Commenting on the OECD’s final recommendations from its “Base Erosion and Profit Shifting” (BEPS) project, Chris Morgan, Head of Tax Policy at KPMG in the UK, said:
“Today’s recommendations from the OECD live up to their billing as the most dramatic rewriting of the international tax code since the League of Nations proposed the first bilateral tax treaty in 1928.
“Broadly speaking, multinationals will see their tax bills go up when these recommendations are implemented. Those most likely to face higher tax costs are those affected by the rules around permanent establishments, interest deductibility and hybrid arrangements.
“And perhaps increased tax bills are to be expected given the sums involved. The OECD estimates that global tax revenue losses from Base Erosion and Profit Shifting are up to USD 240 billion annually and they hope their proposals will go some way to addressing this tax gap.
“In terms of international agreement, there seems to be a reasonable level of consensus among the various countries involved which suggests there could be real progress in making these recommendations a reality. In particular it is welcome that it is recognised that countries should not act unilaterally and implementation should not increase tax disputes. There are certain minimum standards, for example in country by country reporting, to ensure a level playing field; there is a commitment by countries to keep working together and a peer review on implementation. It is also very important that that the OECD will draw on its experience of the Global Forum on Transparency and Exchange of Information to ensure developing countries’ voices are heard as the international community act on these recommendations.
“However the real test will be in how countries actually implement the recommendations. The Explanatory Statement does suggest some disagreements on the underlying standards on tax treaties and transfer pricing. If, for example, some countries refuse to implement changes on permanent establishment, this could create an ‘un-level’ playing field depending upon a company’s place of residence.
“This implementation is set to herald a new era for international corporate tax, and will necessitate wide-scale changes in behaviour. Corporates will need to fundamentally rethink how they view taxes in a post-BEPS world. And governments too will have to think about how they balance their ambition to attract business activity through offering an attractive corporate tax system against the need to keep a more level playing field globally.”
Margot Cowhig, KPMG Corporate Communications
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