The mission of the Organisation for Economic Co-operation and Development (OECD) was set up in order to promote policies that will improve the economic and social well-being of people all around the world.
The forefront of the problems the organisation deals with is international tax avoidance such as Base Erosion and Profit Shifting (BEPS) and techniques that Controlled Foreign Companies (CFC) use to mitigate their profit at tax avoidance purposes.
For this reason, on 5th October, the OECD released a final version of their BEPS Action Plan, first published and endorsed by G20 leaders on the St. Petersburg summit of July 2013.
The BEPS Action Plan contains 15 separate action points setting out recommendations, which in essence aim to harmonise the rules for international taxation.
Examples of this include Action 3 of the plan, which focuses on CFCs and summarises the different taxation approaches of the different countries, depending on several factors such as worldwide or territorial tax system or whether they are EU members or not.
Furthermore, on the field of Digital Economy, Action 1 sets out several principles, on direct and indirect taxation, which may fundamentally change the way B2B and B2C businesses operate and pay taxes.
Note that the BEPS outputs are “soft law” legal instruments, therefore they are not legally binding, however there is an expectation that signatories to the framework will implement and abide by the rules expressed therein.
By now, the BEPS Inclusive Framework involves more than 100 countries (113 countries as of March 2018), including the 35 members of the OECD, all G20 members, and more than 40 developing countries. The complete list of countries participating in the BEPS Inclusive Framework is available at the following link.
Further steps towards reaching the OECD’s goals include the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI“), which currently covers 78 jurisdictions and is planned to enter into force on 1st July 2018.
The MLI’s main focus is on letting its members choose which existing tax treaties they would like to commonly use, putting an end to “treaty shopping” and ultimately harmonising international tax law.
The implications of these treaties and organisations will eventually lead to governments reforming their tax systems and weighing their ambition to attract businesses by offering an attractive tax system against the global need to provide a level playing field and ultimately create an internationally coherent tax regime.