OECD delivers first 7 pieces of base erosion action plan

The Organisation for Economic Co-operation and Development (OECD) announced on Tuesday the release of the first seven reports and recommendations called for in its 2013 Action Plan on Base Erosion and Profit Shifting. If implemented by OECD member states, the recommendations would address several problems identified by the OECD and G20 leaders that reduce countries’ tax revenue from multination companies.

The OECD’s Action Plan identified 15 key areas to be addressed by 2015. Seven areas had deadlines of September 2014, and the OECD on Tuesday released reports and recommendations that constitute the deliverables for those areas.

The OECD claims that with these deliverables, and the implementation of related measures by OECD member states, it will have achieved:

• Neutralisation of hybrid mismatches, which should prevent multiple deductions for a single expense, deductions in one country without corresponding taxation in another, and multiple foreign tax credits for one tax paid (Action 2 in the BEPS Action Plan);
• Prevention of treaty shopping and other strategies that reduce tax revenues (Action 6);
• Minimisation of transfer-pricing abuse in the area of intangibles through clarification of the rules in the OECD’s Transfer Pricing Guidelines (Action 8); and
• Improvement of transfer-pricing documentation and implementation of country-by-country reporting to tax administrators of multinational companies’ global allocation of profits, economic activity, and taxation (Action 13).

Also, the OECD issued three reports, which focus on:

• Addressing the challenges of taxation in a digital economy (Action 1);
• The feasibility of a multilateral instrument to update bilateral treaties (Action 15);
• Countering harmful tax practices more effectively (Action 5).

The OECD’s explanatory statement notes that the proposed measures have been agreed to, but not yet formally finalised. Member states can now begin to adopt domestic legislation to implement the OECD’s recommendations.

—Alistair Nevius (anevius@aicpa.org) is CGMA Magazine’s editor-in-chief, tax.