The Organization for Economic Cooperation and Development (OECD) announced the much awaited Comprehensive Action Plan (CAP) in response to the concerns expressed regarding tax Base Erosion and Profit Shifting (BEPS). It called for greater international co-operation to address the multinational business models and their related international tax planning. The Action Plan will develop a new set of standards to prevent double non-taxation. Stronger rules on controlled foreign companies will allow countries to tax profits transferred to offshore subsidiaries.
The Action Plan provides additional support for Revenue Authorities to be more aggressive and it will add political pressure on law makers to accelerate domestic law change. It also puts a strong emphasis on the substance of arrangements as a necessary element of all tax planning.
“Existing domestic and international tax rules should be modified in order to more closely align the allocation of income with the economic activity that generates that income. This is a bold call that faces enormous challenges as countries use fiscal policy to encourage economic growth, often in competition with other states”, states Mihaela Mitroi, Tax and Legal Services Leader, PwC Romania
Produced at the request of the G20, the Action Plan identifies 15 specific actions that will give governments the domestic and international instruments aiming to prevent corporations from paying little or no taxes.
“These will radically change the environment in which multinational companies operate. It will differ by country, industry and the conflicting political agendas of various members of the G20 that have been driving the urgency of this process. All internationally operated companies will be impacted by the proposed instruments of the OECD”, says Peter de Ruiter, Tax Partner, PwC Romania.
Concern that global corporations are avoiding paying their “fair share” of taxes has recently gained considerable attention from governments, multinational organisations and the media, which created an opportunity for an overhaul of the tax system.