BEPS: Where are we at in 2018?

Posted 26/9/2018 by Aaron Leslie

In a recent post, I mentioned that I was fortunate enough to be a panelist at the TP Minds Asia 2018 event in Singapore. One of my highlights was the keynote presentation by Melinda Brown of the OECD. I’d like to share some of my key takeaways from that presentation with respect to BEPS in 2018.

G20 & OECD

The G20 and the OECD finalized the BEPS project work and published their report on 5th October 2015. All in all, there were 15 BEPS Action items, designed to assist governments by providing a consistent set of rules or practices when addressing international tax avoidance. These measures were introduced to ensure that MNC profits are taxed in the location where the economic activities generating the profits are performed and where value is created.

Whilst an initiative of the G20 (45 members) and OECD (36 members), an Inclusive Framework (IF) was also deemed essential to make this an effective international tax framework – the IF was introduced in 2016 and currently includes 117 member countries.

Peer review

We are currently in the implementation phase of the BEPS project. To ensure that IF members are implementing the BEPS measures appropriately, each member is subject to a ‘Peer Review’ process, which is ongoing. The aim of the Peer Reviews is to ensure that the BEPS minimum standards are being complied with (Action 5: Countering Harmful Tax Practices; Action 6: Preventing Treaty Abuse; Action 13: Transfer Pricing; and Action 14: Enhancing Dispute Resolution).

Since the BEPS Action items were finalized, the OECD has undertaken follow up work with respect to: an interim report on the tax challenges arising from digitization, and a report on branch mismatch arrangements. In addition, new content for the Model Tax Convention has been approved and the work relating to Transfer Pricing under Action Items 8-10 continues at pace.

Big Data and the Arm’s Length Principle

Another key aspect of the implementation phase is that Tax Authorities around the world are now being bombarded with mountains of data from Country by Country (“CbC”) reports, master and local file documentation, etc. So how do they turn the “Big Data” into information that can be used sensibly to determine effective compliance and adherence to the Arm’s Length Principle?

There was a lot of murmuring and nodding of heads in the audience at this point. Because until we have a 2-3 of years of submissions and associated data to provide comparative information, no one can be sure at this point. More risk reviews perhaps? And action from those reviews? Increased co-operation between Tax Authorities?  Who really knows? However, one thing is for sure, MNCs and their advisors surely can’t wait to find out!

Aaron Leslie, Sept 2018

Ready to find your next big challenge? Let's Go!