Base erosion and profit shifting

Base erosion and profit shifting (BEPS) is a tax avoidance strategy used by multinational companies, wherein profits are shifted from jurisdictions that have high taxes (such as the United States and many Western European countries) to jurisdictions that have low (or no) taxes (so-called tax havens). BEPS can be achieved through the use of "transfer mispricing" (contracting between subsidiaries in different jurisdictions at prices that are not arm's length). The term is used in a project headed by the OECD[1] which produced detailed reports in September 2014 in response to seven actions agreed previously.[2]

Controversy

Causes for controversy around this issue can be found in "gaps and inadequacies of domestic laws, insufficient controlled foreign company rules, transfer mispricing, tax treaty abuses or problems arising from hybrid mismatch arrangements".[3] The effect on countries hosting investment from multinational companies is laid out in, for example, comments made by Oxfam South Africa to the UN: "The negative impact of base erosion and profit shifting (BEPS) on South Africa is evident in the escalating rates of poverty, inequality and unemployment. This continues despite some impressive developmental strides taken by the government. The reason for this is that only 1.6 out of 2 million registered companies in South Africa are active and pay their tax revenue".[4]

In India the ways that Intellectual Property rights (IPRs) and accountability and compliance costs are handled in BEPs have been assessed by a columnist in a leading daily Business Standard.[5]

The November 2014 G-20 summit in Brisbane, Australia, demonstrated that the chances are slim for schemes to make any additional multinational companies' tax information public.[6] Thus any proposals more ambitious than the OECD's BEPS appear impractical for now, like the Global Legal Entity Identifier (LEI) for financial markets that was established after recommendations by the international Financial Stability Board and on which the G-20 has been working since 2012,[7] or Gabriel Zucman's idea for a world financial registry.[8] Zucman gave the keynote address at the two-day event on Human Rights and Tax in an Unequal World at NYU's CHRGJ from Sept. 22-23, 2016. [9]

At the November 2015 G-20 Antalya summit, the action plan released by the OECD in early October was adopted.[10]

Nonetheless speaking after world leaders had left the G20 summit in Turkey, a spokesperson for the anti poverty charity ActionAid said the G20 countries had failed to take the “bold action needed to end tax avoidance in developing countries”.[11] In 2015 ActionAid became one of the partners in the new Independent Commission for the Reform of International Corporate Taxation. [12]

BEPS is said to have failed by Alex Cobham, research director, Tax Justice Network, in a blog posting with audio interview. [13]

Further work

In the run-up to the 2016 G-20 Hangzhou summit it was expected that the chair country would advance the G20 Anti-Corruption Working Group on the Base Erosion and Profit Shifting (BEPS) agenda.[14]

Action 15 of the BEPS Action Plan is about "Developing a Multilateral Instrument to Modify Bilateral Tax Treaties". A public consultation meeting on the multilateral instrument will be held in Paris at the OECD Conference Centre on 7 July 2016. [15]


See also

External links

  1. ↑ "Base Erosion and Profit Shifting". oecd.org.
  2. ↑ "BEPS 2014 Deliverables". oecd.org.
  3. ↑ http://www.un.org/esa/ffd/tax/Beps/index.htm
  4. ↑ http://www.un.org/esa/ffd/tax/Beps/CommentsEJNandOxfamSA_BEPS.pdf
  5. ↑ Shome, Parthasarathi (17 November 2015). "MNEs' tax avoidance & overdealt response: Has the OECD's BEPS proposals asked too much from MNEs to counter global tax avoidance?".
  6. ↑ Khadem, Nassim, "Multinational tax details to be kept secret", Sydney Morning Herald, November 14, 2014
  7. ↑ "documents by the Regulatory Oversight Committee (ROC) for the LEI", Legal Entity Identifier Regulatory Oversight Committee (LEI ROC)
  8. ↑ Zucman, Gabriel (2014): "Taxing across Borders: Tracking Personal Wealth and Corporate Profits", Journal of Economic Perspectives, Vol. 28, No. 4. (2014), pp. 121-48, doi:10.1257/jep.28.4.121,
  9. ↑ "Human Rights and Tax in an Unequal World". 23 September 2016.
  10. ↑ "G20 leaders endorse OECD measures to crackdown on tax evasion; reaffirm its role in ensuring strong, sustainable and inclusive growth" (Press release). 16 November 2015. Archived from the original on 19 November 2015. Retrieved 17 November 2015.
  11. ↑ Inman, Phillip (16 November 2015). "MEPs accuse US multinationals of diverting profits to low tax havens".
  12. ↑ As documented on its Website "About the Independent Commission for the Reform of International Corporate Taxation". 23 September 2016.
  13. ↑ Cobham, Alex (24 August 2016). "The US Treasury just declared tax war on Europe".
  14. ↑ Global Summitry Project at the Munk School of Global Affairs, University of Toronto, Heinrich Böll Stiftung North America (10 November 2015). "China's 2016 G20 Summit in Hangzhou, Note on areas of leadership might China consider for its year in the G20 Presidency".
  15. ↑ OECD (31 May 2016). "OECD releases discussion draft on the multilateral instrument to implement the tax-treaty related BEPS measures".
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