On February 6, 2015, the Organisation for Economic Co-operation and Development (OECD) announced that it has reached agreement with the Group of Twenty (G-20) Finance Ministers on three key elements of its base erosion and profit shifting project.
The three elements, which the OECD said will enable implementation of the BEPS project and will be presented at the G-20 Finance Ministers’ meeting on February 9-10, 2015, in Istanbul, Turkey, include:
- A mandate to launch negotiations on a multilateral instrument to streamline implementation of tax treaty-related BEPS measures;
- An implementation package for country-by-country (CbC) reporting in 2016 and a related government-to-government exchange mechanism to start in 2017; and
- Criteria to assess whether preferential treatment regimes for intellectual property (patent boxes) are harmful or not.
Announcing the development, OECD Secretary-General Angel Gurría said: “These are important steps forward, which demonstrate that progress is being made toward a fairer international tax system. These decisions signal the unwavering commitment of the international community to put an end to [BEPS], in line with the ambitious timeline endorsed by G-20 leaders.”
The planned multilateral instrument will offer countries a single tool for updating their networks of tax treaties in a rapid and consistent manner. The agreed mandate authorizes the formation of an ad hoc negotiating group, open to participation from all states. The group will be hosted by the OECD, and will hold its first meeting by July 2015, with an aim of concluding the drafting process by December 31, 2016.
Countries agreed new guidance on CbC reporting by multinationals with a turnover above EUR750m (USD584m) in their countries of residence starting in 2016, with tax administrations to start exchanging the first CbC reports in 2017. The guidance confirms that the primary method for sharing such reports between tax administrations is through automatic information exchange, pursuant to government-to-government mechanisms such as bilateral tax treaties, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, or Tax Information Exchange Agreements. In certain exceptional cases, secondary methods, including local filing, can be used. Countries have also emphasized the need to protect tax information confidentiality.
Countries endorsed a solution to determine which intellectual property regimes (patent boxes) and other preferential regimes can be considered harmful tax practices. The solution, first proposed by the UK and Germany, is based around a “modified nexus approach,” which seeks to ensure that tax breaks are limited to those activities with substance in the territory providing the concessionary treatment. Transitional provisions for existing regimes, including a limit on accepting new entrants after June 2016, have been agreed, and work on implementation is ongoing, the OECD said.
Officials from more than a dozen developing countries participated in the discussion on the new BEPS implementation guidance, in line with the broader strategy for deepening engagement of developing countries in the BEPS project, which was launched on November 12, 2014, and welcomed by the G-20 Leaders in Brisbane, Australia.
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