National tax laws have not kept pace with the globalization of corporations
and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their taxes.
OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) offers a global roadmap that will allow governments to collect the tax revenue they need to serve their citizens. It also gives businesses the certainty they need to invest and grow.
Produced at the request of the G20 and introduced at the G20 Finance Ministers’ meeting in Moscow, the Action Plan identifies 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.
- Establishing international coherence of corporate income taxation
- Restoring the full effects and benefits of international standards
- Ensuring transparency while promoting increased certainty and predictability and
- From agreed policies to tax rules: the need for a swift implementation of the measures
Domestic and international tax rules should relate to both income and the economic activity that generates it. Existing tax treaty and transfer pricing rules can, in some cases, facilitate the separation of taxable profits from the value-creating activities that generate them.
The Action Plan will restore the intended effects of these standards by aligning tax with substance – ensuring that taxable profits cannot be artificially shifted, through the transfer of intangibles (eg patents or copyrights), risks or capital, away from countries where the value is created.
Greater transparency and improved data are needed to evaluate, and stop, the growing disconnect between the location where financial assets are created and investments take place and where MNEs report profits for tax purposes.
Requiring taxpayers to report their aggressive tax planning arrangements and rules about transfer pricing documentation, breaking-down the information on a country-by-country basis, will help governments identify risk areas and focus their audit strategies.
And making dispute resolution mechanisms more effective will provide businesses with greater certainty and predictability.
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