The OECD (Organisation for Economic Co-Operation and Development) started a huge globally wide investigation into tax avoidance by multinational companies. As it has been a few years since the initiative began, substantial changes have been made to the international tax system which doesn’t look to be stopping in the coming years. Certain amendments will affect all businesses everywhere, not only international conglomerates.
Following press revelations that US based multinational corporations like Starbucks, Facebook & Google were finding weaknesses and loopholes in the international tax system in order to have small tax liabilities in the jurisdictions they were mainly functioning in. As a result of this, the G20 Summit conferred with the OECD to create proposals for reforming the tax system. In 2013 a 15 point Action plan was released, laying out the areas they considered was necessary for reform.
The recommendations cover a range of issues and are intricate, so businesses should take detailed advice on their implications, however to surmise, the most significant outcomes are understood to be:
Restrictions on interest deductions.
Stricter transfer pricing rules.
A harsher classification of what constitutes permanent establishment.
Increased transparency about profits earned and the tax paid in each jurisdiction.
An increase in cross-border tax disputes and inequalities.
Potential re-opening of rulings given by EU member states.
Although the OECD approvals include minimum standards in four areas (including country-by-country reporting and improving dispute resolution) which OECD jurisdictions would be asked to implement, the majority of the suggestions simply indicate a overall direction that countries could hypothetically choose how and when to implement. The member countries are currently considering their actions and response to the proposals.
As an avid enthusiast of the BEPS project, the UK has shown that it will be making changes to UK tax legislation in a number of areas to bring the country in line with the OECD recommendations and has been consulting upon the new UK proposals. Businesses therefore face a period of uncertainly until they know exactly when implemented in the UK will take place, and how it will affect other jurisdiction they conduct business with.