In July 2013 the OECD unveiled the Action Plan on Base Erosion and Profit Shifting (BEPS), which aims to develop a new set of standards to prevent double non-taxation and ensure that profits are taxed where they are actually generated. By Grace Perez-Navarro, Deputy Director, and Raffaele Russo, Head of the BEPS Project, Centre for Tax Policy and Administration.

1. OECD/ G2O EFFORTS
TO TACKLE TAX
EVASION AND TAX
AVOIDANCE
06 February 2014

2. Importance of this agenda
• Tax evasion and avoidance deprive
governments of revenues needed to foster
growth, job creation and income distribution
• If left unchecked, will undermine voluntary
compliance of all taxpayers
• Undermines trust in government more
generally
• Shifts more of the tax burden on to honest
citizens
2

3. Global Forum on Transparency and
Exchange of Information
• Making a difference in offshore tax evasion and
improving ability of tax administrations to apply
their laws
 Over 120 member jurisdictions, including all financial centres
 Over 1100 new EOI arrangements up to the standard
 Over 600 recommendations made and about 300
recommendations addressed relating to bank secrecy, bearer
shares, access to accounting and ownership information and
removing other barriers to effective international co-operation in
exchange of information on request
 GF published ratings of jurisdictions as Fully Compliant, Largely
Compliant, Partially Compliant or Not Compliant.
3

4. Global Forum Ratings
• New compliance ratings for 50 jurisdictions:
•
•
– Compliant: Australia, Belgium, Canada, China, Denmark, Finland,
France, Iceland, India, Ireland, Isle of Man, Japan, Korea, New Zealand,
Norway, South Africa, Spain and Sweden
– Largely Compliant: Argentina, the Bahamas, Bahrain, Bermuda,
Brazil, Cayman Islands, Estonia, Germany, Greece, Guernsey, Hong
Kong, Italy, Jamaica, Jersey, Macao, Malta, Mauritius, Monaco, the
Netherlands, Philippines, Qatar, San Marino, Singapore, Turks and
Caicos, United Kingdom, United States
– Partially Compliant: Austria and Turkey
– Non-Compliant: British Virgin Islands, Cyprus, Luxembourg and the
Seychelles
14 jurisdictions not rated, pending further improvements to their legal and
regulatory frameworks for exchange of information in tax matters.
Botswana, Brunei, Dominica, Guatemala, Lebanon, Liberia, Marshall
Islands, Nauru, Niue, Panama, Switzerland, Trinidad and Tobago, the
United Arab Emirates and Vanuatu
.
4

5. From Exchange on Request to
Automatic Exchange
• In April 2013 the G20 Finance Ministers and Central Bank
Governors first endorsed automatic exchange as the
expected new standard. Leaders welcomed in St.
Petersburg
• This is another step change in international tax
transparency driven by developments around the globe,
with unprecedented political support for automatic
exchange of information.
• Release of new global standard: 13 February 2014
5

6. Basic approach
Account
Holder
Bank


Country A
1. Model 1 IGA reporting
2. Model 1 IGA exchanges
3. Leveraging on Model 1 IGA implementation
to develop standardised automatic exchange
in a multilateral context


US


Bank
Account
Holder
Country B

Account
Holder

Bank
6

7. CRS + CAA = exchange standard
Account
Holder
Bank
Country A
Reporting of information based on
Common Reporting and Due Diligence
Standard (CRS) implemented via domestic
law
Automatic exchange of information based
on MTC Article 26 or MAC, & Model CAA
Country B
Account
Holder
Bank
Reporting of information based on
Common Reporting and Due Diligence
Standard (CRS) implemented via domestic
law
7

8. Key features
To prevent taxpayers from circumventing the CRS, it is specifically designed
with a broad scope across three dimensions:
Broad scope of information reported:
• Personal data: name, address, tax residence, TIN
• Financial data: account balance, all investment income (including sales
proceeds)
Broad scope of financial institutions required to report:
• Banks, custodians, and other financial institutions (brokers, certain
collective investment vehicles, and certain insurance companies)
Broad scope of account holders subject to reporting:
• Individuals
• Entities (including trusts and foundations)
• Controlling persons (i.e., beneficial owners) of entities
8

9. Present
Main differences from FATCA
Individuals
• Residence (not
citizenship)
• No thresholds
• Residence address test for
pre-existing accounts
building on EU Savings
Directive
• Simplified indicia search
Entities
• Look-through for
professionally managed
investment entities in
non-participating
jurisdictions
Low risk FIs and products
General exclusion for country specific low-risk reporting
financial institutions and accounts
9

10. Future
Next steps
Ongoing business consultation
Post Sep ’14
Feb ‘14
Presentation
of CRS to
G20
Jun ‘14
Sep ‘14
Presentation of
commentaries and
other technical
modalities to G20
CFA approval of
commentaries and
other technical
modalities
1. Continued work on
commentaries and other
technical modalities
2. Consistent implementation
(‘living’ system)
3. Effective use of information
exchanged
4. Alignment with TRACE
5. AEOI of other types of
income (in collaboration
with the EU)
10

11. Future
Roles & responsibilities
Country
WP10
1. Enact legislation adopting CRS
2. Issue regulations and
guidance incorporating more
detailed rules of CRS
3. Enter into CAAs
4. Commence IT and other
process implementation
including exchange
infrastructure
5. Ensure confidentiality of
information
6. Effective use of information
exchanged
7. Ensure consistent
implementation going
forward
1. Continued work on
commentaries and other
technical modalities
2. Develop best practices on the
effective use of information
exchanged
GFTEI / AEOI Group
1. Assist developing
countries
2. Monitor and review
implementation
3. Liaise with WP10
(including via delegation
to WP10)
3. Resolve issues arising during
implementation to ensure
consistent application going
forward and achieve
objectives of CRS
4. Alignment with TRACE
5. AEOI of other types of income
(in collaboration with the EU)
11

12. Automatic Exchange
• The Multilateral Convention on Mutual
Administrative Assistance in Tax Matters
provides a legal basis for automatic
exchange.
– The Multilateral Convention also provides a basis
for assistance in collection.
– Bilateral treaties (and some TIEAs) may also
provide a legal basis for bilateral exchange.
– Over 60 countries have signed Convention and
UK and others have extended coverage to their
dependencies and overseas territories
12

13. BASE EROSION AND
PROFIT SHIFTING (BEPS) PROJECT
February 2014

14. I. WHAT IS BEPS?
14

15. Background
• International constraints due to tax sovereignty lead to double
taxation
• Core work of the OECD is to remove barriers to cross-border
trade and investment. In tax area we do this by designing
international standards / rules to eliminate double taxation
• Many rules work well but have also resulted in double nontaxation
• Post-crisis priorities: governments not only need money but
they need to ensure the fairness of the tax system
• If we want to maintain our ability to eliminate double
taxation, better to have respected and internationally aligned
rules and therefore to fix deficiencies
15

16. OECD Work on Taxation
• Prevention of double taxation remains core work but there is
now recognition that the issue of double non-taxation due to
base erosion and profit shifting (BEPS) should also be tackled
What is BEPS?
• There are a number of structures which take advantage of
asymmetries in domestic and international tax rules
• Artificial separation of taxable profits from the jurisdiction
where economic activities take place
• Most BEPS planning is legal – if governments and parliaments
are unhappy with results, the rules should be changed
16

17. Why is BEPS a problem?
• It distorts competition
o Businesses that operate cross-border may profit from BEPS opportunities
which gives them competitive advantages compared to enterprises that
operate mostly at the domestic level
• It distorts investment decisions
o …towards activities that have lower pre-tax rates of return but higher after
tax rates of return – this may lead to an inefficient allocation of resources
• It is an issue of fairness
o If other taxpayers think that MNEs can legally avoid paying income tax, it
will undermine voluntary compliance by all taxpayers
17

18. Increased Attention on BEPS
• Increased attention on corporate tax affairs
• Spreading perception that MNEs dodge taxes all around the
world and in particular in developing countries
• Debate on BEPS issues has reached a high political level
• Parliamentary hearings in a number of countries
• G20 discussions
18

19. Increased Attention on BEPS
19

20. II. FEBRUARY 2013 – THE
DIAGNOSIS REPORT
20

21. Report: Addressing BEPS
•
Addressing Base Erosion and Profit Shifting published
on 12 February 2013


•
identifies main pressure areas leading to opportunities for
BEPS
calls on governments to address these areas: in a nutshell, if
governments are not happy with the results under the laws,
they must change the laws
Sent to and discussed at G20 Finance Ministers
meeting in Moscow on 15-16 February 2013:
“[W]e welcome the OECD report on addressing base erosion and
profit shifting and acknowledge that an important part of fiscal
sustainability is securing our revenue bases. We are determined to
develop measures to address base erosion and profit shifting, take
necessary collective actions and look forward to the comprehensive
action plan the OECD will present to us in July”
21

22. How Big a Problem Is BEPS? (1)
• Debate on Statutory vs. Effective Corporate Income Tax Rates
– Statutory tax rates do not provide a reliable measure of the burden that a tax
system imposes on corporate income while ETRs, in particular backward-looking
ones, could in principle provide useful indications of whether base erosion and
profit shifting is indeed taking place.
• Review of studies relating to BEPS
– Available studies on Effective Tax Rates (ETRs) of MNEs are useful but there are
barely two studies using the same methodology. The use of different
methodologies to calculate ETRs (in particular backward-looking ones) results in
very divergent conclusions regarding the level of taxation imposed on MNEs.

23. How Big a Problem Is BEPS? (2)
• Data on corporate income tax revenues:
– Corporate tax receipts vs. GDP have remained stable even though tax rates have
been falling over time (although applied to a broader tax base).
– Further analysis is needed to assess the importance of all the different factors
and therefore arrive at a conclusive view on the relevance of these data.
• Data on Foreign Direct Investments (FDIs):
– substantial share of investments is made through shell companies , e.g.
• In 2010 the British Virgin Islands were second largest investor into China (14%) after
Hong Kong (45%) and before USA (4%)
• Mauritius is the top investor into India (24%), while Cyprus (28%), the British Virgin
Islands (12%), Bermuda (7%) and the Bahamas (6%) are among the top five investors
into Russia
– further analysis of these data is also warranted

24. Tax Principles and Opportunities for BEPS
• In practice any structure aimed at BEPS incorporates a number of coordinated strategies, which often can be broken down into four elements
– minimisation of taxation in a foreign operating or source country either by
shifting gross profits via trading structures or reducing net profit by
maximising deductions at the level of the payer
– low or no withholding tax at source
– low or no taxation at the level of the recipient (via low-tax jurisdictions,
preferential regimes, hybrid mismatch arrangements) with entitlement to
substantial non-routine profits via intra-group arrangements
– no current taxation of the low taxed profits at level of ultimate parent.
Further, effective cash repatriation strategies and “permanent” foreign
reinvestment of low taxed cash

25. Tax Principles and Opportunities for BEPS (2)
• Effect of strategies is that more profit is associated with legal
constructs and intangible rights and obligations, and to legally shift
risk intra-group, with the result of reducing the share of profits
associated with substantive operations involving the interaction of
people with one another and the use of physical capital
• There are a number of structures, technically legal, which take
advantage of asymmetries in domestic and international tax rules

26. What to do about that?
• The February Report calls for coordinated and holistic action
• No country acting on its own can fix it
• If you only fix one issue, pressure on other areas
• A Comprehensive Action Plan on BEPS by June 2013
• to provide countries with instruments, domestic and international,
aiming at better aligning rights to tax with real economic activity
• requiring “out of the box” thinking as well as ambition and pragmatism
to overcome implementation difficulties
26

27. III. JULY 2013 – THE BEPS
ACTION PLAN
27

28. Developing the Action Plan on BEPS
• Following the February report, the work focused on the
development of an action plan
• The development of the action plan was also informed by
engagement with business and civil society (consultations
with BIAC, TUAC and NGOs)
• The action plan was approved at the meeting of the
Committee on Fiscal Affairs on 25 June 2013. All G20
countries participated
• It was published on 19 July 2013 on the occasion of the G20
Finance Ministers meeting
28

29. The BEPS Action Plan
• The action plan calls for 15 actions organised
around the following three main pillars:
– The coherence of corporate tax at the international
level.
– A realignment of taxation and substance
– Transparency, coupled with certainty and
predictability
• It also calls for targeted work in the area of
the digital economy, and for the
development of a multilateral instrument to
implement the measures developed under
the action plan.
29

30. The Digital Economy (Action 1)
• Spread of the digital economy poses challenges for
international taxation.
• The digital economy is characterised by an unparalleled
reliance on intangible assets, the massive use of data (notably
personal data), the widespread adoption of multi-sided
business models capturing value from externalities generated
by free products, and the difficulty of determining the
jurisdiction in which value creation occurs.
• Fundamental questions as to how enterprises in the digital
economy add value and make their profits, and how the
digital economy relates to the concepts of source and
character of income for tax purposes.
30

31. Coherence (Actions 2 through 5)
The Action Plan calls for the development of international standards
to ensure the coherence of corporate tax at the international level
• This relates to the need to complement existing rules to prevent
double taxation with instruments that prevent double non-taxation.
 Neutralise the effects of hybrid mismatch arrangements (Action 2)
 Strengthen controlled foreign companies (CFC) rules (Action 3)
 Limit base erosion via interest deductions and other financial
payments (Action 4)
 Counter harmful tax practices more effectively (Action 5)
31

32. Substance (Actions 6 through 10)
The Action Plan calls for a realignment of taxation and
substance:
• This is about treaty abuse and transfer pricing, where the
current rules do not always produce appropriate results.
 Prevent treaty abuse (Action 6)
 Prevent the artificial avoidance of Permanent Establishment
status (Action 7)
 Assure that Transfer Pricing outcomes are in line with value
creation – Intangibles / Risk & capital / High-Risk Transactions
and Other Payments (Actions 8, 9, 10)
32

33. Transparency and Certainty (Actions 11
through 14)
BEPS requires greater transparency and certainty
 Establish methodologies to collect and analyse data on BEPS
and the actions to address it (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)
33

34. Developing a Multilateral Instrument
(Action 15)
• Some actions will result in changes to the OECD Model Tax
Convention and changes to the OECD Model Tax Convention
are not directly effective without amendments to bilateral tax
treaties.
• If undertaken on a purely treaty-by-treaty basis, the sheer
number of treaties in effect will make such a process very
lengthy.
• There is a need to consider innovative ways to implement the
measures resulting from the work on the BEPS Action Plan.
34

35. IV. NOW – THE OECD/G20 BEPS
PROJECT
35

36. OECD/G20 BEPS Project
• All eight non-OECD G20 countries (Argentina, Brazil, China,
India, Indonesia, Russia, Saudi Arabia and South Africa) and
OECD Accession countries (Colombia and Latvia) are
Associates in the BEPS Project
• Associates in a Project participate on an equal footing with
OECD countries, including participation in its bureau in the
Committee overseeing the project in the discussions and in
the decision-making process
36

37. Organisation of work
• Work on the actions is done by CFA through subsidiary bodies
(where the experts from capitals sit):
–
–
–
–
–
–
–
Working Party 1 on Tax Conventions and Related Questions
Working Party 2 Tax Policy Analysis and Tax Statistics
Working Party 6 on Taxation of Multinational Enterprises
Forum on Harmful Tax Practices
Working Party 11 on Aggressive Tax Planning
Task Force on Digital Economy
Informal Expert Group on developing a Multilateral
Instrument
37

38. Developing countries’ input
• Task Force on Tax and Development
• OECD Global Relations Program
• Global Fora on Tax Treaties, on Transfer Pricing and on
VAT
• The United Nations
– UN participates in the tax work of the OECD
– UN Subcommittee on Base Erosion and Profit
Shifting Issues for Developing Countries (October
2013)
38

39. Stakeholders’ input
• Consultation with non-governmental stakeholders is also key:
– Business and Industry Advisory Committee (BIAC)
– Trade Union Advisory Committee (TUAC)
– Non-governmental organisations, think tanks, and academia
• Mechanisms:
– Requests for input published on the OECD website
– Discussion drafts published for comments
– Public consultations organised to discuss the comments received on
the discussion drafts
– Regular updates regarding progress of the work provided via
Webcast sessions
39

40. An ambitious timeline
September 2014
 Digital Economy Report
 Hybrid Mismatches
 Review of HTP Regimes
(phase 1)
 Preventing Treaty Abuse
September 2015




 Addressing TP aspects of
Intangibles (phase 1)

 Addressing TP
Documentation

 Multilateral Instrument
Report




CFC Rules
Interest Deductibility
Strategy on expansion of FHTP
(phase 2)
Addressing avoidance of PE
status
Addressing TP aspects of
Intangibles (phase 2)
Addressing TP aspects of Risks
and Capital
Addressing TP aspects of other
High Risk Transactions
Report on Data and Economic
Analyses
Mandatory Disclosure Rules
Dispute Resolution
December 2015
 Addressing TP Interest
Deductions
 Revision of HTP Criteria
(phase 3)
 Multilateral Instrument
40

41. V. WHAT IS NEXT ? UPDATE ON 2014
DELIVERABLES
41

42. The Digital Economy
• First meeting of the Task Force in October 2013
– Analysis of business models and identification of special features of digital
economy players (such as mobility, reliance on data, network effects,
multi-sides business models)
– Effects of these features on BEPS strategies
– Actions to tackle BEPS in the digital economy
– Broader, systemic issues raised by the digital economy and options to
address them
•
•
•
•
Second meeting this week
Discussion Draft out for comments in March 2014
Public Consultation in April 2014
Report to be finalised by September 2014
42

43. Treaty Abuse
• Aim:
– Restore full effects and benefits of international standards
• Tools:
– Anti treaty abuse provisions in treaty and domestic law
– Clarify tax treaties not intended to generate double non-taxation
– Clarify policy considerations before entering into a bilateral tax treaty
• Process:
– Scoping by Working Party 1 in September 2013
– Full discussions by Working Party 1 in February/March 2014
– Discussion draft will be released in March 2014
– Public consultation meeting will take place in April or May 2014
43

44. Hybrid Mismatch Arrangements
•
Action item requires development of model treaty provisions and
recommendations for domestic rules by September 2014.
•
First meeting held in October 2013, followed by a meeting in December.
•
Consideration of hybrid mismatch arrangements that give rise to either:
–
a double deduction
– or a deduction with no matching income inclusion.
•
This includes scenarios involving
–
a hybrid financial instrument
–
a hybrid transfer and
– a hybrid entity (whether it receives or makes payments)
•
A discussion draft will be issued for comments in early April with a public
consultation in May.
44

45. Addressing TP aspects of Intangibles
• Major media attention on transfer pricing (especially intangibles)
• Conclusion BEPS Action Plan: the current transfer pricing system leads to
serious BEPS concerns, but replacing the arm’s length principle is not the
solution. Special measures may be necessary. 4 Action Points on TP.
• Aim: assure that transfer pricing outcomes are in line with value creation
• Process intangibles:
– Project started in 2010 and scoping included various consultations
– First discussion draft was published in June 2012. A public consultation was
held in November 2012
– A revised discussion draft was published in July 2013. A public consultation
was held in November 2013
– Finalisation will take place during the Working Party 6 meetings in March and
May 2014
45

46. Harmful Tax Practices
• First meeting following the publication of the BEPS
action plan held in December. Follow up meetings in
February and May 2014.
• By September 2014 need to review member regimes,
with a priority on transparency, including compulsory
exchange of information on rulings, and on requiring
substantial activity for preferential regimes.
• Review of G20, non OECD members regimes also to be
started before September 2014.
• A report on the outcome of the Forum’s review to be
published by September 2014.
46

47. Transfer Pricing
Documentation
•
Tax administrations need for ‘big picture’ information on the global value
chain versus compliance burden MNEs
•
Action Point includes: Country-by-Country reporting of income, economic
activity and taxes to governments
•
Process:
–
–
–
–
–
TP documentation: one of five work streams targeted at TP simplification
White paper on TP documentation published in July 2013
Questionnaire on Country-by-Country reporting published in October 2013
Public consultation held in November 2013
30 January 2014: release of a discussion draft of Chapter V of the Transfer
Pricing Guidelines, including a Country-by-Country reporting template
– March 2014: public consultation
– May 2014: finalisation by WP6
47

48. The Multilateral Instrument
Report
• First phase of the work being carried out by the Secretariat
with input from eminent public international and tax law
experts and in consultation with Working Party 1 of the CFA
• Focus is on feasibility of use of a multilateral instruments to
implement BEPS measures and amend bilateral tax treaties
• Several difficult issues but none appears unsurmountable
• Report to be finalised by September 2014
48

49. VI. THE ROLE OF NATIONAL
PARLIAMENTS
49

50. Making reform happen!
• Blogger: “The 44-page Action Plan is definitely a glimmer of hope.
The actions outlined in the plan, if translated into law by
OECD countries, could mark a turning point in the history of
international tax cooperation and provide governments with the
necessary means to prevent profit shifting”.
• PwC's 17th Annual Global CEO Survey:
– 73% of CEOs accept the international tax system has not kept
pace with how multinational corporations operate and needs
reforming.
– Only a quarter of them thought that current OECD
attempts to overhaul the international tax system will
bear fruit over the next few years while 40% didn't
count on these efforts reaching consensus
50

51. A range of anti-BEPS measures
• BEPS Project will result in a range of measures:
– Tax Treaty changes
– Changes to the Transfer Pricing Guidelines
– Recommendations regarding domestic law design
• Domestic law measures
– Require Parliamentary approval
• Tax treaties ratification
– Multilateral instrument may save time and resources
51

52. ANNEX
52

53. 15 Actions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Address the Tax Challenges of the Digital Economy
Neutralise the Effects of Hybrid Mismatch Arrangements
Strengthen Controlled Foreign Companies Rules
Limit Base Erosion via Interest Deductions and Other Financial Payments
Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
Prevent Treaty Abuse
Prevent the Artificial Avoidance of PE Status
Assure that Transfer Pricing Outcomes are in Line With Value Creation / Intangibles
Assure that Transfer Pricing Outcomes are in Line With Value Creation / Risks and Capital
Assure that Transfer Pricing Outcomes are in Line With Value Creation / Other High-Risk
Transactions
Establish Methodologies to Collect and Analyse Data on BEPS and the Actions to Address It
Require Taxpayers to Disclose Their Aggressive Tax Planning Arrangements
Re-examine Transfer Pricing Documentation
Make Dispute Resolution Mechanisms More Effective
Develop a Multilateral Instrument
53

54. Action 1
Address the Tax Challenges of the Digital Economy
Identify the main difficulties that the digital economy poses for the application of existing
international tax rules and develop detailed options to address these difficulties, taking a
holistic approach and considering both direct and indirect taxation. Issues to be
examined include, but are not limited to, the ability of a company to have a significant
digital presence in the economy of another country without being liable to taxation due
to the lack of nexus under current international rules, the attribution of value created
from the generation of marketable location-relevant data through the use of digital
products and services, the characterisation of income derived from new business models,
the application of related source rules, and how to ensure the effective collection of
VAT/GST with respect to the cross-border supply of digital goods and services. Such work
will require a thorough analysis of the various business models in this sector.
54

55. Action 2
Neutralise the Effects of Hybrid Mismatch Arrangements
Develop model treaty provisions and recommendations regarding the design of domestic
rules to neutralise the effect (e.g., double non-taxation, double deduction, long-term
deferral) of hybrid instruments and entities. This may include: (i) changes to the OECD
Model Tax Convention to ensure that hybrid instruments and entities (as well as dual
resident entities) are not used to obtain the benefits of treaties unduly; (ii) domestic law
provisions that prevent exemption or non-recognition for payments that are deductible
by the payor; (iii) domestic law provisions that deny a deduction for a payment that is
not includible in income by the recipient (and is not subject to taxation under controlled
foreign company (CFC) or similar rules); (iv) domestic law provisions that deny a
deduction for a payment that is also deductible in another jurisdiction; and (v) where
necessary, guidance on co-ordination or tie-breaker rules if more than one country seeks
to apply such rules to a transaction or structure. Special attention should be given to the
interaction between possible changes to domestic law and the provisions of the OECD
Model Tax Convention. This work will be co-ordinated with the work on interest expense
deduction limitations, the work on CFC rules, and the work on treaty shopping.
55

56. Action 3
Strengthen Controlled Foreign Companies Rules
Develop recommendations regarding the design of controlled foreign corporation rules.
This work will be co-ordinated with other work as necessary.
56

57. Action 4
Limit Base Erosion via Interest Deductions and Other
Financial Payments
Develop recommendations regarding best practices in the design of rules to prevent base
erosion through the use of interest expense, for example through the use of related-party
and third-party debt to achieve excessive interest deductions or to finance the production
of exempt or deferred income, and other financial payments that are economically
equivalent to interest payments. The work will evaluate the effectiveness of different
types of limitations. In connection with and in support of the foregoing work, transfer
pricing guidance will also be developed regarding the pricing of related party financial
transactions, including financial and performance guarantees, derivatives (including
internal derivatives used in intra-bank dealings), and captive and other insurance
arrangements. The work will be co-ordinated with the work on hybrids and CFC rules.
57

58. Action 5
Counter Harmful Tax Practices More Effectively, Taking
into Account Transparency and Substance
Revamp the work on harmful tax practices with a priority on improving transparency,
including compulsory spontaneous exchange on rulings related to preferential regimes,
and on requiring substantial activity for any preferential regime. It will take a holistic
approach to evaluate preferential tax regimes in the BEPS context. It will engage with
non-OECD members on the basis of the existing framework and consider revisions or
additions to the existing framework.
58

59. Action 6
Prevent Treaty Abuse
Develop model treaty provisions and recommendations regarding the design of domestic rules to
prevent the granting of treaty benefits in inappropriate circumstances. Work will also be done to
clarify that tax treaties are not intended to be used to generate double non-taxation and to identify
the tax policy considerations that, in general, countries should consider before deciding to enter into
a tax treaty with another country. The work will be co-ordinated with the work on hybrids.
59

60. Action 7
Prevent the Artificial Avoidance of PE Status
Develop changes to the definition of PE to prevent the artificial avoidance of PE status in
relation to BEPS, including through the use of commissionaire arrangements and the
specific activity exemptions. Work on these issues will also address related profit
attribution issues.
60

61. Action 8
Assure that Transfer Pricing Outcomes are in Line With
Value Creation / Intangibles
Develop rules to prevent BEPS by moving intangibles among group members. This will
involve: (i) adopting a broad and clearly delineated definition of intangibles; (ii) ensuring
that profits associated with the transfer and use of intangibles are appropriately allocated
in accordance with (rather than divorced from) value creation; (iii) developing transfer
pricing rules or special measures for transfers of hard-to-value intangibles; and (iv)
updating the guidance on cost contribution arrangements.
61

62. Action 9
Assure that Transfer Pricing Outcomes are in Line With
Value Creation / Risks and Capital
Develop rules to prevent BEPS by transferring risks among, or allocating excessive capital
to, group members. This will involve adopting transfer pricing rules or special measures
to ensure that inappropriate returns will not accrue to an entity solely because it has
contractually assumed risks or has provided capital. The rules to be developed will also
require alignment of returns with value creation. This work will be co-ordinated with the
work on interest expense deductions and other financial payments.
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63. Action 10
Assure that Transfer Pricing Outcomes are in Line With
Value Creation / Other High-Risk Transactions
Develop rules to prevent BEPS by engaging in transactions which would not, or would
only very rarely, occur between third parties. This will involve adopting transfer pricing
rules or special measures to: (i) clarify the circumstances in which transactions can be
recharacterised; (ii) clarify the application of transfer pricing methods, in particular profit
splits, in the context of global value chains; and (iii) provide protection against common
types of base eroding payments, such as management fees and head office expenses.
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64. Action 11
Establish Methodologies to Collect and Analyse Data on
BEPS and the Actions to Address It
Develop recommendations regarding indicators of the scale and economic impact of
BEPS and ensure that tools are available to monitor and evaluate the effectiveness and
economic impact of the actions taken to address BEPS on an ongoing basis. This will
involve developing an economic analysis of the scale and impact of BEPS (including
spillover effects across countries) and actions to address it. The work will also involve
assessing a range of existing data sources, identifying new types of data that should be
collected, and developing methodologies based on both aggregate (e.g. FDI and balance
of payments data) and micro-level data (e.g. from financial statements and tax returns),
taking into consideration the need to respect taxpayer confidentiality and the
administrative costs for tax administrations and businesses.
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65. Action 12
Require Taxpayers to Disclose Their Aggressive Tax
Planning Arrangements
Develop recommendations regarding the design of mandatory disclosure rules for
aggressive or abusive transactions, arrangements, or structures, taking into
consideration the administrative costs for tax administrations and businesses and
drawing on experiences of the increasing number of countries that have such rules. The
work will use a modular design allowing for maximum consistency but allowing for
country specific needs and risks. One focus will be international tax schemes, where the
work will explore using a wide definition of “tax benefit” in order to capture such
transactions. The work will be co-ordinated with the work on co-operative compliance. It
will also involve designing and putting in place enhanced models of information sharing
for international tax schemes between tax administrations.
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66. Action 13
Re-examine Transfer Pricing Documentation
Develop rules regarding transfer pricing documentation to enhance transparency for tax
administration, taking into consideration the compliance costs for business. The rules to be
developed will include a requirement that MNE’s provide all relevant governments with
needed information on their global allocation of the income, economic activity and taxes
paid among countries according to a common template.
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67. Action 14
Make Dispute Resolution Mechanisms More Effective
Develop solutions to address obstacles that prevent countries from solving treaty-related
disputes under MAP, including the absence of arbitration provisions in most treaties and
the fact that access to MAP and arbitration may be denied in certain cases.
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68. Action 15
Develop a Multilateral Instrument
Analyse the tax and public international law issues related to the development of a
multilateral instrument to enable jurisdictions that wish to do so to implement measures
developed in the course of the work on BEPS and amend bilateral tax treaties. On the
basis of this analysis, interested Parties will develop a multilateral instrument designed
to provide an innovative approach to international tax matters, reflecting the rapidly
evolving nature of the global economy and the need to adapt quickly to this evolution.
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69. Timeline and Output (actions 1-8)
Action
Expected Output
Deadline
Report identifying issues raised by the digital economy and possible
actions to address them
September 2014
Changes to the Model Tax Convention
September 2015
Recommendations regarding the design of domestic rules
September 2014
Recommendations regarding the design of domestic rules
September 2015
Recommendations regarding the design of domestic rules
September 2015
Changes to the Transfer Pricing Guidelines
December 2015
Finalise review of member country regimes
September 2014
Strategy to expand participation to non-OECD members
September 2015
Revision of existing criteria
December 2015
Changes to the Model Tax Convention
September 2014
Recommendations regarding the design of domestic rules
September 2014
7- Prevent the Artificial Avoidance of PE Status
Changes to the Model Tax Convention
September 2015
8- Assure that Transfer Pricing Outcomes are in Line With
Value Creation / Intangibles
Changes to the Transfer Pricing Guidelines and possibly to the Model
Tax Convention
Changes to the Transfer Pricing Guidelines and possibly to the Model
Tax Convention
1- Address the Tax Challenges of the Digital Economy
2- Neutralise the Effects of Hybrid Mismatch Arrangements
3- Strengthen CFC Rules
4- Limit Base Erosion via Interest Deductions and Other
Financial Payments
5 - Counter Harmful Tax Practices More Effectively, Taking
into Account Transparency and Substance
6- Prevent Treaty Abuse
September 2014
September 2015
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70. Timeline and Output (actions 9-15)
Action
Expected Output
Deadline
9- Assure that Transfer Pricing Outcomes are in Line
With Value Creation / Risks and Capital
Changes to the Transfer Pricing Guidelines and possibly to the Model
Tax Convention
September 2015
10- Assure that Transfer Pricing Outcomes are in Line
With Value Creation / Other High-Risk Transactions
Changes to the Transfer Pricing Guidelines and possibly to the Model
Tax Convention
September 2015
11- Establish Methodologies to Collect and Analyse
Data on BEPS and the Actions to Address It
Recommendations regarding data to be collected and methodologies
to analyse them
September 2015
12- Require Taxpayers to Disclose Their Aggressive Tax
Planning Arrangements
Recommendations regarding the design of domestic rules
September 2015
13- Re-examine Transfer Pricing Documentation
Changes to Transfer Pricing Guidelines and Recommendations
regarding the design of domestic rules
September 2014
14- Make Dispute Resolution Mechanisms More
Effective
Changes to the Model Tax Convention
September 2015
Report identifying relevant public international law and tax issues
September 2014
Develop a multilateral instrument
December 2015
15- Develop a Multilateral Instrument
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71. Timeline and Output by September 2014
Action
Address the Tax Challenges of the Digital Economy
Expected Output
Report identifying issues raised by the digital economy and
possible actions to address them
Changes to the Model Tax Convention
Neutralise the Effects of Hybrid Mismatch Arrangements
Recommendations regarding the design of domestic rules
Counter Harmful Tax Practices More Effectively, Taking into
Account Transparency and Substance – phase 1
Prevent Treaty Abuse
Finalise review of member country regimes
Changes to the Model Tax Convention
Recommendations regarding the design of domestic rules
Assure that Transfer Pricing Outcomes are in Line With Value
Creation / Intangibles – phase 1
Changes to the Transfer Pricing Guidelines and possibly to the
Model Tax Convention
Re-examine Transfer Pricing Documentation
Changes to Transfer Pricing Guidelines and Recommendations
regarding the design of domestic rules
Develop a Multilateral Instrument –phase 1
Report identifying relevant public international law and tax
issues

72. Timeline and Output by September 2015
Action
Expected Output
Strengthen CFC Rules
Recommendations regarding the design of domestic rules
Limit Base Erosion via Interest Deductions and Other Financial
Payments
Recommendations regarding the design of domestic rules
Counter Harmful Tax Practices More Effectively, Taking into
Account Transparency and Substance – phase 2
Strategy to expand participation to non-OECD members
Prevent the Artificial Avoidance of PE Status
Changes to the Model Tax Convention
Assure that Transfer Pricing Outcomes are in Line With Value
Creation / Intangibles – phase 2
Assure that Transfer Pricing Outcomes are in Line With Value
Creation / Risks and Capital
Changes to the Transfer Pricing Guidelines and possibly to the
Model Tax Convention
Changes to the Transfer Pricing Guidelines and possibly to the
Model Tax Convention
Assure that Transfer Pricing Outcomes are in Line With Value
Creation / Other High-Risk Transactions
Changes to the Transfer Pricing Guidelines and possibly to the
Model Tax Convention
Establish Methodologies to Collect and Analyse Data on BEPS
and the Actions to Address It
Require Taxpayers to Disclose Their Aggressive Tax Planning
Arrangements
Make Dispute Resolution Mechanisms More Effective
Recommendations regarding data to be collected and
methodologies to analyse them
Recommendations regarding the design of domestic rules
Changes to the Model Tax Convention

73. Timeline and Output by December 2015
Action
Expected Output
Limit Base Erosion via Interest Deductions – phase 2
Changes to the Transfer Pricing Guidelines
Counter Harmful Tax Practices More Effectively, Taking into
Account Transparency and Substance – phase 3
Revision of existing criteria to identify harmful tax practices
Develop a Multilateral Instrument – phase 2
Multilateral instrument
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74. Expected Outcomes (Actions 1 - 9)
Action Item
MTC
TPG
Domestic
Rules
1. Address the tax challenges of the digital economy
2. Neutralise the effects of hybrid mismatch arrangements
Other
√
√
√
3. Strengthen CFC rules
√
4. Limit base erosion via interest deductions and other financial
payments
√
√
5. Counter harmful tax practices more effectively, taking into
account transparency and substance
√
6. Prevent treaty abuse
√
7. Prevent the artificial avoidance of PE status
√
8. Assure transfer pricing outcomes are in line with value
creation/intangibles
?
√
9. Assure transfer pricing outcomes are in line with value
creation/risks and capital
?
√
√
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75. Expected Outcomes (Actions 10 - 15)
Action Item
10. Assure transfer pricing outcomes are in line with value
creation/high-risk transactions
MTC
TPG
?
Domestic
Rules
√
11. Establish methodologies to collect and analyse data on
BEPS and actions to address it
√
12. Require taxpayers to disclose their aggressive tax planning
arrangements
√
13. Re-examine transfer pricing documentation
14. Make dispute resolution mechanisms more effective
15. Develop a multilateral instrument
Other
√
√
√
√
75

76. Questions and further information
QUESTIONS?
Further information:
http://www.oecd.org/ctp/beps.htm
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