It aims to improve the international tax system by focusing on key areas where tax avoidance is in theory likely to occur.
Thus, “the BEPS action plan provides a number of proposed actions which can be taken by each tax authority to prevent double non-taxation and thus ensure the coherence of corporate income taxation at international level” says Teodora Alecu, Ph.D, Director in KPMG in Romania, Transfer Pricing Services.
Among the main areas of interest are the digital economy and the development of new international rules to achieve better direct and indirect taxation in the digital economy; preventing the erosion of the tax base and profit shifting by moving intangibles among group companies or by deducting excessive interest, as well as ways to improve the transparency of intra-group transactions.
Still, it is difficult to implement domestic law changes to neutralize the effects of hybrid instruments (such as double non-taxation or double deduction) and to avoid treaty abuse, whilst complying with international regulations. Consequently, the OECD plans to develop new fiscal rules which countries should be put in place before entering into a tax treaty. In this context, multinational companies would be required to provide more details in relation to their global allocation of income, the activity performed or the taxes paid in each country where they operate.
“The OECD is also considering changes to the definition of a permanent establishment through the use of commissionaire arrangements and specific activity exemptions, also addressing issues related to profit attribution”, explains Niculae Done, Senior Tax Partner, KPMG in Romania.
To implement the BEPS action plan by December 2015, the OECD intends to make all the required changes in the OECD Model Tax Convention and Transfer Pricing Guidelines to ensure that income generating activities will be better reflected in the tax base.