The IMPLEMENTATION OF THE BEPS package   The IMPLEMENTATION OF THE BEPS package IFA Asia-Pacific Regional Tax Conference 12-13 May 2016, Seoul, Republic of Korea David Bradbury Head of the Tax Policy and Statistics Division OECD’s Centre for Tax Policy and Administration

Implementation of the BEPS package Background Measuring and Monitoring BEPS Inclusive Framework Next Steps

Background to the BEPS Project Tax sovereignty, tax treaties and globalisation Double non-taxation & stateless income Digitalisation & growth of intangibles Crisis, fiscal consolidation & parliamentary inquiries Breakdown of international consensus Need for global action

Global action required September 2013: G20 Leaders endorsed ambitious and comprehensive BEPS Action Plan with 15 Actions October 2015: 13 reports delivered just 2 years later New or reinforced international standards and concrete measures to help countries tackle BEPS Unparalleled effort - OECD/G20 countries working together on an equal footing with many developing countries

Objectives of the BEPS Project Where profits are reported for tax purposes Where the economic activity generating the profits occurs Towards a greater alignment Restore confidence in the system Build a global consensus

What did the final BEPS package include? Detailed report on measuring and monitoring BEPS 4 minimum standards Reinforced international standards on tax treaties and transfer pricing Common approaches and best practices for domestic law measures Analytical reports with recommendations (digital economy and the multilateral instrument)

15 Actions around 3 main pillars Coher ence Hybrid Mismatch Arrangements (2) Harmful Tax Practices (5) Interest Deductions (4) CFC Rules (3) Substance Preventing Tax Treaty Abuse (6) Avoidance of PE Status (7) Transfer Pricing Aspects of Intangibles (8) Transfer Pricing Risk and Capital (9) Transfer Pricing High Risk Transactions (10) Transparency & Certainty Measuring and Monitoring BEPS (11) Disclosure Rules (12) Transfer Pricing Documentation (13) Dispute Resolution (14) Digital Economy (1) Multilateral Instrument (15)

Implementation of the BEPS package Background Measuring and Monitoring BEPS Inclusive Framework Next Steps

What do we know about the scale and impact of BEPS? More than 100 empirical studies report evidence of BEPS New OECD research finds that global net annual revenue loss of 4-10% of CIT - USD 100-240 billion - at 2014 levels As a percentage of tax revenues, this is expected to be higher in developing countries given their greater reliance on corporate tax revenues BEPS creates many economic distortions Effective Tax Rates of large MNEs are lower than similar domestic firms Higher profit rate affiliates located in countries with lower statutory tax rates Favours intangible investments, companies locating debt in high-tax countries and distorts the location of FDI Creates negative tax spillovers across countries Anti-avoidance rules are effective in preventing BEPS in individual countries, but coordinated measures could be more effective

The global scale of BEPS OECD BEPS revenue estimate compared to GDP in selected countries (2014) Add source

Concentration of net FDI to GDP Foreign direct investment is increasingly concentrated

High profits of low-taxed affiliates Higher-profit affiliates tend to have lower Effective Tax Rates The highest percentage of income earned by low-taxed affiliates with higher profit rates

ETRs - large MNEs v large non-MNEs

Royalty receipts v R&D expenditure Royalty receipts to R&D ratio is increasingly concentrated

Profit shifting through interest Interest is concentrated in locations with above average statutory tax rates

Incentives to engage in BEPS While average statutory CIT rates have been declining in the OECD, tax rate differentials between countries have been increasing

Implementation of the BEPS package Background Measuring and Monitoring BEPS Inclusive Framework Next Steps

Implementation3 Implementation, implementation, implementation… “… We, therefore strongly urge the timely implementation of the project and encourage all countries and jurisdictions, including developing ones, to participate. To monitor the implementation of the BEPS project globally, we call on the OECD to develop an inclusive framework by early 2016 with the involvement of interested non-G20 countries and jurisdictions which commit to implement the BEPS project, including developing economies, on an equal footing …” G20 Leaders – Antalya November 2015

Objectives of the framework 4 minimum standards Essential to level the playing field To ensure the effective and consistent implementation of the BEPS package Especially important for any future standard setting in relation to new items or BEPS Actions where convergence towards common approaches and best practices occurs To enable all countries to participate in the standard setting process for BEPS related issues

Membership of the inclusive framework Aside from BEPS Associates, the implementation process will also involve ‘jurisdictions of relevance’ Open to interested countries and jurisdictions Members must commit to the comprehensive BEPS Package and its consistent implementation Will join the Committee on Fiscal Affairs as BEPS Associates Will fully participate in the consensus based decision making of CFA and subsidiary bodies on BEPS issues and contribute to determining its governance, structure and programme of work Members will participate on an equal footing Reduced fee might be applied for some developing countries Members will pay an annual BEPS Associates’ fee

The framework’s programme of work Harmful tax practices (Action 5), treaty abuse (Action 6), country by country reporting (Action 13) and improving mutual agreement procedure (Action 14) Reviewing the implementation of the four minimum standards Standard setting for remaining BEPS issues Monitoring of the digital economy (Action 1) and measurement and monitoring of BEPS and BEPS countermeasures (Action 11) Ongoing monitoring and data gathering aspects of implementation Feeds into the toolkit work and could potentially impact the remaining BEPS standard setting work Implementation support, guidance and toolkits

Toolkits for low-capacity developing countries To assist non-OECD/G20 countries implementing the BEPS measures and address their specific concerns. G20 mandate asks for toolkits to be developed by the OECD, in cooperation with the IMF, the WBG, the UN and regional organisations. 1. Report on Tax Incentives November 2015 2. Toolkit on Transfer Pricing Comparability Incl. supplementary work on mineral pricing October 2016 3. Report on Indirect Transfers of Assets June 2016 4. Toolkit on Transfer Pricing Documentation 5. Toolkit on Tax Treaty Negotiations December 2016 6. Toolkit on Base Eroding Payments June 2017 7. Toolkit on Supply Chain Management March 2018 8. Toolkit on BEPS risk assessment

International organisations Platform for Collaboration on International Tax Matters IMF OECD WBG UN The Platform will produce the toolkits Most of the toolkits aim to translate BEPS Actions into user friendly guidance for low-capacity countries Some address international tax issues not included in the BEPS Project (i.e. indirect transfers) Development of toolkits will be informed by the Inclusive Framework The platform may identify international tax issues and bring them to the attention of the Inclusive Framework

Implementation of the BEPS package Background Measuring and Monitoring BEPS Inclusive Framework Next Steps

Implementation of the BEPS package Inaugural meeting of the Inclusive Framework Kyoto, Japan: 30 June – 1 July 2016 At this meeting of senior level representatives of the members of the Inclusive Framework will take key decisions on governance, structure and the work programme of the framework.

David.Bradbury@oecd.org || www.oecd.org/tax Contact details David Bradbury Head of the Tax Policy and Statistics Division Centre for Tax Policy and Administration 2, rue André Pascal - 75775 Paris Cedex 16 Tel: +33 1 45 24 15 97 – Fax: +33 1 44 30 63 51 David.Bradbury@oecd.org   || www.oecd.org/tax