OECD

Over the years, the Organization for Economic Co-operation and Development (OECD) has dealt with a range of issues, including raising the standard of living in member countries, restoring confidence in markets, fostering and supporting growth through innovation, contributing to the expansion of world trade, and promoting economic stability. The OECD works together with governments, businesses and labor parties and recommends policies that ensure that all people, irrespective of gender, race or age, can develop the skills to work productively in their society and apply their skills in the jobs of tomorrow, thereby improving their quality of life.

The Organization for Economic Co-operation and Development was officially born on 30 September 1961, and today, 34 democratic member countries worldwide regularly turn to one another to identify, discuss and analyze problems, and suggest and promote policies to help solve those problems, in order to improve the economic and social well being of people around the world. The OECD also makes sure to combat unfair-play, corrupt businesses and tax fraud, recently launching a 15-point Action Plan that will give governments the tools they need to fight “Base Erosion and Profit Shifting” (BEPS).

The OECD’s BEPS Action Plan is a major development that will impact multinationals on a global scale and challenge them to stay updated with the changes in the various tax jurisdictions in which they operate as well as comply with the OECD guidelines. The action plan has been designed to re-define and revolutionize the way Multinational Enterprises are taxed across the world, and has three key objectives:

SUBSTANCE

Avoid the separation between the location of profits and the creation of value, by making sure that the amount of economic and organizational substance is aligned with the taxable profits in all the areas/ jurisdictions in which the organization operates.

According to the OECD, “Economic substance” is a subject with no clearly defined meaning, but what gives substance to an organization within a specific country? Clearly, there is no silver bullet for all companies that want to achieve “substance”, due to the fact that every jurisdiction has different laws and regulations regarding taxation, and every double treaty agreement between two countries is different.

Read more…

TRANSPARENCY

Enhanced exchange of information between EU and non-EU countries will increase the need for multinationals to prepare and submit clear transfer pricing documentations (new standards require multinationals to prepare a master file, a local country file as well as country-by-country reporting) and generally, the need to maintain a transparent organization structure, operations, tax planning formations, etc.

CONSISTENCY & COHERANCE

Cohere / comply to OECD’s guidelines and the new set of standards designed to address the double non-taxation issues and maintain a consistent transfer pricing documentation which will properly reflect the MNE’s business activities.

Many MNEs have yet to evaluate the impact of the Action Plan on their operations and with the OECD’s timeline for implementation closing in December 2015, it remains to be seen what the imminent impact will be. MNEs have one year to assess their position with respect to the OECD’s guidelines and deal with major issues, making sure that risks are identified, understood and managed. It is important to tackle those risks that could pose a serious threat to the company, since from now on, authorities will have zero tolerance for tax-evasion and will be allowed to intimidate taxpayers with hostile consequences.

Since the OECD published their action plan on ‘Base Erosion and Profit Shifting’ (BEPS), the words ‘transparency’ and ‘substance’ have become extremely important for Multinational Enterprises. The BEPS initiative aims to prevent the granting of treaty benefits in the case of international corporate structures which are only set up to enjoy the beneficial terms of the applicable double taxation treaties.

Existing Multinational companies and companies wishing to expand to an International level, should now update / create their organizational structure with ‘Substance’ and ‘Transparency’ in mind. Based on the OECD recommendations, the two need to be seriously addressed, in order to avoid burdening the business with tax-disputes and double taxation. Furthermore, lawmakers will start forming additional initiatives on ‘substance’ since anti-abuse legislation is also a method of fighting tax evasion and is therefore a way of increasing local tax revenues.