The proposed rules, part of the OECD and G20’s project to eliminate base erosion and profit shifting (BEPS), are designed to eliminate gaps in existing rules that allow companies to shift their corporate profits to low-tax jurisdictions where little or no economic activity takes place. The OECD estimates that governments lose between $100 billion and $240 billion in tax revenue each year through such corporate tax-avoidance techniques.
The final rules package includes new standards requiring country-by-country reporting, targeting treaty shopping, providing for automatic exchange of tax rulings, and setting up mutual agreement procedures. The rules also revise guidance on transfer pricing and redefine “permanent establishment”. In all, the rules cover all 15 items identified in the OECD’s Action Plan on Base Erosion and Profit Shifting and incorporate and supersede the seven preliminary reports already issued under the action plan.
The measures will be presented to the G20 leaders at a meeting in Turkey on November 15th and 16th. However, implementation of the measures will in most cases require their enactment into domestic law by individual countries and/or revisions to existing tax treaties.
—Alistair Nevius (email@example.com) is CGMA Magazine’s editor-in-chief, tax.