26 Sep 1414
Preamble - 26 September 2014
Last week the OECD released three reports and four sets of draft rules in the first tranche of ‘deliverables’ expected from its two year Action Plan on Base Erosion and Profit Shifting (BEPS). The G20 Finance Ministers endorsed this work at their meeting in Cairns on the weekend.
At more than 700 pages, with a 30 page executive summary, I would not suggest you take the reports to your next book club meeting. They are part mystery and part thriller, but certainly not fantasy.
The OECD’s work on BEPS cannot be ignored. It expresses the consensus of 44 countries that the practices of hybrid mismatch arrangements, treaty abuse and transfer pricing of intangibles and documentation need to be addressed on a global scale. Work on these specific practices has already been progressed to the ‘draft rules’ stage.
In public discourse, BEPS is often associated with the high profile multinationals of the world. But that is not the complete picture. The OECD’s work, once implemented in Australia’s domestic law and/or treaty networks, has the potential to impact on corporations with offshore operations on a smaller scale. Tax practitioners advising inbound and outbound clients of any size should keep abreast of these developments.
Some tax practitioners are sceptical about whether the BEPS measures will progress to implementation, particularly once Australia concludes its Presidency of the G20 this year. This scepticism may stem from the fact that speedy international tax reform has (to date) been a misnomer.
A unique set of circumstances suggests that the unprecedented pace of international tax reform will continue. The OECD BEPS project is set to be finalised at the end of 2015. This coincides with the scheduled release of the Australian government’s Tax White Paper. The Treasurer has asked the ATO to do more in the area of BEPS and the administrator’s compliance projects in this area are already underway.
The BEPS project has the potential to become a real page-turner.
Robert Jeremenko CTA