Tax avoidance is increasingly widespread by
multinational companies. Tax avoidance is a taxpayer's undertaking to minimize
taxes by finding regulatory loopholes with aggressive tax planning. Inter-state
tax competition is also a catalyst in tax avoidance. Multinational companies
will make tax avoidance efforts from the country with high tax rates to low tax
rates even tax rates 0 percent (not taxable). Tax avoidance is able to reduce
the effective tax rate as low as possible. The tax base will be eroded if tax
avoidance is not prevented and resisted.
Countries incorporated in the G20 declare
joint action with the Organization for Economic Cooperation and Development
(OECD). They formulate the idea of an action plan to prevent tax avoidance
through an aggressive tax planning scheme amidst conditions of inter-state tax
competition. Based on OECD publication, Base erosion and profit shifting (BEPS)
refers to tax avoidance strategies that exploit gaps and mismatches in tax
rules to artificially shift profits to low or no-tax locations. Under the
inclusive framework, over 100 countries and jurisdictions are collaborating to
implement the BEPS measures and tackle BEPS.
Addressing The Tax Challenges Of The Digital
Economy
Action 1 addresses the tax challenges of the digital
economy and identifies the main difficulties that the digital economy poses for
the application of existing international tax rules. The Report outlines
options to address these difficulties, taking a holistic approach and
considering both direct and indirect taxation.
Neutralising The Effects Of Hybrid Mismatch
Arrangements
Action 2 develops model treaty provisions and
recommendations regarding the design of domestic rules to neutralise the
effects of hybrid instruments and entities (e.g. double non-taxation, double
deduction, long-term deferral).
Designing Effective Controlled Foreign
Company (Cfc) Rules
Action 3 sets out recommendations to strengthen the
rules for the taxation of controlled foreign corporations (CFC).
Limiting Base Erosion Involving Interest
Deductions And Other Financial Payments
Action 4 outlines a common approach based on best
practices for preventing base erosion through the use of interest expense, for
example through the use of related-party and third-party debt to achieve
excessive interest deductions or to finance the production of exempt or deferred
income.
Countering Harmful Tax Practices More
Effectively, Taking Into Account Transparency And Substance
Action 5 revamps the work on harmful tax practices
with a focus on improving transparency, including compulsory spontaneous
exchange on rulings related to preferential regimes, and on requiring
substantial activity for preferential regimes, such as IP regimes.
Preventing The Granting Of Treaty Benefits
Inappropriate Circumstances
Action 6 develops model treaty provisions and
recommendations regarding the design of domestic rules to prevent treaty abuse.
Preventing The Artificial Avoidance Of
Permanent Establishment Status
Action 7 contains changes to the definition of
permanent establishment to prevent its artificial circonvention, e.g. via the
use of commissionaire structures and the likes.
Aligning Transfer Pricing Outcomes With Value
Creation
Actions 8 – 10 contain transfer pricing guidance to
assure that transfer pricing outcomes are in line with value creation in
relation to intangibles, including hard-to-value ones, to risks and capital,
and to other high-risk transactions.
Measuring And Monitoring Beps
Action 11 establishes methodologies to collect and
analyse data on BEPS and the actions to address it, develops recommendations
regarding indicators of the scale and economic impact of BEPS and ensure that
tools are available to monitor and evaluates the effectiveness and economic
impact of the actions taken to address BEPS on an ongoing basis.
Mandatory Disclosure Rules
Action 12 contains recommendations regarding the design
of mandatory disclosure rules for aggressive tax planning schemes, taking into
consideration the administrative costs for tax administrations and business and
drawing on experiences of the increasing number of countries that have such
rules.
Transfer Pricing Documentation And
Country-By-Country Reporting
Action 13 contains revised guidance on transfer pricing
documentation, including the template for country-by-country reporting, to
enhance transparency while taking into consideration compliance costs.
Making Dispute Resolution Mechanisms More
Effective
Action 14 develops solutions to address obstacles that
prevent countries from solving treaty-related disputes under MAP, via a minimum
standard in this area as well as a number of best practices. It also includes
arbitration as an option for willing countries.
Multilateral Convention To Implement Tax
Treaty Related Measures To Prevent Beps
Action 15 provides an analysis of the legal issues
related to the development of a multilateral instrument to enable countries to
streamline the implementation of the BEPS treaty measures. On 7 June 2017,
over 70 Ministers and other high-level representatives participated in the
signing ceremony of the Multilateral Instrument.
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