OECD publishes Base Erosion Profit Shifting Update for 2014

The OECD has just released an update on the 2014 deliverables of the Action Plan on Base Erosion Profit Shifting (BEPS).

The key dates for 2014 are the publication of discussion drafts in February/March 2014 and public consultations in April/May 2014 with reports on the Digital Economy, Multilateral Instruments, Transfer Pricing and harmful Tax Practices to be finalised by September 2014.  The BEPS Action Plan is being designed in order to ensure that global tax rules are equitable and that tax systems do not unduly favour multinational enterprises, leaving citizens and small business with bigger tax bills.

The  action plan was published in July 2013 and sets out fifteen actions organised around three main pillars . Firstly the coherence of corporate taxes at international level, secondly a realignment of taxation and substance and finally transparency, coupled with certainty and predictability.

When launching the Action Plan on Base Erosion Profit Shifting the OECD highlighted some key points underpinning the need to address the issue of tax loopholes:

Taxation lies at the heart of the social contract and constitutes a powerful instrument to reduce inequalities. 

The measures you take to fight tax evasion and tax erosion, will provide the necessary resources to finance growth enhancing public investment, restore the health of public finances and promote job creation. 

Ensuring that wealthy individuals pay their fair share of tax, and preventing double non-taxation of multinational enterprises will help to restore public trust in governments.

In examining international tax loopholes the OECD requested input on the tax challenges of the digital economy.  Seventeen submissions were received by the OECD on this issue and are compiled here.  It is important that the updated strategy does not move away from the key points articulated by the OECD and outlined above.

The explosion of the digital economy is a creative and positive thing but similarly it poses serious challenges in terms of a just taxation system. There is a need to combat international loopholes as the current rules do not properly reflect today’s economic integration across borders, the value of intellectual property or new communications technologies. These tax loopholes, which enable multinationals to eliminate or reduce their taxation on income, give them an unfair competitive advantage over smaller businesses. They hurt investment, growth and employment and can leave average citizens footing a larger chunk of the tax bill.

The issue of tax evasion is not only a financial issue but also an ethical one.   In February 12, 2013, the OECD found that some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%. At the time the Secretary-General of the OECD, Angel Gurría noted that "these strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system”.

C can be downloaded below.

The OECD update can be downloaded below

C can be downloaded below.