Contact: Fuad Saba, FGMK, LLC (Chicago, Illinois, USA)
BEPS Final Reports issued on October 5, 2015
On October 5, the OECD presented a wide-ranging set of final reports under fifteen “Action Items” that are intended to be a foundation for the reform of worldwide international tax rules. These reports, under the common heading of the BEPS project, had their origin in a request of the OECD in 2013 by the leaders of the G20 countries to focus on tax reform recommendations to prevent tax avoidance practices. The final BEPS reports provide governments with recommendations for addressing “gaps” in existing international rules that have resulted in the shifting of large amounts of income to low-tax jurisdictions. Although the OECD is not a legislative body, its guidelines on international taxation and transfer pricing have been followed or adopted in many countries, so that the BEPS reports likely will, over time, translate into changes in tax legislation in individual countries around the globe, including the US.
Background on BEPS
The OECD has estimated that the various “tax avoidance” practices that the BEPS reports are intended to address have resulted in tax revenue losses of USD 100-240 billion annually, or anywhere from 4 to 10% of global corporate income tax (CIT) revenues. The impact is particularly large on developing countries that derive a relatively larger portion of revenues from CIT.
The OECD’s task to address BEPS was built around three pillars: introducing coherence in the domestic rules that affect cross-border activities; reinforcing substance requirements in the existing international standards, to ensure alignment of taxation with the location of economic activity and value creation; and improving transparency as well as certainty for businesses and governments.
