On 5 October 2015, the OECD has announced it will release the final package of measures for a co-ordinated international approach to the reform of the global tax system under the G20/OECD Base Erosion and Profit Shifting (BEPS) Project.
Following its public release, the package will be presented to the G20 Finance Ministers meeting on 8 October 2015 in Lima, after which it will be presented finally to the G20 Leaders meeting in mid-November 2015, in Antalya.
And then the fun will really commence.
The combined G20/OECD BEPS Project was based on the call from the G20 Leaders of June 2012, at Los Cabos, Mexico to address the erosion of national tax bases and the shifting of profits so that taxation no longer aligned with economic value creation. The BEPS Project was born, with the not inconsiderable objective of reshaping the existing international tax framework to be ‘fit for purpose’ for a global economy which has moved from the industrial to the digital.
October 2015 brings to a close the intensive two year research, consultation and recommendation phase: in the forthcoming package, we expect to see in final form the reports on the 15 actions which have informed the BEPS Project.
This mammoth international exercise has been delivered on schedule, but this is really the prologue to the main event.
2016: the proof of the cooking is in the eating.
To date, the BEPS project has been characterised by a lot (a lot!) of talking; and this is critically important for such a fundamental and globally relevant subject. But with the delivery of the final package of measures, the talking stops (at least in one sense) and the focus moves to implementation (and here, talking will continue, but on a totally different plane).
The recommendations of the BEPS Reports will require implementation:
- through the upgrading of existing bilateral double tax agreements
- through the introduction into domestic tax law of complementary legislative measures
Whilst the domestic tax measures will be matters for individual sovereign states, it is expected the greatest benefits will be obtained through ‘upgrading’ the 3,000 + existing double tax agreements to a ‘BEPS compliant’ status.
This can be achieved through countries signing the multilateral Instrument which will upgrade the agreements, but real politic dictates this will still be a ‘horse trade’ between nations, probably on a bilateral basis, but without the formality and time required for a full treaty renegotiation.
2016 will disclose how committed nations are to true global tax reform – putting the national treasuries where their sovereign mouths have been for the past 2 years.
With the release of the final package of measures, corporate groups operating across international boundaries will be better able to assess the need for change to their existing business models. For those corporates which have not yet engaged with the BEPS project, the release of the final package of measures provides the necessary impetus, and sufficient certainty about the detail of the new global tax rules.