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Transfer Pricing News - OECD: Base Erosion and Profit Shifting

On 26 May 2014, the OECD held a webcast giving an update on the progress of the BEPS project. During this webcast the spokesmen of the OECD, Pascal Saint- Amans, declared the two-year BEPS project to be ‘on schedule’. The four discussion drafts that have been published so far contain 3,587 pages of commentary from 462 commentators spanning e.g. multinational enterprises, academia and NGO/civil society. This indicates a very high degree of international engagement with the OECD BEPS project.

A panel of three high ranking OECD members explained the status of the several individual actions:

  • Action 1 - Digital economy: A report is near finalisation. It will define the digital economy and separately address BEPS (avoidance) issues and broader tax system challenges.
  • Action 2 - Hybrids: Recommendations are near finalisation which will amend the Model Tax Convention (MTC) and also recommend domestic tax law changes.
  • Action 5 - Countering harmful tax practices: This will focus on achieving a better alignment between underlying economic activities,and thae profits that result and avoid distortions which allow the two to be artificially segregated.
  • Action 6 - Preventing treaty abuse: Changes to both the MTC and domestic tax law. Introduction of a Limitation on Benefits rule and a ‘main purpose’ rule.
  • Action 8 - Intangibles: New Chapters I and VI proposed for the Transfer Pricing Guidelines. Will address ‘hard to value’ intangibles head on.
  • Action 13 - TP documentation: Adopt a three-tiered approach: Country by Country reporting template as a risk assessment tool; the master file, and local files.
  • Action 15 - Multilateral instrument: This will allow the automatic upgrade of all existing bilateral agreements. It is legally feasible.

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