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OECD Final Report Erosion: and Profit Shifting by Multinational Companies

By   Shannon Lemmon

January 30, 2017

On October 5, the Organisation for Economic Co-operation and Development (OECD) released the final deliverables on its Action Plan on Base Erosion and Profit Shifting (BEPS).  The OECD BEPS initiative is directly aimed at purported tax avoidance strategies used by multinational companies, wherein profits are shifted from jurisdictions that have high taxes (such as the United States and many Western European countries) to jurisdictions that have low (or no) taxes (so-called tax havens).  The 15 areas addressed by the OECD in its BEPS initiative include: 

Action 1: Addressing the tax challenges of the digital economy
Action 2: Neutralizing the effects of hybrid mismatch arrangements
Action 3: Strengthening CFC rules
Action 4: Limiting base erosion via interest deductions and other financial payments
Action 5: Countering harmful tax practices
Action 6: Preventing the granting of treaty benefits in inappropriate circumstances
Action 7: Preventing the artificial avoidance of PE status
Actions 8-10: Transfer pricing aspects
Action 11: Collecting and analyzing data on BEPS
Action 12: Disclosing aggressive tax planning arrangements
Action 13: Guidance on transfer pricing documentation and country-by-country reporting
Action 14: Making dispute resolution mechanisms more effective
Action 15: Developing a multilateral instrument to modify bilateral tax treaties

OECD Recommendations
The final BEPS reports contain OECD recommendations for participating countries’ implementation that fall into several different categories:

  • Agreed minimum standards, including harmful tax practices (Action 5), treaty abuse (Action 6), country-by-country reporting (Action 13) and dispute resolution (Action 14)
  • Reinforced international standards, including the revised OECD Transfer Pricing Guidelines (Actions 8-10) and the revised OECD Model Tax Convention (including Action 7 on permanent establishment status)
  • Common approaches and best practices for domestic law, including hybrid mismatch arrangements (Action 2), controlled foreign company rules (Action 3), interest limitations (Action 4) and disclosure of aggressive tax planning (Action 12)
  • Analytical reports covering various topics, including tax challenges of the digital economy (Action 1), data and analysis with respect to BEPS (Action 11) and the multilateral instrument for implementing treaty based recommendations (Action 15)


Country by Country Implementation
The OECD presented the final reports at the G20 Finance Ministers’ meeting in Lima, Peru on October 8, 2015 and then went to the G20 leaders for their approval at the summit meeting on November 15-16 in Antalya, Turkey.  G20 Leaders expressed support for the package of measures and affirmed that widespread and consistent implementation of the BEPS recommendations going forward will be critical.  Some of the measures may be immediately applicable such as the revised guidance on transfer pricing. Other measures require changes to bilateral tax treaties, something that can be done via the multilateral instrument under Action 15. Finally, other measures require domestic law implementation, with many countries already taking decisive steps in this regards.

Eide Bailly Can Help Companies Assess and Manage BEPS Impact
Governments around the world have already begun passing legislation to implement the BEPS recommendations into their respective regulatory framework and this process is continuing.  Will the OECD BEPS legislative changes affect your companies operations? Companies need to proactively assess how BEPS implementation will impact them in every jurisdiction and make any required adjustments to their global structure and operations in order to limit any negative impact from the global implementation of the BEPS initiative.