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BEPS increases pressure on multinationals' profit shifting

This article was written by Eline Delerue.
Contact us for more info at contact@vandelanotte.be.
Following the economic crisis, governments have been trying for some time now to find extra money to fill their treasuries. This, combined with the increased political pressure on multinationals' tax practices, has lead the Organisation for Economic Co-operation and Development (OECD) in 2013 to elaborate a plan (BEPS) with measures against international tax avoidance and profit shifting by multinationals. This plan should be ready by the end of 2015.  

The OECD's BEPS project (Base Erosion and Profit Shifting) contains 15 action points to reform the international tax regulatory framework. The main purpose of this plan is to tax profit in the country where the economic activities are actually carried out and where added value is created.  

A number of the plan's measures have already been implemented. Last year, for instance, the Parents-subsidiary Directive was adjusted to hybrid financial instruments. Hybrid financial instruments are considered to be a debt in the subsidiary's member state (the interests on which are deductible) and as equity capital in the parent's member state (which produces exempted dividends in compliance with the Parents-subsidiary Directive). This way, a double tax exemption was created. This will no longer be possible.  

This year, more measures will be implemented to fight tax avoidance and unlawful tax constructions on an international level. For instance, a new and more stringent anti-abuse provision will be introduced in the OECD model convention to intercept any abuse of the double taxation treaties. Furthermore, with respect to favourable tax regimes, the emphasis on transparency and substance will be increased. Finally, the country-by-country reporting will have a big impact on business life. This implies that multinational companies will have to report detailed figures and information on every country in which they operate.  

The abovementioned are only some of the measures contained in the BEPS action plan. Should you wish to anticipate the future changes, Vandelanotte can, of course, assist you with this.

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