‘Businesses are reviewing their investment structures’

PASCAL SAINT-AMANS, director of the Centre for Tax Policy and Administration at the Organisation for Economic Cooperation and Development (OECD), has been driving the Base Erosion and Profit Shifting (BEPS) project since 2012. In an interaction with Sudip

The BEPS project is said to lay down the new tax rules for business in the 21st Century. Where are we in that journey?

Governments have made tremendous progress towards limiting tax avoidance by multinational enterprises (MNEs) in the BEPS project over the past four years. The 2013 BEPS action plan set out the directions for strengthening business tax rules and a comprehensive package of measures against BEPS was delivered in record time in 2015. Governments are now implementing the measures, with peer reviews on actions to counter harmful tax practices and to improve dispute resolution.

Many more countries and jurisdictions have joined the BEPS Project — the Inclusive Framework on BEPS will soon welcome its 100th member. Inside the Inclusive Framework, countries and jurisdictions collaborate on an equal footing on the swift and effective implementation of the BEPS package.

With this strong and broad political support, the BEPS measures are already having an impact. MNEs are changing the nature of their tax planning arrangements, to ensure alignment between the location of their value-creating activities and the location of profits for tax purposes.

At the same time, tax administrations are benefiting from greater transparency, sharing information and working together to tackle BEPS on a more systematic basis.

What are the next milestones for the countries that signed the multilateral instrument

(MLI) in Paris?

All signatories will swiftly initiate the processes for early ratification of the MLI to ensure that BEPS measures are effectively implemented in the maximum number of tax treaties, thus swiftly countering treatyshopping, improving dispute resolution and creating a level-playing field. The OECD will make tools available to ensure the clarity of the instrument.

At the same time, many more signatories will join by year-end. Nine additional jurisdictions have already expressed their intention to sign the MLI, including Mauritius, which has committed to sign by June 30. Additional jurisdictions are expected to follow as a large group of governments actively prepare for signature by year-end.

The US is not one of the signatories to the instrument. What does that mean for US businesses in and outside the country?

Most US tax treaties already contain robust measures against treaty abuse, including the so-called detailed limitation on benefits (D-LOB) provisions against treaty shopping. US businesses investing abroad and foreign businesses investing in the US can continue to rely on those bilateral treaties. In instances where US-based businesses abused treaties between other countries through treaty shopping arrangements, these treaty shopping routes will be cut-off by the introduction of an anti-abuse rule in over 1,100 tax treaties.

How should Indian businesses prepare for the post-BEPS scenario?

A concern is that compliance costs may see a sizable jump. Businesses around the world, including those in India, are reviewing their investment structures to ensure that the tax position is aligned with economic reality, aligning the location of their value-creating activities and the location of profits for tax purposes.

The post-BEPS world also requires more transparency from businesses, including Indian businesses. Around 100 jurisdictions are working together to ensure the consistent implementation of Country-by-Country (CbC) reporting requirements and other BEPS measures to minimise the compliance burden of businesses.

An important initiative is the introduction of a CbC exchange mechanism that allows Indian businesses to file their CbC reports exclusively in India, instead of in all countries where the business is active. The transparency and exchange measures also allow tax administrations to improve their risk assessment procedures, which will eventually lower the burden for BEPScompliant businesses.

Finally, at the request of the G20, the OECD initiated work to improve taxpayer certainty to reduce compliance burdens and improve dispute resolution mechanisms.