OECD and BEPS - the most significant change in modern times

By Richard Collier

The OECD has set out recommendations from the first part of its tax reform programme to tackle Base Erosion and Profit Shifting (BEPS).

The BEPS project marks the most significant change to international tax in modern times. The announcements will have a big impact on global firms, whether through greater compliance demands or impacting how they are structured.

Despite many expecting the OECD's proposals to be watered down to achieve consensus, the first part of the OECD's ambitious package has been delivered on time and intact. The scale and scope of change surpasses what many people had anticipated at the outset.

The impact on businesses will depend partly on how the rules are implemented by tax authorities across the world. If tax authorities take an iron fist, standard trading structures could be affected, regardless of whether there is any tax avoidance motive. More disputes between businesses and tax authorities are inevitable as the rules get amended, particularly where tax authorities previously blessed the arrangements in question. The OECD's work to improve dispute resolution will be a crucial next phase of the BEPS project to ensure a smooth transition.

The recommendations on country by country reporting won't come as surprise to global firms. The big worry for businesses is that different tax authorities will require different information, which could add to the administrative and cost burden for businesses. Efforts to coordinate how tax authorities respond will be challenging but crucial.

While the importance of this milestone should not be underestimated, the next part of the BEPS project is likely to be more controversial, with different tax authorities likely to have different views on what's acceptable and what's not. However, the package of papers released today sends a strong statement of intent on pushing through the agenda in a decisive and determined way.

The BEPS agenda is an important part of rebuilding trust in the tax system. Equally important is continued commitment from governments, tax authorities and businesses, whose combined efforts can help rebuild trust in a way that supports global trade and economic growth.