This month the OECD released an action plan to reduce abusive base erosion and profit sharing (BEPS), which diminishes taxes paid in the world’s leading economies. Yesterday the head of the OECD’s division for tax treaties, transfer pricing and financial transactions said that the OECD’s top three BEPS priorities are hybrid mismatches, interest deductibility, and transfer pricing.
Transfer pricing has long been recognized as an issue in international taxation, but the other issues in the BEPS project are important as well. Countries involved in the BEPS project recognize that “doing something without addressing hybrids or interest deductibility would be of no use at all in tackling BEPS.” The OECD’s goal is to produce 15 major international tax reforms over the next two years.
The BEPS action plan focuses on “harmful tax practices, with an emphasis on compulsory, spontaneous exchange[s] of information on rulings related to preferential regimes.” The plan is in part a response to the fluidity of the world’s digital economy which allows for new types of tax planning and evasion. It is supposed to fix “gaps in international tax and transfer pricing rules that . . . some multinational taxpayers exploit to shift profits into low- or no-tax jurisdictions.”
Click here to read the entire action plan.