RSM Australia

Base erosion and profit shifting (BEPS)

Base erosion and profit shifting, or BEPS, is the term given to the observed failure of the current international tax framework, by which 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.

On 5 October 2015, Final Reports were released covering 15 BEPS Actions.  Those reports were formally ‘endorsed’ by the G20 at the Leaders meeting on 15 November 2015, at Antalya, Turkey.

Current status of BEPS action plan

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‑taxationBase 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 exchange of rulings

Action 6: Prevention of treaty-shopping

To be adopted into 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 per cent of global corporate income tax revenue. Further work on methodologies to measure progress required

Action 12: Mandatory disclosure of aggressive tax planning

OECD recommends countries consider adopting disclosure rules. ATO considering 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 MNC’s 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 instrument to quickly update bilateral treaties with BEPS outcomes. To be open for signing by the end 2016


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