Base erosion and profit shifting, or BEPS, is the term given to the observed failure of the current international tax framework.
BEPS strategies can lead to the 'disappearance' of international profits, and/or the diversion of profits away from the country of value creation to other countries with typically low tax/no tax.
The BEPS 2.0 measures are designed to deal more effectively with contemporary multinational business structures. They aim to address situations where a business can play a substantial role in a national economy without having a physical presence there.
How RSM can help you
We'll help you navigate the complex rules, including the impact on your group structure, financing, and value chain.
We'll assist you to evaluate your data challenges, identifying gaps in your data and structuring a plan for future compliance.
We'll help you with planning BEPS responses and provide resource support, including governance assessments and facilitating communication with stakeholders.
Current status of BEPS action plan
On 5 October 2015, Final Reports were released covering 15 BEPS Actions. Those reports were formally ‘endorsed’ by the G20 at the Leader's meeting on 15 November 2015, in Antalya, Turkey.
ACTION 1: TAX CHALLENGES OF DIGITAL ECONOMY
10 February 2016: Government introduced Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. Will enact tax integrity measures extending GST to digital products and other services imported by consumers (the so-called ‘Netflix tax’).
ACTION 2: NEUTRALISE HYBRID MISMATCH ACROSS BORDERS ALLOWING DOUBLE NON‑TAXATION
Base erosion and profit shifting, or BEPS, is the term given to the observed failure of the current international tax framework
Board of Tax consultation commenced in August and will report in March 2016
ACTION 3: CONTROLLED FOREIGN COMPANY RULES
Australia’s CFC rules meet OECD best practice guidance.
ACTION 4: LIMIT INTEREST DEDUCTIONS
Australia has already tightened its Thin Capitalisation rules.
ACTION 5: COUNTER HARMFUL TAX PRACTICES
ATO already implemented an exchange of rulings.
ACTION 6: PREVENTION OF TREATY-SHOPPING
To be adopted into the negotiation of new/updated treaties.
ACTION 7: PREVENT ARTIFICIAL AVOIDANCE OF PERMANENT ESTABLISHMENT
Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill Act became law on 11 December 2015. The multinational anti-avoidance law (section 177DA) effectively targets global MNC abuse of the permanent establishment threshold.
Other OECD recommendations are in line with Australia’s treaty practice.
ACTION 8, 9, AND 10: TRANSFER PRICING AND VALUE CREATION
No fundamental change to Australia’s transfer pricing rules, but enhanced guidance to help ATO’s administration.
ACTION 11: METHODOLOGIES TO COLLECT AND ANALYSE BEPS DATA
Estimate of BEPS problem 4‑10 percent of global corporate income tax revenue. Further work on methodologies to measure progress is required.
ACTION 12: MANDATORY DISCLOSURE OF AGGRESSIVE TAX PLANNING
OECD recommends countries consider adopting disclosure rules. ATO considers costs and benefits for Australia.
ACTION 13: TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING
Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 became law on 11 Dec ember 2015 (as noted above). The Act requires certain global MNCs to prepare and lodge a Country by Country Report, and a master file and local file in an electronically ‘exchangeable’ format.
ACTION 14: DISPUTE RESOLUTION
A number of countries (including Australia) are committed to binding arbitration.
ACTION 15: MULTILATERAL INSTRUMENT
87 countries (including Australia) working on instruments to quickly update bilateral treaties with BEPS outcomes, to be open for signing by the end of 2016.
Liam Delahunty leads the International Tax and Transfer Pricing practice at RSM Australia. With over 20 years of experience, Liam has overall responsibility for providing transfer pricing and international tax compliance and advisory services to RSM Australia’s clients.