An OECD report, released August 1, identifies the main sources of base erosion and profit shifting (BEPS) in developing countries and the extent to which the OECD/G20 Action Plan addresses these concerns.
After interviewing developing nation officials, the OECD concluded that BEPS action items most relevant to developing countries are Action 4, on limiting base erosion through interest deductions and other financial payments; Action 6, on preventing treaty abuse; Action 7, on prevention of the artificial avoidance of permanent establishment status; Action 10, on development of rules to ensure that transfer pricing outcomes are in-line with value creation; Action 11, on developing methods to collect and analyze data on BEPS and the actions to address it; and Action 10, on transfer pricing documentation.
Developing nations need to build the capacity of their tax administrations to effectively take advantage of new rules or improved access to information stemming from BEPS initiatives, the report concludes.
Also, some developing nations concerns are not included in the OECD/G20 Action Plan, the report notes, including the loss of tax revenue from indirect transfers of assets, base erosion through tax incentives designed to attract investment, and lack of comparable data for transfer pricing analysis.
The report is the first of a two OECD reports to be prepared on BEPS and developing nations for the G20 Development Working Group. The second report, slated for release in September, will further explore BEPS issues not addressed by the OECD/G20 Action Plan and will provide specific recommendations on actions that need to be taken to ensure that developing nations can benefit from the BEPS action items most relevant to them.
A subcommittee established by the UN Committee of Experts on International Cooperation in Tax Matters is also looking into which OECD/G20 BEPS Action Plan items are a priority for developing nations
See:
