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International Working Committees
OVERVIEW ON THE BEPS FINAL PACKAGE
By PIERGIORGIO VALENTE, Chairman IAFEI International Tax Working Committee
Some are of the view that we are witnessing a paradigm
shift, others maintain that we are merely on the
threshold of much more complex times embedded with
an increased compliance burden.
With the release, on October 5, of the long-awaited
final Reports on the OECD BEPS (Base Erosion and
Profit Shifting) project, we are now about to enter the
“implementation phase”.
The BEPS final Package includes:
a. Minimum standards
b. Revision of existing OECD Standards
c. Common approaches and best practices
guidance
d. Detailed report on measuring BEPS.
Minimum standards were agreed in areas in which
no action by some countries would have created
negative spill-overs (including negative impacts on
competitiveness) on other countries, respectively on
Actions 5 (Harmful Tax Practices), Action 6 (Treaty
Abuse), Action 13 (Transfer Pricing Documentation and
Country by Country Reporting) and Action 14 (Dispute
Resolution Mechanisms).
On Action 5, there was consensus on an agreed
methodology to assess whether there is substantial
activity in a given preferential regime. The nexus
approach for preferential intellectual property (IP)
regimes demands an alignment of the benefits of
such regimes along with substantive research and
development activity; in addition, countries committed
to transparency through the mandatory spontaneous
exchange of relevant information on specific rulings.
As far as Treaty Abuse is concerned (Action 6), the
minimum standards includemodel provisions developed
to prevent treaty abuse to be included in the multilateral
instrument available to countries for implementation of
the agreed provisions on tax treaty issues into bilateral
tax treaties. Taking into account that some of these
provisions call for additional technical work, further
developments are expected in years to come.
Minimum standards were also agreed on Action 13
(Transfer Pricing Documentation and Country by
Country Reporting). MNEs with an annual consolidated
group revenue equal or above EUR 750 million will need
to report: revenues, pre-tax profits, income tax paid and
accrued, number of employees, stated capital, retained
earnings, and tangible assets in each jurisdiction where
they operate.
CbCR should be filed in the ultimate parent company’s
jurisdiction and exchanged automatically through
government-to-government information exchange
procedures. In addition, it was acknowledged that the
CbCR should be disclosed only to Tax Administrations
and under specific conditions (ensuring confidentiality,
and the proper use of information).
Finally, in the dispute resolution area (Action 14),
agreement on a minimum standard to ensure progress
on dispute resolution was reached. A large group of
countries expressed their commitment to move quickly
towards mandatory and binding arbitration.
The Minimum Standards were supplemented with
OECD Standards and Recommendations: by revisiting
existing standards (e.g., transfer pricing); by suggesting a
common approach that will facilitate the convergence of
national practices in other areas (e.g., hybrid mismatch
arrangements, interest deductibility) and also best
practice guidance (e.g., CFC, mandatory disclosure).
Please find here below a brief overview (based on OECD
Reports) of the main developments in each action:
As the OECD BEPS Explanatory Statement released in
October 2015 outlines, “Countries are sovereign. It is
therefore up to them to implement these changes, and
measures may be implemented in different manners,
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