Summary: 1. Base Erosion Profit Sharing (BEPS) • Introduction - 19 July: OECD released its long-awaited "action plan" on the BEPS initiative - 48 pages - Unprecedented, comprehensive review of the world's international tax rules, with the objective of removing "double non-taxation" - Consensus: the action plan has been signed off by all 34 OECD members and by the 8 G20 countries which are not OECD members - Timetable: the whole project will be completed by September 2015 • 3 pillars - OECD has identified 3 pillars to its approach i. Gaps or mismatches ii. Frictions iii. Transparency • 15 actions or work areas - Pillar #1: Gaps or mismatches + Hybrid mismatches - both hybrid instruments and hybrid entities (such as caused by the U.S. "check the box" rules) + CFC rules + Interest deductibility, especially thin capitalization + Harmful tax practices, such as private rulings and patent box regimes - Pillar #2: Frictions + Prevention of treaty abuse + Artificial avoidance of the PE definition + Transfer pricing: intangibles + Transfer pricing: allocation of risk and capital + Transfer pricing: high risk transactions - Pillar #3: Transparency + Data collection + Disclosure of aggressive planning + Transfer pricing documentation (i.e., "country by country" reporting) + Dispute resolution and arbitration - Two additional action or work areas + "Digital economy": PE and indirect tax issues + "Multilateral instruments": a multilateral, overarching treaty to implement all the changes • Pascal Saint-Aman's comments - Consensus: OECD is happy and surprised - Timetable: it is aggressive, due to the concern about unilateral action by individual countries - Arm's length principle (ALP) vs. formulary apportionment i. OECD's "unbiased" review: ALP should be retained ii. However, "we might go beyond ALP in some selected areas" + "High risk transactions" + China and India - "The golden age of not paying tax anywhere is over" - Business involvement: business will be consulted, but will not be included in the working groups
