Base Erosion and Profit Shifting (BEPS): adapting to a changing environment

In an increasingly connected global environment, national tax laws have not kept pace with the way that multinational corporations operate, particularly given the rise of the digital economy. This has led to inconsistency in the way that transactions are treated by different territories and a perception by many that the fairness and integrity of the international tax system is in jeopardy.

The completion of the OECD's Base Erosion and Profit Shifting (BEPS) project in October 2015 heralds the most comprehensive reform of international taxation ever. Forthcoming changes, including those resulting from the BEPS project, will have huge implications for multinational companies that go far beyond the confines of the tax department.

These changes are likely to impact the way companies operate, the way they grow their business and the extent to which their tax and financial affairs need to be disclosed. Although some of the detailed rules are yet to be finalised, the direction of the main proposals is becoming increasingly clear so that work can be done now to understand the elements of your company's tax structure and operating models that are most susceptible to the areas being focussed on by the various BEPS work streams.

Our insights

BEPS: Treaties

The OECD's final report on Action 6 reaffirms that the Model Treaty should be updated with new provisions designed to prevent treaty benefits from being granted in inappropriate circumstances. The paper requires all treaties to meet a certain minimum standard on anti-abuse but allows countries three options for implementation. The options are a US-style Limitation on Benefits (LOB) clause, supplemented by either a Principal Purposes Test (PPT) or a specific anti-conduit rule or, alternatively a standalone PPT. Trudy Armstrong, a specialist from our international tax practice discusses this in more detail.

BEPS: The impact on the insurance industry

The release of the final BEPS papers has highlighted significant implications for the insurance industry. The last couple of years we’ve seen a lot of technical engagement between the industry with revenue authorities and with the OECD around the developments of those BEPS papers but we’re now at a point in time where it’s really about practical implementation and it’s time for groups to get their arms around the changes and work out what they need to do to deal with the changes. Our international tax specialists discuss the detail of the final papers and what actions you need to take now.

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Michael Cooper

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Richard Collier
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