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Base Erosion and Profit Sharing (BEPS) – Final Report


12/1/15

This article was distributed as part of CohnReznick's National Tax Update - December 2015 newsletter.

In October 2015, the Organization of Economic Cooperation and Development (“OECD”) released its final report on base erosion and profit shifting (“BEPS”) among developed and developing nations.

As background, the BEPS project involved around 90 countries from the OECD, G20 nations, and developing world, focusing on 15 different tax issues from tax treaty abuse to transfer pricing to reporting standards.  The OECD will seek commitment to implement the report’s proposals from as many nations as possible.

The final report makes a number of recommendations, including:

  • Minimum standards on country-by-country reporting, which is intended to give tax administrations a global picture of the operations of multinational enterprises;
  • Limitations on treaty shopping, targeting multinational enterprises that use conduit companies to channel their investments;
  • Curbs on harmful tax practices, in particular in the area of intellectual property; and
  • Changes to mutual agreement procedures, to ensure that the fight against double non-taxation does not result in widespread unrelieved double taxation.
     

Implementation is expected to take place over the next 1-2 years. The U.S. appears to be amenable to the changes recommended in the reports, despite earlier efforts to preempt the OECD’s work by amending the U.S. model income tax treaty. The U.S. Treasury says it will issue regulations on country by country reporting before the end of 2015.

What Does CohnReznick Think?
It is important to note that, even if the U.S. does not sign on to certain recommendations, U.S. multinationals with business throughout the world may be affected by changes in foreign jurisdictions. Also, earlier this year the EU has implemented or proposed measures to combat base erosion such as automatic information exchange and it is unclear if the EU will sign onto the OECD recommendations or continue to introduce its own changes.  It is certainly clear that the EU has welcomed the OECD’s mission to reduce base erosion and profit shifting:  On October 21st, the European Commission ordered that Starbucks pay approximately $34 million in back taxes to the Dutch government, accusing Dutch authorities of making an illegal deal that allowed Starbucks to move massive amounts of taxable income out of the Netherlands via unjustified royalty payments.

Contact

For more information, please contact Jonathan Babu, senior manager, at jonathan.babu@cohnreznick.com or 301-664-8111; James Wall, principal, at james.wall@cohnreznick.com.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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