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2021 | OriginalPaper | Buchkapitel

30. Tax Base Erosion and Profit Shifting (BEPS)

verfasst von : Parthasarathi Shome

Erschienen in: Taxation History, Theory, Law and Administration

Verlag: Springer International Publishing

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Abstract

The Group of 20 (G20) nations engaged the Organisation of Economic Cooperation and Development (OECD) to make recommendations for containing international tax base erosion and profit shifting (BEPS). This reflected perceived MNE behaviour of locating profits in low tax jurisdictions and contributing little to tax in proportion to their global pre-tax profits. In the rush for corrective measures, however, governments were quick to conclude that inappropriate tax behaviour of MNEs was endemic. Tax avoidance was not viewed as a phenomenon pertaining to selected sectors or individual enterprises, rather, as a phenomenon afflicting the entire MNE sector. In September 2013, the OECD adopted 15 Action Plans to address BEPS. In October 2015, 15 Actions in 13 final reports were released. In July 2020, the OECD publicly shared the outcomes of a stocktaking exercise of whether signatory countries were meeting minimum standards that they had signed on to for being a part of the BEPS process. It found that countries were collaborating and sharing best practices regarding fiscal policy and tax administration. The report pointed to how standards could be improved for countering BEPS. This chapter examines the success of the Actions in addressing BEPS and country reactions to the BEPS process.

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Vorheriges Kapitel General Anti-avoidance Rules (GAAR)

Nächstes Kapitel Taxation of Digital Economy

See Baker(2016), Chap. 3.

See OECD (2020).

See Shome (2014, 2015, and 2016) for a comprehensive review of each of these aspects carried out by a group of researchers.

See Baistrocchi (2021). He argues that the global economy’s centre of gravity and, accordingly, of international taxation, are shifting. A global economic power shift from the West to the East is manifest with 50% of global GDP coming from emerging global economies. Commensurately, since the emergence of the international tax regime (ITR) in the early twentieth century, its evolution has been associated with two global power shifts in the ITR: first, a power shift from the United Kingdom to the United States in the 1930s and then, an emerging power shift from the United States to China beginning in the early twenty-first century. It may be added that Brazil and India are playing an increasing role in this shift.

See Baistrocchi (2020), ‘The allocation norm regarding the profits of associated enterprises, now encapsulated in Article 9, of the OECD Model and the UN Model, has found itself in the midst of a creeping, spiral evolution since the beginning of the twentieth century: from standards to rules, and then back to standards. The spiral trajectory of the allocation norm can be divided into 60 core stages representing, in turn, the rise, decline and fall of each of its three sequential eras (standards–rules–standards) over a period of 109 years running from 1908 to 2017’. (p. 1) By ‘spiral’, the author implies the direction of the trajectory that may be gleaned.

Since its publication in 1977, updates were released in 1992, 1994, 1995, 1997, 1998, 2000, 2003, 2005, 2008, 2010, 2014 and 2017.

The Actions could also be viewed from other perspectives. For example, Actions 4, 7, 8, 9 and 10 were aimed at protecting the tax base associated with how value created by MNEs could be taxed without letting them erode that tax base.

Many authors have examined them. See, in particular, Baker (2016).

The OECD uses this term for what is commonly known as double taxation avoidance agreements (DTAA). See Chap. 27.

However, this protection does not necessarily extend to a tax exemption or deduction provision, thus limiting how much advantage an MNE can derive from the protection.

See Chap. 28, Sect. 28.2.11, for the concept and operations of CFCs.

The BEPS project calls for the development of a co-ordinated set of rules to address ongoing risks from structures that allow MNEs to shift profit to jurisdictions where they are subject to no or very low taxation. This objective has particular relevance for CFCs.

Following the delivery of the 2015 BEPS package, the G20 asked that a broader range of countries be engaged in the implementation of the measures. Accordingly, the OECD/G20 Inclusive Framework (IF) on BEPS was established in June 2016. It brought all interested and committed countries and jurisdictions together in the OECD’s Committee on Fiscal Affairs and its subsidiary bodies. The IF undertakes peer reviews of implementation of the BEPS minimum standards and works to complete standard setting to address BEPS issues. Other international organisations and regional tax bodies are also involved in IF’s work. It also consults business and civil society on its various work streams. More than 135 members work on an equal footing to adapt international tax rules for the present era. See OECD (2018).

See Chap. 28, Sect. 28.2.12, for definitions.

See OECD (2020), op. cit., pp. 12–13.

The ‘nexus approach’ was developed in the context of IP regimes. It allows a taxpayer to benefit from an IP regime only to the extent that a taxpayer incurred qualifying R&D expenditures that resulted in IP income.

Core income-generating activities must be conducted with a specified minimum number of full-time qualified employees. In addition, there must be a minimum amount of operating expenditure associated with such activities.

FATCA was passed by the United States in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. It requires foreign financial Institutions and selected non-financial foreign entities to report on the foreign assets held by their U.S. account holders or be subject to withholding on payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets. See Chap. 29, Sect. 29.2.3.

Action 12, Mandatory disclosure Rules. See Sect. 30.2.12.

See Manohar (2020).

As was pointed out in Chap. 29, Sect. 29.5.1, the Indian GAAR restricts the condition to ‘the principal purpose’ rather than to ‘one of the principal purposes’. Thus, the Indian GAAR is more beneficial on this point to the taxpayer than is the OECD’s PPT.

While the PPT is automatically applicable as a minimum standard, the SLOB is only applicable if all parties to a CTA opt for the same.

An elaboration is given in the Explanatory Statement to the MLI.

A ‘waiting agreement’ is an agreement that has been listed under the MLI by only one of the treaty partners and is therefore waiting for the other partner to sign the MLI to create a match.

Intangibles are by definition mobile and they are often hard to value. Misallocation of the profits generated by valuable intangibles has contributed to BEPS.

As we shall see in Chap. 31 on the taxation of the digital economy, that the United States, however, continues to stand apart with its disagreement with taxation rights being confined to jurisdictions with value creation.

CTS released on 7 July 2020, provides aggregated information on the global tax and economic activities of nearly 4000 MNE groups headquartered in 26 jurisdictions and operating across more than 100 jurisdictions worldwide.

See Baker (2016) for a development of this argument.

See the role of CA in Chap. 28, Sect. 28.2.4.

See Ryding (2015).

One reason for the wariness of the Indian tax administration is the high cost of international arbitration.

See Nuggehalli (2016), pp. 193–94.

See Baker, as described in Shome (2016), p. 6.

See Nuggehalli (2016), op. cit., p. 192.

West (2017).

Dwarkasing, as described in Shome (2016), p. 5.

Baistrocchi, Eduardo. 2020. Article 9: Associated Enterprises-Global Tax Treaty Commentaries. Department of Law, London School of Economics.

———. 2021. The International Tax Regime and Global Power Shifts. Virginia Tax Review 40 (2), Winter.

Baker, Philip. 2016. BEPS: Emergence of International Tax Law and Future Direction. In Base Erosion and Profit Shifting (BEPS): The Global Taxation Agenda, ed. Parthasarathi Shome, 51–70. Gurugram: Wolters Kluwer.

Dwarkasing, Ramon. 2016. The Mercantilist Paradigm: History and Basis of BEPS. In Base Erosion and Profit Shifting (BEPS): The Global Taxation Agenda, ed. Parthasarathi Shome, 171–197. Gurugram: Wolters Kluwer.

Manohar, Navneet. 2020. Automatic Exchange of Information-Confidentiality and Appropriate Use of the Data. Taxalogue 1 (3): 60–67.

Nuggehalli, Nigam. 2016. Multilateralism in the BEPS Initiative: Pros and Cons. In Base Erosion and Profit Shifting (BEPS): The Global Taxation Agenda, ed. Parthasarathi Shome, 31–50. Gurugram: Wolters Kluwer.

OECD. 2018. Tax Challenges Arising from Digitalisation – Interim Report 2018, Inclusive Framework on BEPS. OECD/G20 BEPS Project. https://www.oecd.org/tax/tax-challenges-arising-from-digitalisation-interimreport-9789264293083-en.htm. Accessed 30 October 2020.

———. 2020. OECD/G20 Inclusive Framework on BEPS-Progress report July 2019 – July 2020. OECD/G20 BEPS Project. http://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-progress-report-july-2019-july-2020.pdf. Accessed 30 October 2020.

Ryding, Tove. 2015. An Assessment of the G20/ OECD BEPS Outcomes: Failing to Reach Its Objectives. European Network on Debt and Development (EURODAD). https://www.eurodad.org/bepsfacts. Accessed 30 October 2020.

Shome, Parthasarathi, ed. 2014. The G20 Macroeconomic Agenda: India and the Emerging Economies. New Delhi: Cambridge University Press.

———, ed. 2015. The G20 Development Agenda: An Indian Perspective. New Delhi: Cambridge University Press.

———, ed. 2016. Base Erosion and Profit Shifting (BEPS): The Global Taxation Agenda. Gurugram: Wolters Kluwer.

West, Craig. 2017. Status Quo of International Tax Reform in South Africa: Implementation of BEPS and CRS and the Influence on Domestic Law Amendment. https://doi.org/10.2139/ssrn.3009193. Accessed 30 October 2020.

Titel: Tax Base Erosion and Profit Shifting (BEPS)
verfasst von: Parthasarathi Shome
Verlag: Springer International Publishing
Buch: Taxation History, Theory, Law and Administration
Print ISBN: 978-3-030-68213-2

Electronic ISBN: 978-3-030-68214-9

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-68214-9_30