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BEPS action plan unveiled – what does it mean for you?

The Organisation for Economic Co-operation and Development (OECD) has today unveiled its much anticipated (and long awaited) proposals that will radically overhaul international taxation around the world.

The recommendations have been borne out of the increasing public and political furore over the taxation of international businesses. The main aim is to get countries to collaborate more closely on eliminating controversial loopholes in the international tax system. But as tax becomes an ever more public and emotive issue, the remit now touches almost every area of international taxation.

Although the reports have been billed as the 'final' BEPS reports and will be applauded by the G20 at their meetings in Lima this week, the devil is in the detail. This detail will be worked through over the next months and years, and a lot will depend on implementation – or otherwise - by countries themselves.

Here we  provide a summary of the announcements for each of the 15 action points and what it could mean for you. More analysis will follow in due course. If you have any questions please do not hesitate to contact your usual Grant Thornton contact.

Minimum standards were agreed in particular to tackle issues in cases where no action by some countries would have created negative spill overs (including adverse impacts of competitiveness) on other countries. Recognising the need to level the playing field, all OECD and G20 countries commit to consistent implementation in the areas of preventing treaty shopping (Action Point 6), Country-by-Country Reporting (Action 13), fighting harmful tax practices (Action point 5) and improving dispute resolution (Action point 14).

BEPS action plan

Action 1: Addressing the tax challenges of the digital economy

No new taxes or recommendations unique to the digital economy were suggested by the OECD but the door is still open for unilateral safeguard actions.


The OECD has recognised that while certain features of the digital economy exacerbate BEPS risks,  it "..would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes". As a result, it is not surprising that the recommendations in relation to the digital economy merely draw on wider themes and recommendations from other action points (covered in more detail elsewhere in this summary). These include:

  • modification to the definition of PE and restricting exemptions (see Action 7)
  • introduce a new anti-fragmentation rule, and modification of PE definition to cope with artificial arrangements (see Action 7)
  • transfer pricing guidance (see Actions 8-10)
  • design of effective Controlled Foreign Companies (CFC) rules (see Action 3)

The OECD also commented on the importance of levying VAT/GST on cross-border transactions and recommends applying the principles of the previously issued international VAT/GST guidelines – a destination principle - and for countries to consider the introduction of collection mechanisms including the reverse charge.

Worryingly, while the OECD has veered away from recommending economic nexus or withholding taxes, it has stated that countries could still introduce these unilaterally in domestic legislation, as additional safeguards against BEPS provided that they still respect existing treaty obligations, or in their bilateral tax treaties.

Key dates

See individual action points for detail on the timetable of implementing key recommendations. It is expected that the development of a multilateral instrument will be concluded by the end of 2016. The OECD has said that it will review new granular tax data from country by country reporting and VAT returns to ascertain if additional multilateral action is needed in relation to the digital economy (although this is unlikely to be before 2020).

What next?

Ensure systems are aligned with BEPS Actions and they provide sufficient visibility and transparency over your tax and transactional data.

Action 2: Neutralising the effects of hybrid mismatch arrangements

The OECD has made comprehensive recommendations for changes to both domestic law and double taxation treaties to neutralise the effect of tax mismatches arising from the use of hybrid entities or instruments.


The final report follows the recommendations in the interim report issued in September 2014 and provides additional guidance and examples. As it is often difficult to identify which country has lost tax revenue, there is no ‘purpose’ test in the recommendations. As a result, the rules are not aimed solely at tax-avoidance motivated structures, and will apply to any situation where there is a mismatch.

For domestic law, the recommendation is a linking rule which will link the tax treatment in one party to the transaction to the tax treatment of the other side, even though they are in different territories. In order to ensure that the rules are effective, even if not every territory implements them, there is a Primary rule and a Defensive rule. By having two layers of rules, only one territory has to have implemented the recommendations for the mismatch to be neutralised.

The recommendation is that the rules will apply only to mismatches arising within a ‘control group’ or ‘structured arrangements’. There are recommended definitions of these terms, which are fairly widely drafted but in line with both previous expectations and current definitions within UK legislation. The ‘control group’ threshold is set at 25%.

The proposed rules will not apply to payments where the tax mismatch is caused by something other than a hybrid element. In particular, the rules should not apply where a payment is made to a tax exempt entity, for example an entity tax resident in a tax haven. The rules should also not apply where there is a mismatch due to a notional deduction granted for tax purposes.

Key dates

  • Countries are now free to implement the domestic law changes in line with their law-making process, and the UK have announced an intention to change the UK rules effective for payments made on or after 1 January 2017. This gives groups a year in which to identify any payments likely to be caught and restructure if necessary, however until draft legislation is released we do not know exactly what will be covered.
  • We expect that the other OECD member states will also make legislative changes in a similar timescale to the UK, however the recommendations are such that not all countries are required to implement the rules for them to be effective.
  • The recommended treaty changes may be wrapped up into the amendments being contemplated by the multilateral instrument, depending on how that process plays out during 2016. If they are not contained within the multilateral instrument then it may take some time for all bilateral treaties to reflect the changes.

What next?

All multinational businesses should review their group structure and financing arrangements and identify any entities or financial instruments which are hybrids. We can assist with this review and in particular, we can liaise with other member firms to understand the local tax treatment of entities or instruments.

Where a group is aware of a particular structure which gives rise to tax efficiencies owing to the presence of a hybrid entity or financial instrument then we can assist in identifying alternative structures which give the same commercial outcome. For example, many groups with US operations may have implemented the ‘Tower’ structure, which will need to be unwound in light of these recommendations. The on-going financing needs of the US operations can be met through a number of alternative structures which we can advise on.

Action 3: Designing effective controlled foreign company rules

The OECD provides recommendations (as opposed to minimum standards) which are intended as building blocks for potential controlled foreign company (CFC) legislation, should OECD member countries choose to implement them.  The recommendations are less prescriptive than the measures included in other BEPS Actions, although they are nevertheless wide-ranging. The recommendations seek to provide flexibility in the implementation of new or revised CFC rules to allow for countries' own policy objectives, while they are intended to be compatible with EU law.


The final recommendations focus on a number of key 'building blocks' that are considered necessary for CFC legislation to be effective: 

  • a definition of a CFC, which can include non-corporate entities such as partnerships and permanent establishments
  • the meaning of control which could be legal, economic, accounting-based or de facto control including a combination of these concepts, with special rules to deal with minority shareholders acting in concert, related party interests and indirect control
  • possible exemptions based on tax rate, minimum profit thresholds, motive requirements, level of substance or 'white lists'
  • a non-exhaustive list of approaches or combinations of approaches for defining CFC income including income of holding companies, certain finance activities, sales invoicing, intellectual property income, income from digital goods and services, insurance and captive insurance income. This might involve a carve-out for genuine economic activities based on transfer pricing tests but with a more mechanical approach, an excess profits analysis which focuses on a normal commercial return or an entity or transaction approach.  Capital gains, however, appear to be excluded

A further main recommendation is that the computation of CFC income should be based on the parent country's rules with the offset of a CFC's losses being restricted to other income of the same CFC or CFCs in the same territory, with the attribution of profits being tied to the control threshold.  Suggested measures for the prevention and elimination of double taxation are also included.  

Key dates

With most countries anticipated to introduce domestic rules in response to BEPS from 1 January 2017, it appears that many groups may need to consider restructuring some of their activities including intra-group financing and captive insurance arrangements so they are not caught by new CFC legislation.  While certain arrangements may be able to benefit from exemptions under the existing UK CFC rules, they may no longer be effective if the UK Government adopts the OECD's final recommendations on these concepts.

What next?

One of the key objectives of the proposals is to prevent avoidance while reducing administrative and compliance burdens.   It is not clear how this will be achieved in practice as taxpayers generally face significantly increased compliance burdens as a result of new CFC rules, along with major restructuring which in some cases which can be costly and time-consuming.

The report is silent on whether the OECD consulted with the European Commission on the measures recommended to make CFC rules compatible with EU law and some commentators may feel that the European Commission and European Courts are better placed to make recommendations or judgments on such matters.

Action 4: Limiting base erosion involving interest deductions and other financial payments

The OECD recommended approach is to limit interest deductions based on a fixed percentage of between 10% and 30% of earnings before interest, taxes, depreciation and amortization (EBITDA).  However, further work is required by the end of 2016 on Group ratio rules, the application of Action 4 to companies in the banking and insurance sectors, and the use of additional targeted rules.


Following from the earlier discussion draft, the OECD recommendation is for interest deductions to be limited to a fixed percentage of EBITDA, effectively removing the arm's length principle. Countries are recommended to set their fixed ratio at between 10% to 30%, referred to as the 'corridor'.  There is a tightly targeted relaxation for public sector asset investment structures, which are usually very highly geared structures.

This best practice approach may be supplemented by a group ratio rule to address some of the bluntness of a fixed ratio rule and permit a higher deduction in more (commercially) highly leveraged groups. However, the mechanics and recommendation on a group ratio rule will be examined by the OECD in 2016 and a follow-up report issued.  Further consultation is also expected on implementing BEPS Action 4 in the banking and insurance sector, which will also be completed during 2016.

It is clear that significant further work has still to be done on the mechanics and implementation of the recommendations including transitional rules which the OECD acknowledges are expected.

The broad 'corridor' that has been recommended, and the options set out in respect of the carry forward and carry back of excess interest and interest capacity, all suggest the future clarity and uniformity of the taxation of interest is far from secure.   

Key dates

The OECD have given no guidance on the implementation timeline.  However, in light of the extra work scheduled for 2016,  we estimate legislative changes may be deferred until 2017.

What next?

Groups should start modelling the likely impact. We will be pleased to discuss how to do this and the recommendations with you.  The public sector investment exclusion may be an intended concession to the UK PFI/PPP industry however, the conditions suggested the relaxation of the general rule will be applicable in only very specific circumstances. 

Action 5: Countering harmful tax practices more effectively, taking into account transparency and substance

The new ‘nexus’ preferential IP regime (patent box in the UK) requires that there now needs to be a process whereby the research and development (R&D) undertaken to develop an IP asset (termed ‘substantial activity') has taken place within the territory of the preferential IP regime providing the link, or nexus between R&D expenditure and IP income.


Action 5 contains one of only four minimum standards implemented by the BEPS project, on which competent authorities will be externally monitored.

In its existing form the current preferential IP regime in the UK, patent box, was one of the areas reviewed by the Forum on Harmful Tax Practices (FHTP) as they could encourage artificial profit shifting. It was agreed that the ‘substantial activity’ requirement should be strengthened to ensure that the taxation of profits are properly aligned to the activities that generated them. The nexus approach uses expenditures as a proxy for substantial activity and ensures that taxpayers benefiting from these regimes undertook the related R&D and incurred actual expenditures on such activities that generated the IP.

There are many new requirements in the nexus approach that patent box claimants will need to comply with, such as the requirement to continually track and trace income and expenditure to ensure that the ‘nexus’ can be evidenced between the cost to create the IP asset and the income it generates. Further there is also a calculation (nexus ratio) described in the report which seeks to define the ratio between income and expenditure but there is scope within the report to apply a ‘rebuttable presumption’ where, if the claiming company believes that the nexus ratio does not properly describe the income eligible for the patent box tax relief, there is scope to prove that more income should be allowed. 

With regard to transparency, a new framework has been agreed that ensures mandatory and spontaneous exchange of information on rulings that could give rise to BEPS concerns in the absence of such exchange.

Key dates

  • No IP assets to be shifted on or after 1 January 2016; this means that assets sat outside existing IP regimes may no longer be able to access the tax benefit provided by the grandfathering provision.
  • No new entrants to the existing patent box scheme after 30 June 2016.
  • The abolition date of the existing scheme is 30 June 2021 (the grandfathering provision).
  • Nexus approach enacted July 2016.

What next?

We were actively involved in working with Her Majesty’s Treasury team during the nexus approach consultation phase and as such we are well placed to advise, assist and help you to ensure you access the correct patent box scheme through precise compliance to the schemes complex requirements. We would strongly recommend that given the short timetable, early conversations with our team would be beneficial.

Action 6: Preventing the granting of treaty benefits in inappropriate circumstances

The OECD's recommendations on preventing the granting of treaty benefits in inappropriate circumstances will increase the complexity and administrative burden associated with claiming relief under double tax treaties. This, in turn, is likely to give rise to increased occurrences of double taxation.


The OECD have kept to their recommendation in their initial report and discussion draft of adopting a three-pronged approach to tackle treaty shopping and treaty abuse. In addition to recommending that tax treaties include a clear statement that they not intended to create opportunities for double non-taxation or reduced taxation through tax evasion or avoidance (including treaty shopping arrangements), a formulaic Limitation of Benefit (LOB) clause and a Principal Purpose Test (PPT) are also proposed.

The OECD's recommendations acknowledge domestic anti-abuse rules which exist in certain jurisdictions as well as other specific points relevant to certain regimes (such as the need to comply with EU law, for example)
Although the OECD have reinforced their view that Collective Investment Vehicles (CIVs) (eg  UCITS and mutual funds) should, prima facie, qualify under any LOB clause as a 'qualified person', the position in relation to non-CIVs (eg sovereign wealth funds, hedge funds, private equity funds etc.) has still not been clarified and this is likely to be a key concern for the asset management industry.

Key dates

The proposals in relation to the LOB, which largely follows the preferred current US LOB clause ,  have been deferred until to the finalisation of the new version of the US LOB clause in the US Model tax treaty.
Although a simplified LOB clause was proposed by the OECD in their May 2015 revised discussion draft, the OECD state in their final report that further work is required in refining this clause and it is expected that this work will be undertaken during the 'first part' of 2016.

Further work is also anticipated in relation to non-CIVs, Real Estate Investment Trusts (REITs) and pension funds which, as with work on the simplified LOB, the OECD anticipate will be undertaken during the first part of 2016.


Despite issuing a final report, a number of fundamental issues remain unaddressed. It also remains to be seen exactly how the OECD's recommendations will be adopted by jurisdictions through the BEPS multilateral instrument and through changes in domestic tax legislation.

What is clear, though, is that the OECD's recommendations will incorporate a US style LOB clause  and a PPT provision and multinational groups should start considering how such provisions may impact their corporate and investment structures.

Action 7: Preventing the artificial avoidance of permanent establishment status

Changes to the model OECD tax treaty on permanent establishment (PE) mean that more activities are likely to fall within the new PE definition, however guidance on the attribution of profits of PE's is still outstanding.

The rules on sales activity and warehousing/storage have significantly changed which is expected to make it harder to avoid a PE in the normal course of business.


Action 7 develops changes to the definition of a PE to prevent the artificial avoidance of PE status. The recommendations significantly increase the likelihood that the activities of groups with international operations (both large and small) will now constitute a PE in another country where previously they did not.  This applies to both outbound and inbound groups in a UK context.

Where sales activities meet the new definition of "habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise" then a PE will now exist.  This is not intended to apply to Limited Risk Distributors.

The specific exemptions from PE status are now all subject to the ‘preparatory or auxiliary’ test. An activity that has a preparatory character is one that is carried on in contemplation of an enterprise’s activity. An activity that has an auxiliary character is one that supports an enterprise’s activity, without being a main part of it.

Key dates

The guidance and revisions to the Articles issued mention no key dates. The revised changes are subject to when individual countries adopt them within their definition of PE's. The OECD will hope to issue guidance on the attribution of profits for PE's by the end of 2016.

What next?

Businesses should review international operations in light of the suggested changes to PE's. Where PE's do exist there is likely to be increased compliance around filing tax returns with the local tax authorities and making tax payments. Companies will need to have more robust processes and procedures in place to track their globally mobile employees and short term business visitors in each relevant location for employee reporting purposes. Businesses should also review the indirect tax aspects of contractual relationships in light of these changes.

Actions 8–10: Aligning transfer pricing outcomes with value creation

The OECD has rewritten large parts of the Transfer Pricing Guidelines (TPG) in order to align transfer pricing outcomes with the assumption of risks and capital and value creation.

The arm's length principle

Guidance on the application of the arm's length principle has been revised so that transactions should only be re-characterised in exceptional circumstances and contractual terms are still important, as long as they are followed. The starting point of any analysis will be the economic circumstances of the parties involved.

Material "economically significant" risks should also be examined in more detail with a six-step process recommended. Profits should accrue to the parties that have the capacity to, and actually do, manage the risks. There are some helpful examples on the allocation of risk including an example of a 'cash box' IP holding company, which does not manage or assume risks and therefore, in the example, would only be entitled to a financing related return.

The previously agreed position on location savings, assembled workforce and group synergies has been confirmed. These matters are included as comparability factors rather than intangibles per se.

The guidance reiterates that a comparability analysis is at the heart of the application of the arm's length principle, however the focus of the commentary has shifted towards analysis of risks, reward for risk and control over risk. Contractual terms between parties will continue to be important, as long as the conduct of the parties is consistent with the terms.

In the session on re-characterisation of transactions, the key point mentioned is whether the transaction possesses commercial rationality. Helpfully the section still refers to only disregarding the actual transaction in exceptional circumstances.

Commodity transactions

The new guidance includes clarification as to how the comparable uncontrolled price (‘CUP’) method applies to commodity transactions. Essentially, quoted prices can be used under the CUP method but comparability adjustments to those quoted prices should be made in some circumstances.

A new provision has been introduced regarding the determination of the pricing date for commodity transactions, designed to prevent taxpayers from varying pricing dates in contracts to give a tax advantage. For example, tax authorities may under certain conditions, impute the shipment date instead.

Profit splits

Transactional profit splits can be a useful tool, to align profits with value creation in global value chains, but they can be complex for taxpayers to apply and for tax authorities to evaluate.

Today's report outlined the proposed scope for future guidance on the application of the transactional profit split including interactions with other parts of the BEPS programme such as the work on Action 1 (the Digital Economy) and the guidance on group synergies and intangibles. The new guidance will also consider how to address the situations where the availability of comparables is limited.


The OECD emphasises entities will earn economic returns based on the value they create through functions performed, assets used and risks borne in the development, enhancement, maintenance, protection and exploitation of intangibles; legal ownership alone does not determine entitlement to reward.

The framework for analysing intangibles transactions involves identifying the intangibles used or transferred and the economically significant risks, identifying the full contractual arrangements with the emphasis on legal ownership as a starting point, identifying the parties performing functions, using assets or managing risks, reviewing the legal contracts against the actual conduct of the group entities, delineating the actual transaction and determining arm’s length prices consistent with each parties’ contribution. Where the actual conduct of the entities differs from the contractual arrangements, conduct will prevail and the actual transaction will be deduced from the facts.

Comparability adjustments or adoption of a transactional profit split method are only required when the intangibles used are unique and valuable in nature. Where reliable comparables exist, it is often possible to determine arm’s length prices on the basis of one sided methods.

Hard to value intangibles

The term hard-to-value intangibles (HTVI) covers intangibles or rights in intangibles for which, at the time of their transfer between associated enterprises, (i) no reliable comparables exist, and (ii) at the time the transactions was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain, making it difficult to predict the level of ultimate success of the intangible at the time of the transfer.
As a result of information asymmetry, it can be difficult for a tax administration to evaluate the reliability of the information on which pricing has been based by the taxpayer.

Where the tax administration is able to confirm the reliability of the information on which ex ante pricing has been based, then adjustments based on ex post profit levels should not be made. In evaluating the ex ante pricing arrangements, the tax administration is entitled to use the ex post evidence about financial outcomes to inform the determination of the arm’s length pricing arrangements.
Low value adding services

An elective, simplified approach has been proposed for pricing specific low value adding intragroup services for MNE groups.. There is a list of activities that will be included within this regime and those that definitely will not be included, which is disappointingly prescriptive. Again, this is 'best practice' so not all countries will therefore apply this welcome safe harbour.
Where the country does adopt these rules, the mark-up on costs should be 5%, and this does not need to be justified by a benchmarking study.

Countries may also include a threshold, where the simplified approach can be re-examined and possibly rejected. For example, the threshold could be based on fixed financial ratios of the recipient party or by reference to a group wide ratio of total service costs to turnover.

Countries are encouraged to only levy withholding tax on the profit element or mark-up on the provision of low value adding intragroup services.

Cost contribution arrangements 

The OECD has issued revised guidance on cost contribution arrangements (CCAs). The revised guidance seeks ensure that CCAs are not used to circumvent new guidance issued on the transfer pricing aspects of assuming risk and intangibles.
CCAs are arrangements among business enterprises to share the costs and risks associated with developing, producing or obtaining tangible or intangible assets, or services, which are expected to create benefits for each of the participants of the CCA.

The revised guidance emphasises the need to apply robust transfer pricing analysis to CCAs in the same was as it should be applied to all other contractual arrangements. Furthermore, a business can only be a participant to a CCA if there is a reasonable expectation that it will benefit from the outputs of the CCA activity and it has control over the risks as well as having the financial capacity to assume those risks.

In addition, the guidance notes that contributions to the CCA (especially if they are intangibles) should not be measured at cost if it is unlikely that cost is a good measure of the relative value of the participants’ contributions.

Key dates

  • Once the new guidance has been formally added to the TPG, implementation will depend on the domestic rules for adopting the Guidelines into local legislation. For example, in the UK the OECD Guidelines are part of domestic legislation and will then be enacted automatically when this wording is adopted into the OECD Guidelines.
  • Certain elements of these action points have been deferred until 2016 including guidance on commodity transactions, profit split and implementation of the approach to pricing hard-to-value intangibles.

What next?

At Grant Thornton we remain engaged in the OECD BEPs debate; both to influence the outcomes and to keep our clients up to date. In the light of the above, we recommend the following next steps:

  • Compare the terms of your contracts with the actual conduct of your businesses that develop intangibles. Where there is a potential for divergence between them, identify and quantify the associated tax risks and implement strategies to mitigate those risks
  • Define and evaluate your intangible assets, in the context of the valuation techniques discussed in the new chapter
  • Document in detail the sale, transfer and licensing of intangibles and the pricing methodology applied to support the arm’s length nature of the transaction
  • Review your existing CCAs and those planned in the near future to assess how the contributions of each of the participants and the operation of the CCA compare with the new guidance
  • Follow the debate on profit splits and consider how the proposed scope of work may impact on the transactional profit splits that operate in your business

Intangibles remain a complex, problematic and challenging area of transfer pricing, which is hard to navigate without professional advice. We would be happy to discuss your circumstances in the light of the new guidance.

Action 11: Measuring and monitoring BEPS

The OECD have confirmed the available data confirms that many groups are undertaking BEPS activities, however they require more data to accurately quantify the scale of the problem and monitor future changes in behaviour. It is estimated that between 4% and 10% of global corporate income tax revenues are lost as a result of BEPS activities.


In 2013 the OECD identified that whilst they had anecdotal evidence of BEPS, there was a lack of data available to understand the extent of it and quantify the impact in terms of lost tax revenue.

Over the past 2 years, the OECD has reviewed the available data and identified that BEPS exists and calculated a high level estimate that it could be costing between USD 100 and 240 billion annually in lost tax revenues. However, they also acknowledge that there is a lack of useful data and therefore they are limited in their ability to draw strong conclusions and accurately estimate the scale of BEPS.

In order to have better data in the future, the OECD have identified six ‘indicators of BEPS’. Briefly, they are looking to identify tax planning that results in a disconnect between where taxable profit is returned and where the real economic activity that generates those profits is located.

Since the OECD does not receive any data relating to taxpayers itself, it is recommending that governments work closely with taxpayers to collate appropriate data to be able to quantify the existence of BEPS and measure the impact of the legislative changes being brought about by the OECD BEPS project. This will need to be done carefully to protect taxpayer confidentiality and will in part be built on the back of CbCR..

Key dates

Clients should be aware that the OECD and, by extension, HMRC, will be collecting data on BEPS and they should consider carefully how information is presented in publicly available documents as well as tax returns. For the largest groups, this will link into country by country reporting, which is likely to be the main source of additional data on BEPS which the OECD will be asking governments to analyse.

What next?

We can provide assistance in relation to any plans to publish additional information regarding tax strategy, to manage reputational risk and support you with tax authority enquiries.

Action 12: Mandatory disclosure rules

The OECD has recommended that mandatory disclosure regimes (MDR) should be widened and strengthened to combat cross-border tax avoidance more effectively.  The UK's disclosure of tax avoidance schemes (DOTAS) regime is cited in OECD recommendations as a good example for a model MDR.


The OECD has provided countries with no current MDR arrangements a template upon which to introduce them. It encourages all OECD member countries to consider implementing their own international MDR arrangements to more effectively catch aggressive cross-border tax avoidance.

The final report has highlighted some areas where the UK leads by example and some areas where the DOTAS regime could be strengthened:

The OECD report uses examples from the DOTAS regime to highlight how a MDR could be structured, demonstrating how the UK Government is seen as leading the way in countering tax avoidance.
MDRs should target cross-border tax planning more effectively, which could lead to the UK Government amending DOTAS or even creating a new international MDR.

The 'international MDR' recommendations highlight that some planning may be bespoke rather than mass marketed and that both should be targeted, which means the scope of an international MDR may be very wide.

If more countries implement their own version of a MDR, it will be crucial to understand the similarities and differences between regimes; something that is not caught in the UK may be caught elsewhere, and vice versa.

Key dates

The OECD has not outlined any set time for jurisdictions to implement a MDR or international MDR.

What next?

Whether the UK Government take action or not, the report shows a very clear intention to further clamp down on tax schemes and perhaps other planning as well. Our national tax investigations team have extensive experience in helping clients to unwind previous planning and dealing with the impact of the UK DOTAS regime. We can help you bring your affairs up to date and support you in assessing whether your existing arrangements may be caught by proposed international MDR.

Action 13: Transfer pricing documentation and country-by-country reporting

A three-tiered standardised approach to transfer pricing documentation is recommended: a group master file (MF), local country files (LF) and a country-by-country report (CbCR).  Together, these are designed to provide tax administrations with the information to assess transfer pricing risk.


Multinational businesses will be required to prepare transfer pricing documentation comprising a MF with high level information on the group’s operations, and LF for each country of operation, showing detailed transactional data and material related party transactions, and the transfer pricing approach applied. There is no threshold for MF and LF but the CbCR will be required only for the largest businesses whose annual consolidated group revenue is at least €750m, starting from accounting periods beginning on or after 1 January 2016.

The MF and LF have been left to each local country to implement, raising fears of continued inconsistency and burdens on taxpayers. Exemptions for SMEs are also just 'best practice' recommendations which is disappointing. Penalties for failure to prepare or submit transfer pricing documentation will also continue to be determined by the local tax administration in each country

The CbCR is, thankfully, more standardised and requires 8 pieces of information (related and third party revenue, profit before tax, income tax paid and accrued, stated capital, accumulated earnings, number of employees and tangible assets).

The CbCR provides tax administrations with a ‘big picture’ of the group’s operations. The report will be filed with the tax authority in the country of the group’s ultimate parent and then shared with tax authorities in other countries.
Tax administrations are required to ensure the confidentiality of the information contained in both the transfer pricing documentation and the CbCR; there are no plans for public disclosure.

Key dates

  • MNEs should prepare transfer pricing documentation contemporaneously, based on the MF /LF recommendations and other local rules and update the documentation annually. The MF should be prepared by the tax return filing deadline for the ultimate parent. The LF should be finalised by the filing deadline for the local corporate tax return.
  • The new CbCR requirements will apply for financial years beginning on or after 1 January 2016 (i.e. the first reports, for affected MNEs with an accounting period beginning 1 January 2016, will be filed by 31 December 2017).
  • The OECD will review the implementation and effectiveness of the new standards by the end of 2020 and may potentially widen the scope of CbCR.

What next?

We can help businesses comply with the revised standards by reviewing risk across the group, preparing or reviewing transfer pricing documentation in the MF and the LF format, and advising on the preparation and crucially, presentation of the CbCR.

Action 14: Making dispute resolution mechanisms more effective

Multi-jurisdiction tax disputes will increase in number following the introduction of the BEPS measures. At present, such disputes are handled through the mutual assurance procedure (MAP), but the system is often slow and unwieldy. Action 14 delivers a promising commitment to MAP and potentially exciting support for mandatory arbitrations. However, there is much yet to be clarified.


Action 14 contains one of only four minimum standards implemented by the BEPS project, on which competent authorities will be externally monitored. This reaffirms the importance of MAP as a principle, both at a treaty level, and in ensuring greater clarity for taxpayers and fellow competent authorities on how each country provides access to MAP and what MAP procedures exist.

The minimum standard also stresses the need for competent authority staff who handle MAP cases to have sufficient independence of decision-making within their organisation. There is a commitment for each country to provide sufficient resource to handle MAP.

20 jurisdictions have also made a supplementary commitment to mandatory arbitration as part of MAP procedures, although this is not part of the minimum standard. These jurisdictions held 90% of unresolved MAP cases at the end of 2013.

However, important issues remain to be clarified. These include:

  • how jurisdictions will ensure, in an era of austerity, that sufficient resource is provided for MAP procedures;
  • there will be an average time of 24 months in which MAP cases must be concluded, but when is MAP thought to be initiated and concluded; and
  • a major debate is yet to be resolved on whether there is a time-limit after which MAP adjustments cannot be made, and if so, whether this can result in a one-sided adjustment without corresponding relief for taxpayers.

Similarly, some of the strongest recommendations for taxpayers looking to access MAP are contained in the eleven best practices, rather than the minimum standard. These include recommendations for competent authorities to suspend tax collection mechanisms whilst MAP is in progress, the provision of up-front guidance on generic MAP situations and clarification of MAP with decisions reached in domestic courts. As with other BEPS actions, much work remains to be done.

Key dates

The terms of reference and assessment methodology are to be developed by Q1 2016.

What next?

Our  national tax investigations teams can help you resolve your disputes with HMRC and our specialist transfer pricing team has experience with MAP applications. Should you wish to enter MAP, we can also offer support across bilateral and multilateral tax issues through our network of international member firms.

Action 15: Developing a multilateral Instrument to modify bilateral tax treaties

Action 15 modifies existing bilateral tax treaties to implement a multilateral instrument which has the same effect as renegotiating thousands of tax treaties. This will increase the speed, efficiency and innovation of dealings across different jurisdictions.


The OECD is exploring the feasibility of a multilateral instrument that would have the same effects as a simultaneous renegotiation of thousands of bilateral tax treaties, whilst still respecting sovereign autonomy of jurisdictions in tax matters.

The aim is to streamline the implementation of the tax treaty-related BEPS measures, of which there is no precedent within the tax world. A multilateral agreement will implement agreed treaty measures over a reasonably short period of time whilst preserving the bilateral nature of tax treaties, in order to ensure:

  • the multilateral instrument is highly targeted
  • existing bilateral tax treaties can be modified in a synchronised way with respect to BEPS issues without having to resort to  individual action
  • a succinct response to the political imperatives behind the BEPS project, allowing abuses of BEPS to be curtailed and permitting the swift governmental achievement of international tax policy goals, without creating the risk of violating existing bilateral treaties

The difficulty facing Action 15 is that participation in the development of the multilateral instrument is not compulsory, and signing up to such an instrument once it has been finalised is entirely voluntary; thus the enforceability of such an instrument remains to be seen.

Key dates

The development of the multilateral instrument commenced in May 2015, with the aim to conclude and have the instrument ready for signature by 31 December 2016. However, since domestic participation is voluntary, any key dates regarding this instrument will be entirely dependent upon forthcoming, if any, UK governmental action.

What next?

We will be keeping developments on this and all the key actions under close review and will be happy to  discuss with you as the detail emerges.