The OECD Action Plan – What’s Next?
The 15 part action plan aims to tackle global inequalities in taxation income, increasing transparency for tax administrators and significantly improving Multinational Enterprises’s compliance. With tax regulations of large corporations at the forefront of all policy makers’ minds, this latest endeavour from the OECD and G20 will address the varying international standards around the regulations and collection of a Multinational Enterprises’s tax. Responding to the estimated $100 – 240bn lost in tax annually, the Action Plan will also reduce the risk faced by large multinational corporations by allowing them to prove their compliance.
The focus of this Action Plan is around information sharing, which is where Action 13, the Country-by-Country report, comes in. A two-page template will need to be completed and submitted in XML format to the governing body of a multinational’s headquarters. The Country-by-Country report will allow governments to exchange and view information of tax allocation and taxes accrued in all OECD countries. Following the reporting deadline, governing bodies will then have six months to request access to this information.
Corporations with an annual turnover exceeding €750m will need to report on their total annual income, profits and most vitally the allocation of the income by jurisdiction. This also includes Collective Investment Vehicles with assets totalling over €750m, although a great number of organisations are protesting that this will ‘hinder the raising and development of savings capital from both retail and institutional investors’1 who should not be treated like global corporates under BEPS Action 6. This scrutiny of collectives goes against the ground work established by directives such as UCITS, which use cross-border schemes to encourage investment across the EU. Ultimately time will tell whether the BEPS Action Plan will result in a reduced number of collectives, but what firms need to see now is more defined documentation explaining where CIV’s and non-CIV’s stand.
The BEPS Action Plan has been so heavily focused on information sharing that the penalties in place for non-compliance have been somewhat skated over. The OECD will not push a course of action to penalise tax avoidance across all jurisdictions, which means that it’s up to the individual governing bodies to decide how to tackle any problematic returns. Little guidance has been given around what should happen if any potential tax avoidance activity is detected (a mere 400 words appear on ‘penalties’ in the 40 page Transfer Pricing Document), leading to questions over what will happen to the non-compliant firms who will be collectively disclosing over $100bn in missing tax.
Private Equity and Investment Firms are still debating whether or not they should be fully in scope, and the full responsibility held by each governing body for dealing with the consequences of the report has yet to be established. Whether or not a catch-all initiative can really be fully implemented by December 2017 to tackle global taxation inequalities, international profit shifting and incorrect transfer pricing, will be largely dependent on the control and clarity provided by the OECD.
Frequently used as a soundbite for the Action Plan, Norton Rose Fulbright’s Chris Bates has said, ‘Delivering these measures is a considerable achievement, but this feels like a beginning not an end.’2 Whilst the BEPS Action Plan is in its infancy, there are many more debates ahead over the full scope of requirements, and over the consequences faced for non-compliance. Keeping an eye on the OECD’s updates is vital for staying up-to-date, but with daily coverage featured across all media platforms from Twitter to the Six O’Clock News, that’s one challenge tax professionals don’t have to worry about.