BEPS' Big Billion Day - What to watch out for in OECD's Final Reports!


In just over an hour from now, OECD will unveil the final package of international tax reforms under the BEPS project. The final package of measures will aim to provide governments with clear international solutions to address the gaps and mismatches in existing rules which have led to what is now famously known as "Base Erosion & Profit Shifting." As the reverse countdown to BEPS’ big billion day begins, what are the 3 key things to watch out for in the final BEPS reports? Will the OECD be able to keep all stakeholders happy? Should Industry be watching behind its back on any particular Action Plan?

Philip Baker
Queen's Counsel, UK

The 13 BEPS final reports amount to a total of 1,595 pages ( you can order them in advance, and count the page extents).  The report of the four expert economists to the League of Nations in 1923 - which set the course of international tax law for the next 100 years - amounted to just 51 pages, and dealt with both double taxation and international tax evasion. Is this huge mushrooming of language really an improvement?

Rajendra Nayak
Partner, International Tax Services, Ernst & Young LLP

OECD/ G20 BEPS Project Outcomes

A rise in activism, media scrutiny and public interest about how businesses pay taxes has galvanized policymakers to action.  In February 2013, the OECD released its report on Base Erosion and Profit Shifting (BEPS), which the body said can enable tax avoidance. The report, requested by the G8 and G20, reflected the view that current international tax standards have not have kept pace with changes in global business practices. The report was followed shortly after by the publication of the BEPS Action Plan, which reiterated these themes. It set out gaps in the interaction of domestic tax rules of various countries, the application of bilateral tax treaties to multijurisdictional arrangements and the rise of the digital economy have led to weaknesses in the international tax system.

The Action Plan contained 15 Actions which reflect virtually all areas of international tax and which are the focus of OECD recommendations for changes in tax laws and treaties. During the course of the BEPS project, the OECD has issued numerous documents and discussion drafts, held public consultations and webcasts, and sought public input. The business community has submitted extensive comments on all BEPS documents....

View more

Ketan Dalal
Managing Partner (West) and Sr partner, Tax and regulatory services, PwC

As we await the OECD BEPS report later today, what does come to mind, from an India perspective, is that, many of the action plans are already, in some way, part of the India tax system, either legislative or through judicial precedents. For example, the "substance over form" concept has been often invoked, and, in any case, legislative GAAR is effective from April 1, 2017. 

Whilst, in principle, BEPS is welcome, the concern from an India standpoint, especially considering the on ground aggression, and virtually the inability to resolve disputes within any meaningful time frame, is that BEPS could be indiscriminately used, as opposed to being a deterrent, and hence, the Indian govt will need to closely consider India implications, and proactively manifest the Govt position, something that is not in the Tax regime architecture today. 

It will be interesting to watch out for changes from the draft, especially vis a vis the tax approach qua the digital revolution.

Rohan K Phatarphekar
Partner and National Head - Transfer Pricing, Global Transfer Pricing Services, KPMG in India

There is a widespread expectation and Industry as well as professionals are awaiting the final outcome of the BEPS project. As we all know, the Indian Government being a part of BEPS bureau, has expressed its willingness to adopt the BEPS recommendations and has indicated that the corporates need to gear up with changes proposed under the BEPS project. Before the final announcement of the BEPS release, it would be important to understand some expected significant outcomes of the Action points from an India perspective. ·         CFC rules and thin capitalization norms which are currently absent in India may find its way into the Indian tax regulations (ITR) ·          ITR relating to determination of Permanent Establishment (PE) are relatively wider in scope and differ with OECD norms. There may be a need for PE norms to be streamlined with OECD / BEPS recommendations ·         Detailed guidance on valuation, ownership and returns on intangibles, risk re-classification etc. may be unveiled and is expected to curb litigation by providing much required clarity ·         Elaborate disclosure norms to complement country by country reporting would require corporates to...

View more

P.V. Srinivasan
Corporate Advisor

Global trade is driven by economics, i.e. the producers of goods & services, at the most competitive prices, will determine the supply chain. Taxation should ride the supply chain but if it alters the supply chain, neither the trade nor the consumers would benefit from such intervention. BEPS Action is on the basis of intervention in the supply chain for the reason that tax havens are being intercepted. Tax havens, while maybe pockets of contracting jurisdictions, however do it out of sovereign rights. These sovereign rights cannot be undermined on the plank of tax avoidance. Hence the BEPS Action Plan can at best increase the burden of compliance on trade without altering the outcome.

Dinesh Kanabar
CEO, Dhruva Advisors LLP

With the final package of measures under the BEPS project due for release shortly, the nearly two year-long project finally appears to be near completion. While there is still a long way to go in terms of implementation, today’s release nonetheless marks a significant milestone in international tax history. There are several aspects of the release that deserve a close watch. In particular substantive provisions such as limiting base erosion through interest deductions and other payments, preventing the artificial avoidance of PE status and the alignment of TP outcomes with value creation are likely to usher in radical change to the tax system. Additionally, one would also keenly look forward to the process related measures, such as disclosure of aggressive planning arrangements to see how they impact global businesses in structuring their overall operations. Even though it may not possible at this stage to gauge the level of consensus towards these measures, the entire effort certainly represents a significant step towards evolving an international consensus on topics that have hitherto largely been addressed at the domestic and bilateral levels.