Will BEPS provide the solution to tax avoidance by multi-nationals?

29 September 2015

Rebecca Reading

Clamping down on avoidance by multi-nationals is a either a popular sound-bite or a tax policy, depending on one’s perspective, which is common across the political spectrum. With less than a week to go before the OECD release their final recommendations on reforming the international tax system, will we finally have the solution we’ve been waiting for?

The OECD set themselves a mammoth task back in 2013, when they set the end of 2015 as the deadline for their project on Base Erosion and Profit Shifting (BEPS), but it appears they are on schedule, the final package of measures being announced next Monday (5 October).

The BEPS recommendations aren’t law, so it will be up to individual countries to enact them. What the BEPS measures will certainly purport to be is internationally coherent or in other words even handed and fair, matching tax takes to economic value creation. It is likely that the plans released next Monday will set out a clear way forward for governments to address the gaps in existing rules that allow corporate profits to disappear or shift to tax havens. 

There is a political problem, though, with BEPS, in that it contradicts what certain individual governments want to achieve. This not only applies to territories that have built their economy around tax competition – such as tax havens that will see their tax base shrink - but also places like the UK where the new Diverted Profits Tax is an example not only of 'going it alone' (so much for international cohesion), but also of a measure that can only increase UK tax, rather than being equitable and balanced.

The OECD will have delivered to their deadline. This isn’t so much the end, but it may be the end of the beginning.

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