At the recent meeting of the G20 nations’ finance ministers and central bank governors, the ministers announced their support for the remaining BEPS initiatives published on October 5 by the OECD. Taxand USA provides an overview.
In view of ongoing economic globalisation and the resulting challenges faced by tax administrators to keep pace, the OECD spearheaded an ambitious effort starting in 2013 to tackle what was viewed by many tax authorities as rampant tax avoidance. While much focus had historically been placed on the elimination of double taxation, tax authorities and tax policy-makers now had a growing concern about double non-taxation.
The framework for the BEPS initiative was to develop a consensus approach for administering international tax policy in the 21st century, centered on a broad selection of economic drivers for the modern world, such as the digital economy, the development and exploitation of intangibles, hybrid financing arrangements and transfer pricing. Although led and coordinated by the OECD and its 34 member countries, the BEPS initiative also had active participation from the full group of G20 nations as well as developing countries that enjoy membership in neither of the aforementioned groups.
Numerous territories (particularly developed European nations) have been “early adopters” of some of these BEPS initiatives, proposing and introducing legislation in multiple areas of focus. While reducing what territories label as tax avoidance and evasion has been a stated aim, BEPS has also become a tool for tax authorities to gain local popularity, particularly in emerging markets. Referencing the BEPS initiative has become an easy excuse to reform taxation in line with national interests.
The stated intention of the final BEPS reports is indeed to represent the consensus recommendations of this diverse body of nations. Whether the objectives will be achieved remains to be seen, but it is clear that a new dawn in global taxation has arrived.
Assuming that the proposed regulations take effect, they may make it undesirable to transfer operations to a foreign corporation. Alternatively, if the taxpayer decides to proceed with an outbound transfer, it will need to decide whether to elect immediate gain recognition or deferred/periodic gain recognition for goodwill and going concern value.