Senior officials and ministers from 68 countries and jurisdictions have signed an agreement that is designed to make it harder for multi-national companies to avoid tax through the strategic use of cross-border shifting of profits.
The US was not among either the 68 countries to have signed the so-called Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS last week, or the eight that have formally acknowledged that they will also adopt it. However, the US has been a participant in the BEPS project, and OECD officials have said in the past that the US already has extremely strong anti-abuse provisions and arbitration procedures in its existing tax treaties, suggesting its participation in this particular round of BEPS work might not be needed.
In their coverage of last week’s BEPS agreement signing, US media organisations noted that American multi-national businesses would still stand to be affected by the changes agreed to by the other 76 countries that have signed or formally acknowledged their plans to sign up.
(The list may be seen on the OECD’s website by clicking here.)
The signing took place last week in Paris during “OECD Week”, the Organisation for Economic Cooperation and Development’s annual gathering for finance ministers.
The BEPS agreement was described as a “landmark” convention because it is the first of its kind among tax treaties, which ordinarily tend to be bilateral in nature. It doesn’t replace the existing network of hundreds of existing bilateral tax treaties, but, according to the OECD, once ratified by individual countries’ lawmakers, will provide a framework that will enable the signatory countries to amend these treaties in order to make it so that the bilateral tax treaties aren’t used to facilitate tax evasion by entities that may tax in multiple jurisdictions.
In a statement announcing the formal signing of the BEPS document, the OECD said it would “close loopholes in thousands of tax treaties worldwide”.
The agreement was developed through a negotiation involving more than 100 countries and jurisdictions, under a mandate that had been delivered by G20 finance ministers and Central Bank governors at a meeting in February 2015.
The OECD’s BEPS project was conceived in an effort to close what critics said were gaps in existing international rules that allow corporate profits to “disappear” by shifting them to low- or no-tax environments, in which the companies in question often had little or no economic activity. According to the OECD, revenue lost to countries as a result of the use of BEPS has been “conservatively estimated at US$100bn to US$240bn annually, or the equivalent of 4% to 10% of global corporate income tax revenues”.
In addition to targeting multinational enterprise base erosion and profit shifting, the agreement signed last week also updates the existing network of bilateral tax treaties and, the OECD said, boosted existing provisions for resolving treaty disputes.
These include mandatory binding arbitration, which is likely to reduce double taxation and increase tax certainty.
OECD secretary-general Angel Gurría said the signing of the BEPS multilateral convention marked “a turning point in tax treaty history”.
“We are moving towards rapid implementation of the far-reaching reforms agreed under the BEPS project in more than 1,100 tax treaties worldwide, and radically transforming the way that tax treaties are modified,” he added, in a speech during the signing event last week.
“Beyond saving signatories from the burden of re-negotiating these treaties bilaterally, the new convention will result in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens.
“Today’s signing also shows that when the international community comes together there is no issue or challenge we cannot effectively tackle.”
Pictured, above, is the gathering of world finance ministers and other senior government officials at last week’s OECD meeting. (Photo: OECD/Andrew Wheeler.)