Questions and answers on BEPS
Published 26/07/2014 | 02:30
So what's BEPS?
The OECD, a Paris-based club of economies, has an effort under way to tighten tax rules and treaties, and to increase government tax information sharing.
BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits 'disappear' for tax purposes. It also means profits can be shifted to locations where there is little or no real activity but the taxes are low, resulting in little or no corporate tax being paid.
* Are BEPS strategies illegal?
In most cases, they aren't. Largely they just take advantage of inconsistencies in the rules. But even if they are legal, the OECD argues it distorts competition and claim businesses that operate cross-border may profit from BEPS opportunities, giving them a advantage over enterprises that operate at the domestic level.
* So is Ireland's 12.5pc corporate tax rate under threat?
Ireland has stressed that it is committed to the 12.5pc corporate tax rate and nothing will change that. The OECD has signalled that issues such as the 'double Irish' – where a proportion of a company's profits end up in a tax haven – could, however, be brought to an end.
* Why has the move against BEPS happened now?
Largely for political reasons. As countries face austerity amid the financial crisis, it doesn't look good for big companies to be exploiting rules to maximise profits.
With the United States unable to muster the political will to overhaul its own tax code, the G20, a group of the world's top economies, last year asked for help from the OECD.
* How has the business world reacted to the BEPS plan?
It has sent shudders through the international tax planning business, a thriving community of lawyers, accountants and lobbyists who devise, carry out and defend strategies, to help multinationals cut their tax bills.
* So when will changes be unveiled and come into force?
Completion is not expected until 2015 and it will have no force in law, with action then needed at national level. Getting corporate and government tax information systems in sync will be a challenge.