The Organisation for Economic Co-operation and Development (OECD) has recently issued updated reports regarding several of the ongoing actions arising from the base erosion and profit shifting (BEPS) project, with key aspects summarised below. The updates underline the relentless focus of the OECD and its members on embedding the principles that underpin the BEPS project across the global tax landscape, whilst maintaining the profile of compliance and the long-term behavioural changes that are at the heart of addressing BEPS.
Action 5: Countering harmful tax practices
This action aims to establish minimum standards in relation to two key areas:
1. Reviewing preferential tax regimes to ensure they are not harmful
This work aims to ensure that there are ever fewer opportunities for taxpayers to benefit from such regimes and provides for a more level playing field amongst OECD member jurisdictions. The OECD update focuses on the legislative changes made by jurisdictions in relation to regimes that the OECD had identified as harmful or potentially harmful and shows that significant progress has been made by some jurisdictions previously identified as having no or only nominal tax jurisdiction, primarily by way of the introduction of minimum economic substance requirements. This group of territories includes Jersey, Guernsey, Isle of Man, British Virgin Islands and Bermuda.
2. A transparency framework to provide for the spontaneous exchange of tax rulings given by tax authorities
The OECD update also concludes that ‘transparency on tax rulings is now a fully-entrenched part of the international tax framework’ and confirms that there have been approximately 36,000 exchanges of information to date by 124 jurisdictions.
The update also highlights that ‘81 jurisdictions are now fully in line’ with the Action 5 minimum standard but notes that further progress is needed. The UK was specifically identified as compliant with the Action 5 minimum standard, but there are a number of major EU jurisdictions, including France, Spain and Sweden, which have been assessed as not yet compliant.
Action 8: Transfer pricing and hard to value intangibles
Together with Actions 9 and 10, Action 8 aims to ensure that the application of the international standards for transfer pricing does not result in outcomes where the allocation of profits is inconsistent with the economic activity that created those profits. A key element of Action 8 was the application of this principle to transactions between connected parties involving hard-to-value intangibles (HTVI). The OECD defines HTVI widely as intangibles for which no reliable comparable data exist - the pricing of connected party transactions involving such assets is a particularly complex aspect of transfer pricing.
The OECD update in December 2020 reported that 40 jurisdictions have made available information on how their transfer pricing regimes address HTVI in the context of the OECD Transfer Pricing Guidelines. The publication of this information is intended to provide tax administrations, taxpayers and other stakeholders with a better understanding of the extent to which particular jurisdictions have adopted the approach to HTVI as set out in the OECD Transfer Pricing Guidelines and how those domestic rules are applied in practice.
Action 1: Taxation of the digital economy
In our November 2020 Tax Voice article we discussed the public consultation launched by the OECD in October 2020 regarding its Pillar 1 and 2 blueprints for the design of a solution to the tax challenges of the digitalisation of the economy. The OECD received more than 200 responses before the consultation closed on 14 December, which is arguably a reflection of the sensitivity of this subject. The responses were published on 16 December 2020 and the OECD has since held public meetings on 14 and 15 January 2021 to discuss the questions raised in the consultation document and the responses received.
This evidences the desire of the OECD to maintain the momentum generated by the consultation process and secure a consensus as soon as possible.
For more information please get in touch with Suze McDonald.