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William Byrnes (Texas A&M) tax & compliance articles

Impact Of BEPS In Low Income Countries, OECD Part I

Posted by William Byrnes on August 2, 2014

free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

On August 1, 2014 the OECD issued its report “Impact Of BEPS In Low Income Countries, Part I” concludes that developing countries often face policy and other conditions that impact on their abilities to address base erosion and profit shifting.  The OECD reported the following:

  • Some developing countries lack the necessary legislative measures needed to address base erosion and profit shifting.OCDE_10cm_4c
  • Developing country measures to challenge BEPS is often hindered by lack of information.
  • Developing countries face difficulties in building the capacity needed to implement highly complex rules and to challenge well-advised and experienced MNEs.
  • The lack of effective legislation and gaps in capacity may leave the door open to simpler, but potentially more aggressive, tax avoidance than is typically encountered in developed economies.

In this report, the developing countries and international organizations identified the following key BEPS issues as being of most relevance:

  • Base erosion caused by excessive payments to foreign affiliated companies in respect of interest, service charges, management and technical fees and royalties.
  • Profit shifting through supply chain restructuring that contractually reallocates risks, and associated profit, to affiliated companies in low tax jurisdictions.
  • Significant difficulties in obtaining the information needed to assess and address BEPS issues, and to apply their transfer pricing rules.
  • The use of techniques to obtain treaty benefits in situations where such benefits were not intended.
  • Tax loss caused by the techniques used to avoid tax paid when assets situated in developing countries are sold.

In addition, the developing countries often face acute pressure to attract investment through offering tax incentives, which may erode the country’s tax base with little demonstrable benefit.

Part I of the report offered the interim conclusion that BEPS has the potential to considerably impact on domestic resource mobilization in developing countries. The OECD identified that the risks faced by many developing countries may differ from those faced by more advanced economies. The OECD will issue Part II of the report in September of 2014.

Part II will set which of the 15 actions included in the BEPS Action Plan are of most relevance to developing countries and whose corresponding outcomes can be expected to benefit them.  Also, the report will discuss other BEPS-related issues not in the Action Plan, including wasteful tax incentives, the lack of comparability data in developing countries and tax avoidance through the indirect transfer of assets located in developing countries. Part II will also discuss capacity building initiatives that, in the developing country context, must go hand in-hand with regulatory measures.

See my other transfer pricing articles at https://profwilliambyrnes.com/category/transfer-pricing-2/


Lexis’ Practical Guide to U.S. Transfer Pricing, 28 chapters from 30 expert contributors led by international tax Professor William Byrnes,  is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.

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