Should the OECD's BEPS report cause concern?
First published in the International Tax Review, 23 July 2013
Now the dust from last week's G20 Finance Ministers' meeting in Moscow is beginning to settle, the question is to what extent the OECD's action plan for tackling base erosion and profit shifting (BEPS) marks a turning point in the history of international taxation, and whether the timeframes outlined in the report are realistic.
Concerns have been raised about the level of detail contained in the report and the inclusion of developing countries in any policy-making initiatives, as well as how progress on tackling the issues associated with BEPS will interact with continuing (and repeatedly delayed) attempts to reform the US tax code.
"One of the main conclusions from the report was that taxation has not kept up with business and technological developments. Though this BEPS action plan is very ambitious, it may not be ambitious enough. The action points are trying to solve some of the issues without providing a new creative global solution which can be used for the next 10 to 20 years. A lot more work needs to be done to have detailed solutions available within the proposed timeframe. The OECD has been looking at some of these issues for years and it is very ambitious that they now expect to solve them within this timeframe.
One of the main questions is whether the US will change its tax system based on these action points as the current US tax system is one of the main reasons for some of the tax (planning) issues in the world today."
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Growing concern has been expressed regarding base erosion and profit shifting and for this reason the OECD has decided to address these issues. The project, quickly known as BEPS (Base Erosion and Profit Shifting) is looking at whether, and if so why, the current rules allow for the allocation of taxable profits to locations different from those where the actual business activity takes place. The aim is to provide comprehensive, balanced and effective strategies for countries concerned with base erosion and profit shifting.