Unprecedented changes to the international tax system are expected over the next five years. An OECD/G20 global campaign to address tax base erosion and profit shifting (BEPS) is in full swing and could dramatically alter the tax landscape.
According to a November 2014 update from the OECD, BEPS refers to corporate tax planning strategies that exploit gaps and mismatches in tax rules between countries to artificially shift profits to low or no-tax locations characterized by little or no economic activity, resulting in little or no overall corporate tax being paid. BEPS would potentially have major implications for developing countries due to the heavy reliance of these countries on corporate income tax, particularly from multinational enterprises.
In an increasingly interconnected world, national tax laws have not always kept pace with global corporations, fluid movement of capital, and the rise of the digital economy, leaving gaps that can be exploited to generate double non-taxation. This undermines the integrity of domestic tax systems. Fifteen specific actions are being developed in the context of the OECD/G20 BEPS Project. The first set of measures and reports were released in September 2014. Combined with the work to be completed in 2015, the project will give countries the tools to ensure that profits are taxed where the economic activities that generate profits are preformed and added value created, while at the same time giving businesses greater tax certainty by reducing disputes over the application of international tax rules and standardising requirements across international borders. For the first time ever in tax matters, non-OECD/G20 countries are involved on equal footing.