Strategizing Multinational Tax Risks

The OECD has published a report (Part 1) addressing base erosion and profit shifting (BEPS) in developing countries and how these relate to the OECD/G20 BEPS Action Plan. A ranking of low, medium or high is assigned to each of the 15 Actions in Annex A re: the impact on developing countries.  Section 5 of the report highlights the primary issues to be addressed, including base-eroding payments, treaty issues, new business models and transfer pricing documentation.

Part 2 of the report, to be presented in September 2014, will (1) confirm which of the Actions are of most relevance to developing countries, (2) discuss other BEPS-related issues not in the Action Plan, and (3) address actions needed to ensure that developing countries can fully benefit from the Action Plan items and how specific BEPS actions may need to be adapted/simplified or supplemented to ensure they are effective for developing countries.

An interesting comment in the Executive Summary states: “The international nature of tax planning means that unilateral and uncoordinated actions by countries will not suffice and may actually make things worse.”  Note that recent unilateral actions by developed countries to advance BEPS initiatives would further corroborate this statement.

Additionally, it is stated that approx. 3,000 bilateral tax treaties operate worldwide, with about 1,000 of these involving developing countries.  This is a significant fact, as the OECD seeks to ultimately develop tools for countries to enact such legislation, notwithstanding the fact that it may take years to achieve global implementation.

A link to the report is provided for reference:

http://www.oecd.org/tax/part-1-of-report-to-g20-dwg-on-the-impact-of-beps-in-low-income-countries.pdf

The report is invaluable as it provides significant trends and challenges faced by developing countries, coupled with potential solutions under consideration to address such challenges.