital economy as well. This is a crucial step in addressing the challenges posed by the digital economy.

A shift to tax collection in the jurisdiction of consumption is recommended for indirect taxes. This means that taxes will be collected where the goods or services are consumed, rather than where they are produced.

The BEPS project also paves the way for more taxes to be collected on low-value e-commerce transactions by shifting value added tax obligations to the vendor. This will help to ensure that online retailers contribute their fair share of taxes.

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Here are the key points to keep in mind when it comes to the structure of the BEPS project:

The OECD's BEPS project failed to prevent multinationals from shifting profits from higher- to lower-tax jurisdictions due to opt-outs and watering-down of individual BEPS Actions.

In 2015, tax partner Feargal O'Rourke from PriceWaterhouseCoopers predicted that the OECD's MLI would be a success for the leading corporate tax havens, at the expense of smaller, less developed traditional tax havens.

The OECD's MLI was adopted in 2016 but came into force in July 2018, after being signed by over 78 jurisdictions. Many tax havens opted out from several of the Actions, including Action 12, which was considered onerous by corporations.

Baker McKenzie, representing a coalition of 24 multinational US software firms, lobbied the Irish minister for finance to resist the OECD MLI proposals in January 2017. The group recommended Ireland not adopt article 12, citing uncertainty around taxation.

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The Tax Justice Network's Alex Cobham described the OECD's MLI as a failure due to the opt-outs and watering-down of individual BEPS Actions. He highlighted that full public country-by-country reporting had been dropped due to lobbying by US multinationals.

The U.S. refused to sign up to the OECD's MLI, citing a low degree of exposure to base erosion and profit shifting issues in its tax treaty network.