Base erosion and profit shifting - BEPS

[KJK]

So I guess a lot of people know about AEOI, CRS, FATCA and that countries will exchange a lot of info, mostly speaking of USA and European Union.

But there is another thing which I haven't even seen discussed on this forum and it may be a MUCH BIGGER thing than AEOI with potentially bigger consequences.

It's caled BEPS (Base erosion and profit shifting):
Base erosion and profit shifting - Wikipedia
Base erosion and profit shifting - OECD

It is very unspecific, a lot of bureaucracy words, not at all clear.

However, the goal seems to be to make any tax optimization impossible and some countries agreed to take steps in 2018. Does anyone have information what BEPS practically means? How it will be implemented?

At first glance it seems to be targeted only at large multinational companies doing transfer pricing but I feel it is only the tip of the iceberg and it may affect everyone.

 

[ImKing]

That's the first time I have heard about it. Thanks for shareing the information will have to digg a little around.

 

[Martin Everson]

BEPS is old news. Basically you will pay tax where you generate the income no matter where your entities are based.

For example no more Transfer Pricing. i.e I have my Cayman Islands company with a zero tax rate. It sells a computer to my sister German high tax company for 995 euros. The German company sales to end customer in Germany for 1000 euros. The German company only makes 5 euro profit and you can see all profit was artificially shifted to Cayman Island company. This is how it works in the oil and gas business also. This is all an artificial construct to evade paying German taxes and keeping profits offshore in tax free Cayman Islands. The German tax authority can now go after your German company and say it was an intra group transfer and artificially reduce the price of the laptop (on paper) you bought and hence you end up paying more taxes on a higher profit to them.

BEPS is pretty much 15 comprehensive action points that if all adopted close loopholes. The countries that will benefit will be high tax countries and developing countries.

 

[Martin Everson]

This was a basic example. However most evasion is done via royalties and licensing going offshore reducing the basis of taxation in the host country.