Friday, July 5, 2019
In a report released for G20 leaders ahead of their meeting in Osaka on June 30-31, 2019, the OECD provided a progress update on its international tax reform work, including on base erosion and profit shifting, and on international tax transparency initiatives.
The OECD noted that "concrete results" have been achieved on the implementation of the BEPS minimum standards, on the removal of any "harmful" tax provisions from a territory's domestic tax regime; on amending tax treaties to prevent treaty abuse, on the implementation of country-by-country reporting and the exchange of these reports, and on improvements to cross-border tax dispute resolution mechanisms.
On harmful tax regimes, the report says that, since 2015, over 250 regimes have been reviewed and virtually all of the regimes that were identified as harmful have been amended or abolished.
Since the last report in July 2018, 70 additional regimes have been reviewed, progress is being monitored, and newly introduced regimes are being brought into the review process shortly after their introduction, the OECD said.
"Around the world, harmful regimes can no longer be used by countries to attract the tax base from other countries by targeting non-residents and foreign income only. In addition, low or no tax jurisdictions had in the past escaped scrutiny under the harmful tax practice rules. But the criteria has been changed and they must now ensure that companies established there have appropriate substance to their activities."
On the exchange of tax rulings, the OECD said information on more than 4,000 additional tax rulings have been exchanged among governments since July 2018. In total, information on a total of 21,000 tax rulings has been exchanged, to improve transparency.
On tax treaty abuse, the OECD said the majority of the OECD/G20 Inclusive Framework members are now in the process of strengthening their tax treaty network. This will be done primarily through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the BEPS Multilateral Instrument). It entered into force on July 1, 2018, and now covers 88 jurisdictions. Once all signatories have ratified the deal, it will impact over 1,500 tax agreements.
The OECD further reported that, since the first exchanges of Country-by-Country (CbC) reports in June 2018, 18 additional jurisdictions have introduced CbC reports filing requirements for multinational enterprises (MNEs), bringing the total to 80 jurisdictions.
This translates into 600 new bilateral relationships, for a total of 2,000 bilateral relationships, for the exchange of CbC reports. Moreover, the first aggregated and anonymized statistics prepared from data collected on CbC reports is already showing some interesting patterns of where MNEs activity is located, reporting of profits and the tax paid, the OECD said.
"The work to support the effective use of CbC reports by tax administrations is providing greater certainty to MNEs, including through the International Compliance Assurance Programme (ICAP), which is a multilateral risk assessment process, using CbC reports and other information. Currently, 15 tax administrations are participating in a pilot program," the OECD said.
On improving dispute resolution, the OECD said there are already encouraging results. It said already 45 jurisdictions have been reviewed on their progress to improve the functioning of the Mutual Agreement Procedure, and around 990 recommendations for improvement have been issued. The OECD said territories are making tangible progress in addressing the recommendations and improving their dispute resolution mechanisms.
The OECD said: "Tax administrations are reporting early positive signs from implementation of BEPS actions. An early survey of a number of members of the OECD's Forum on Tax Administration (FTA) shows there are positive signals that BEPS implementation is taking place in practice. They report that Multinational Enterprises (MNEs) are implementing new requirements and are highly engaged."
"There are also signs of changes in behavior, with some MNEs actively seeking greater collaboration and transparency with tax administrations. Tax administrations themselves are enhancing their approaches, IT systems and guidance, seeking greater consistency and tax certainty for both administrations and MNEs, in particular through closer collaboration on how they assess, identify, and treat tax risk."
In their declaration at the close of the Summit, the G20 leaders welcomed recent progress on addressing the tax challenges arising from the digitalization of the economy and said they would redouble efforts for a consensus-based solution by 2020. They reaffirmed the importance of worldwide implementation of the G20/OECD Base Erosion and Profit Shifting (BEPS) package.