Responding to the publication today of the OECD’s final Base Erosion and Profit Shifting (BEPS) action plan for reforming the international tax system, Rebecca Reading, International Tax partner at Baker Tilly said:
‘The OECD has been incredibly bold in delivering its final action plan today, in effect announcing the end to international tax avoidance as we know it. But there was also some realism in its acknowledgement that many challenges lie ahead.
Lots of questions remain as to the ability and willingness of countries to enact these recommendations, and how long the process will take. In the interim period, companies trying to comply with changing tax rules in different jurisdictions are going to have their work cut out. However, ultimately there is a real prize to be had here – it is imperative the public trust in the international tax system is restored. Tax authorities globally are looking for a fairer deal, and in the longer term companies operating internationally should benefit from a more coordinated approach.
The OECD deserves a great deal of credit for the recommendations it has published today which provide a real opportunity to reduce tax avoidance by multinationals and ensure taxes are paid in the countries in which companies really make their profits.
In the UK, the government has today published its draft regulations for the implementation of country by country reporting – a key part of the OECD’s plan. While these fall short of demands by some campaigners to put this information into the public domain, the measures are nonetheless very significant and are likely to encourage behaviour change by multi-nationals.
In the longer term, the plans announced today by the OECD could mean that the UK’s diverted profits tax ceases to be necessary. It’s also likely that lawmakers will also have to make changes to tax reliefs for financing costs and will have to reform the UK patent box.
While the focus of the measures announced today is large multinationals, some recommendations, such as those relating to permanent establishment, will have wider implications, and there is a danger that some smaller companies with international operations could be seen as easy targets by tax authorities.’