BEPS: The final countdown

By Mike Cooper

The culmination of the OECD’s BEPS action plan is nearly upon us. On 8 October, the G20 Finance Ministers will meet in Lima, Peru and be presented with the BEPS 2015 deliverables. The OECD has also confirmed that the complete "final BEPS package” will be published on 5 October 2015. We'll be providing a range of insights into different aspects of the BEPS developments in a forthcoming series of blog posts, offering our view of where the technical developments are leading and discussing the implications for business.

In this, the first in the series, we reflect on some of the challenges and achievements of the BEPS project over the last two years. For, while it is understandable that the OECD was operating within budgetary and timing constraints, there will likely be questions from some stakeholders as to whether all of the proposals have been adequately thought through, and whether the representations of industry, academics and tax practitioners will have been given the appropriate amount of consideration. 

Some areas have not been resolved at this stage. We already know that the multilateral instrument, intended to implement many of the OECD’s proposals to tax treaties, will not be ready before the end of 2016. Further, while it is clear that the threshold for having a taxable permanent establishment is dropping, a review of how profits of a company are attributed between territories remains some way off.

There have also been some obvious differences in approach, such as the US preference for legally objective tests, while many other territories advocate moving towards more subjective testing. We see this in many areas, including treaty abuse, permanent establishment thresholds and the approach to the transfer pricing of intangibles where the US continues to place more reliance on legal form than many others jurisdictions.

International relations always require diplomacy, and often compromise, but, when the stated objectives of BEPS included clarity and consistency, the inclusion of too much optionality or ambiguity can compromise that end goal and not just of the different parties’ own interests.

However, despite these challenges, there can be little doubt that the BEPS project will deliver a number of clear success stories from the OECD’s perspective, and that it will be seen as contributing to a significant shift in the perspectives and behaviour of large multinationals. For instance, we have moved from a position two years ago where country by country reporting was viewed by many as a pipe dream, to a position where it is now widely accepted as an inevitability.  The paper on hybrid mismatches has received broad approval and, even if not implemented by all, is designed to have far-reaching effects. Meanwhile the work on the transfer pricing of intangibles, combined with the lowering of the threshold for having a taxable presence in another territory, is causing many groups to review their operating model.

With such an ambitious scope to the BEPS project, success on all fronts was always unlikely, but those who, on publications of the action plan, questioned whether this process could ever lead to any meaningful change have clearly been proved wrong. 

So as the direction of change becomes clearer, the question for multinational groups is how best to adapt so as to be able deliver a sustainable tax strategy that sits comfortably alongside the operation of their business.

Stay up to day with all the BEPS changes through our website.

Mike Cooper

[email protected] /0207 213 5212