Myths and Facts about BEPS

FACT: The OECD/G20 Base Erosion and Profit Shifting Project involves input from more than 80 countries, including the 34 members of the OECD, all G20 members, and more than 40 developing countries. They are working on solutions to a challenge facing all countries – closing the gaps in the international tax rules that allow multinational corporations to legally but artificially shift profits to low or no-tax jurisdictions. The BEPS project will lead to changes in the OECD Model Convention and the Transfer Pricing Guidelines, as well as recommendations for improvements to domestic legislation. These are soft law instruments, developed and agreed by the governments of participating countries, that will address double non-taxation and improve the mechanisms to address cases of double taxation. Once agreed, they can be implemented by all countries – OECD members, G20 members and developing countries – according to their legal and constitutional systems.

FACT: More than 100 empirical studies have been published and not a single one suggests that BEPS is not an issue. Using available data, the OECD conservatively calculates that governments are losing up to ¼ of a trillion dollars of tax revenues annually due to these practices. Data reporting requirements approved in the BEPS Project will shed further light on the extent of the problem.

FACT: The countries engaged in the BEPS Project set an ambitious two-year timeline for completion of the Action Plan, as requested by the G20, in order to swiftly address the risks posed to government finances and the integrity of tax systems while reducing the risks of unco-ordinated unilateral actions by individual countries.

FACT: While tax policy is always the sovereign right of individual countries, governments have realised the need to address BEPS issues collectively and in a coordinated manner. Proposed changes to the Transfer Pricing Guidelines will be immediately applicable. Changes to the Model Tax Convention will be implemented via a multilateral instrument, to be negotiated in the coming year. Preferential tax regimes and decisions on whether they are harmful tax practices have been reached in a clear and agreed peer review process. Recommendations on best practices for domestic law measures are expected to be implemented in national legislation, according to the applicable constitutional requirements. The intense interest from stakeholders demonstrates the potential reach of the BEPS Project, not only on tax practices, but business practices as a whole.

FACT: The BEPS Project is standardising a number of reporting requirements so as to reduce compliance costs for businesses that operate across borders. For instance widespread adoption of internationally agreed standards for transfer pricing documentation and country-by-country reporting will provide a simplified and consistent approach, avoiding the duplication that would otherwise result from each country creating its own reporting standards. Moreover, if all countries concerned with BEPS would have addressed this concern unilaterally, the result would have been chaos and the compliance costs that would have resulted for business would have been gigantic.

FACT: The BEPS Project is standardising a number of reporting requirements so as to reduce compliance costs for businesses that operate across borders. For instance widespread adoption of internationally agreed standards for transfer pricing documentation and country-by-country reporting will provide a simplified and consistent approach, avoiding the duplication that would otherwise result from each country creating its own reporting standards. Moreover, if all countries concerned with BEPS would have addressed this concern unilaterally, the result would have been chaos and the compliance costs that would have resulted for business would have been gigantic.

FACT: The BEPS Project is delivering outputs as mandated in the 15-point Action Plan endorsed by the OECD Council and G20 Finance Ministers and Heads of State. The OECD has worked extremely closely with government officials and tax authorities on solutions that adhere to both the mandate and objectives of the project.

FACT: The BEPS Project aims to close loopholes that allow some companies to artificially shift income to locations where little or no economic activity takes place. Addressing BEPS collectively strengthens the current consensus-based framework for the taxation of cross-border activities. A system meant to eliminate double taxation cannot itself generate double non-taxation without running the risk of unravelling and being replaced by a patchwork of uncoordinated unilateral measures.

FACT: Developing Country participation in the BEPS Project has been extensive. More than a dozen developing countries, representing a cross-section of regions and income levels, participate directly in the CFA meetings on BEPS, offering specific insight into the needs of developing countries. The United Nations, the International Monetary Fund and the World Bank Group, as well as the African Tax Administration Forum (ATAF) and the Inter-American Centre of Tax Administrations (CIAT) also participate. A series of regional meetings have been organised in Africa, Asia, Latin America and the Caucasus, to gather input from more than 40 developing countries that could not participate directly, in addition to Global Forum meetings organised in March and September of each year. Developing countries were asked to actively provide their perspective on the challenges they are facing, which resulted in the two-part report for the G20 Development Working Group. All the challenges identified by developing countries themselves are either being addressed through the BEPS Project directly, or through the parallel development of toolkits on items outside of the BEPS Project.

FACT: Protecting the confidentiality of taxpayer information – and in particular commercially sensitive information – is of paramount importance to the countries involved in the BEPS Project and a key consideration for the potential filing and dissemination mechanisms under discussion. All countries participating in the BEPS Project agree that the transfer pricing documentation, and specifically the Country-by-Country Reporting, must be kept confidential.

FACT: The final BEPS Reports are consensus documents, reflecting the agreement of all OECD and G20 governments. As soft law instruments, the expectation is that the conclusions of the reports will be implemented in consistent manners, as has been the case with similar multilateral initiatives co-ordinated by the OECD, such as on exchange of information for tax purposes. A monitoring mechanism will be put in place to assess implementation as well as the impact of OECD recommendations over time with all interested countries participating on an equal footing.