Base erosion constitutes a serious risk to tax revenues, tax sovereignty and tax fairness for many countries. While there are many ways in which domestic tax bases can be eroded, a significant source of base erosion is profit shifting. This report presents the studies and data available regarding the existence and magnitude of base erosion and profit shifting (BEPS), and contains an overview of global developments that have an impact on corporate tax matters and identifies the key principles that underlie the taxation of cross-border activities, as well as the BEPS opportunities these principles may create. The report concludes that current rules provide opportunities to associate more profits with legal constructs and intangible rights and obligations, and to legally shift risk intra-group, with the result of reducing the share of profits associated with substantive operations. The report recommends the development of an action plan to address BEPS issues in a comprehensive manner.
Table of contents:
Executive summary Chapter 1.Introduction Chapter 2. How big a problem is BEPS? An overview of the available data -Data on corporate income tax revenues -Data on Foreign Direct Investments -A review of recent studies relating to BEPS Chapter 3. Global business models, competitiveness, corporate governance and taxation -Global business models and taxation -Competitiveness and taxation -Corporate governance and taxation Chapter 4. Key tax principles and opportunities for base erosion and profit shifting -Key principles for the taxation of cross-border activities -Key principles and BEPS opportunities Chapter 5. Addressing concerns related to base erosion and profit shifting -Key pressure areas -Next steps -Developing a global action plan to address BEPS -Immediate action from our tax administrations is also needed Bibliography Annex A. Data on corporate tax revenue as a percentage of GDP Annex B.A review of recent studies relating to BEPS -Studies of effective tax rates of MNEs -Studies using data from taxpayer returns -Other analyses of profit shifting -Bibliography Annex C.Examples of MNEsí tax planning structures -E-commerce structure using a two-tiered structure and transfer of intangibles under a cost-contribution arrangement -Transfer of manufacturing operations together with a transfer of supporting intangibles under a cost-contribution arrangement -Leveraged acquisition with debt-push down and use of intermediate holding companies Annex D.Current and past OECD work related to base erosion and profit shifting -Tax transparency -Tax treaties -Transfer pricing -Aggressive tax planning -Harmful tax practices -Tax policy analyses and statistics -Tax administration -Tax and development