Just as the financial world is coming to grips with the implications of the Foreign Account Tax Compliance Act (FATCA), a new tax regime is coming into view over the horizon.
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Base erosion and profit shifting (BEPS) tax laws aim to combat individuals and companies shifting wealth around the world without paying tax.
BEPS rules are currently under discussion prior to drafting by the Organisation of Economic Co-Operation and Development (OECD) and are programmed for the end of 2015.
BEPS aims to plug holes in international tax laws resulting from the digital economy allowing taxpayers to run multinational businesses without locating an office anywhere but in a low tax jurisdiction.
“This law is going to lead to some huge changes in the tax landscape,” said James Tobin, global director international tax, with Ernst & Young.
BEPS initiative green-lighted
“BEPS is likely to affect every financial institution as a major overhaul of tax law to stop big companies and the ultra-wealthy from paying little or no taxes anywhere in the world.”
The BEPS initiative was green-lighted at the last summit of the G20 nations in September 2013.
The meeting recognised the global tax system had weaknesses when laws of different countries interacted, especially when profits are shifted from those where the financial transactions took place.
Digital businesses, like Google, Facebook and Amazon, are lobbying the OECD to make them an exception to the rule.
The Digital Economy Group has written to the OECD explaining that digital communications companies should have a special treatment under BEPS rules.
The corporations argue that the law will penalise them because they have developed efficient processes to streamline their businesses.
Country-by-country reporting
However, the plea fell on deaf ears at the OECD.
Pascal Saint-Amans, the leading tax official at the OECD, said: “We have looked at this and found digital companies do not exist but digitalisation of the economy does. This means that there could be no tax solution for the digital economy, but we have to consider this when we revise the system.”
“Most of the tax planning by these companies will be addressed by this.”
The OECD BEPS action group is drawing up an action plan to be considered by the G20 in December 2015.
The first move is likely to be implementing country-by-country financial reporting for multinational companies. The OECD will publish a template for multinational companies covering business information like income, tax, sales and the number of employees by country.
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