BEPS – what we already know

29 September 2015

Rebecca Reading

The OECD BEPS project has been a huge undertaking, with multiple Discussion Drafts, Public Consultations and thousands of pages of stakeholder input. Now the end is in sight, what do we know? Will anything change and has it really been worth the effort? 

We know that there will be changes to what information multinationals have to disclose to tax authorities about their business activities and taxes paid around the world, in the form of a so-called country-by-country report, the format of which has essentially been agreed. A few countries, the UK included, have already taken steps to implement this part of BEPS, with the vast majority of OECD nations expected to follow suit. Although there will be greater information sharing between tax authorities, some may be disappointed to know that the OECD has not gone with the European Commission idea of making this information public.

We also know that there will be a change to special, beneficial tax regimes, such as the UK’s Patent Box, which are considered Harmful Tax Practices. The OECD has made it clear that tax breaks have to be linked to economic activity – so a nexus approach will need to apply – but we don’t yet know the details of what this means. We can be fairly certain, though, that Patent Box will be phased out, probably from June next year.

Another major change will be to the definition of Permanent Establishment. This international tax concept, where a tax authority can tax a portion of the profits of a foreign entity based on certain activities being carried on in its country, has been around for many years but BEPS will see it get a complete revamp. A new standard definition should be able to handle 21st century business models and certainly will address some of the concerns around the structuring done by Starbucks, Amazon et al. 

The final BEPS package will be presented at the G20 Finance Ministers meeting on 8 October. Whereas most OECD governments are likely to be supportive, questions remain about the timetable for implementation and the commitment from the US particularly. Tax authorities outside the OECD can be hard to predict and some have a poor track record in terms of accepting approaches not completely bespoke to their specifications. There could still be some challenges here for multinationals aiming to be BEPS-compliant. 

To discuss any of the issues raised, please contact Rebecca Reading or your usual RSM contact.

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