On 5 October 2015, the OECD released the final set of measures on international tax planning and an explanatory statement.
Following the preliminary reports of September 2014, the Base Erosion and Profit Shifting (“BEPS”) project provides recommendations on fifteen areas of focus. The BEPS initiative was launched in July 2013 at the request of the G20 countries and is currently supported by 90 States, including Luxembourg.
The final package of BEPS includes recommendations in order to achieve the following objectives:
- address the tax challenges of the digital economy (Action 1);
- neutralise the effects of hybrid mismatch arrangements (Action 2);
- strengthen controlled foreign company rules (Action 3);
- limit base erosion via interest deductions and other financial payments (Action 4);
- counter harmful tax practices more effectively, taking into account transparency and substance (Action 5);
- prevent treaty abuse (Action 6);
- prevent the artificial avoidance of permanent establishment status (Action 7);
- reinforced transfer pricing rules with a revised OECD transfer pricing guidelines (Actions 8-10);
- measuring and monitoring BEPS (Action 11);
- require taxpayers to disclose their aggressive tax planning arrangements (Action 12);
- re-examine transfer pricing documentation (Action 13);
- make dispute resolution mechanisms more effective (Action 14); and
- develop a multilateral instrument (Action 15).
The final reports were presented on 8 October 2015 by the Secretary General of the OECD, Mr Angel Gurría, at the meeting of ministers of finance of the G20 countries held in Lima, Peru. During the annual summit of the G20 heads of government to be held on 15-16 November in Antalya, Turkey, the focus will be on supporting the implementation of BEPS measures.
Some of the recommendations are immediately applicable, for instance the revision of the transfer pricing guidelines, and some other recommendations will need to be implemented through tax treaties or through domestic law modification. Furthermore, the participating States are working on a multilateral instrument to implement the treaty-related measures in order to sign it in 2016.
The OECD and G20 countries will continue their work to complete the areas requiring further works in 2016 and 2017, including the finalisation of the revised transfer pricing guidelines, discussing the rules for the attribution of profits to permanent establishments and the finalisation of the provisions on the limitation on benefit rule.
They will also extend their cooperation to develop a framework for monitoring and supporting the implementation by countries of the BEPS measures by early 2016 and continue working together until at least 2020.
Attention should now turn to those countries which have to decide how to implement the recommendations. Some countries have already begun taking action in anticipation but the main developments will take place in the coming months.