The G20/OECD Inclusive Framework on BEPS (“IF”) has, on 1 July 2021, approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement” or so called “BEPS 2.0”). The Statement is approved by 133 countries and jurisdictions of the 139 countries and jurisdictions comprising the IF, including Hong Kong and China, as of 12 August...
On 5 October, the OECD has issued the Final Reports on the BEPS 15 Action points and it is expected that the G20 Finance Ministers will discuss and endorse the Reports and the recommended changes at their meeting on 8 October, in Lima, Peru. It is undeniable that the BEPS Action plan will dramatically reshape the existing international tax rules. The OECD/G20 Base Erosion and Profit Shifting (BEPS)...
As a member of the G20, China has expressed its strong support to Base Erosion and Profit Shifting (“BEPS”) Action Plans being studied by the OECD, the final report of which was issued on 5 October 2015, and has been deeply involved in the BEPS development process. It has been expected that the BEPS project would have a significant influence on the work of China’s State Administration of Taxation...
Statement on a Two-Pillar Solution to Address the Tax Challenges arising BEPS 2.0: Pillar 1 and Pillar 2
The G20/OECD Inclusive Framework on BEPS (“IF”) has, on 1 July 2021, approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement” or so called “BEPS 2.0”). The Statement is approved by 133 countries and jurisdictions of the 139 countries and jurisdictions comprising the IF, including Hong Kong and China, as of 12 August 2021.
February 2021 - OECD Guidance on transfer pricing implications of COVID-19
On 18 December 2020, the OECD published Guidance on the transfer pricing implications of the COVID-19 pandemic (“OECD Guidance”) providing guidance to taxpayers when applying the arm’s length principle and applying the OECD 2017 Transfer Pricing Guidelines (“TPG”) for periods impacted by the COVID-19 pandemic.
January 2021 - Changes are around the corner: the BEPS 2.0 Pillar 1 update
In October 2019, the OECD released proposals for a new unified approach to taxation of multinational enterprises in the digital environment, the so-called Pillar 1 of the BEPS 2.0 project. In November 2019, the OECD also released the Global Anti-base Erosion (GloBE) proposal, the so-called Pillar 2 of the BEPS 2.0 project. On 12 October 2020, the G20/OECD Inclusive Framework on BEPS (“Inclusive Framework”) released two detailed “blueprints” in relation to its ongoing work to address the tax challenges arising from the digitalization of the economy (“Pillar 1”) and in relation to the tax rules designed to ensure that large multinational businesses pay a minimum level of tax on all profits in all jurisdictions (“Pillar 2”).
The OECD’s aim is to bring the process to a conclusion by mid-2021.
This tax newsletter comments on the Pillar 1 initiation, and we would comment on the Pillar 2 in a separate tax newsletter.
For more information, please download our newsletter to read more.
Final OECD Transfer Pricing Guidelines on Financial Transactions (Part I: Intra-Group Loans)
The Organization for Economic Co-operation and Development (OECD) has released in February 2020 the final Transfer Pricing Guidance on Financial Transactions (“Guidance”). The Guidance provides an insight on the arm’s length treatment of various financial transactions among related parties. The Guidance has been published as a follow up guidance in relation to Base Erosion and Profit Shifting (“BEPS”) Action 4 and Actions 8-10. Sections A-E of the Guidance will be added as a new Chapter X of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECD TPG”), whereas the guidance on the determination of risk-free and risk-adjusted rates of return ( Section F) will be included in Chapter I of the OECD TPG. This is the first time that multinational enterprise (MNE) groups are provided with guidelines on how to structure and price intra-group financial transactions.
April 2020 - TRANSFER PRICING IN THE WAKE OF COVID-19 AND THE RECENT CHINA-US TRADE DISPUTE
Multinational enterprises (MNEs) which source their products manufactured in China or sell to the China market will be adversely affected by the coronavirus disease 2019 (COVID-19) and the recent China-US Trade Dispute during 2019. In addition to a declining global economy because of the above un-fortunate factors, these MNEs will face disruptions to their supply chains and challenges of moving personnel cross borders, which will likely lead to an erosion of profit margins.
Both the China and the Hong Kong governments have announced emergency measures to help the businesses in the two regions. Nevertheless, while the governments will provide stimulus to help the economy, they would need to boost tax revenues to finance these measures, not necessarily by increasing the tax rate, but by looking at the MNEs to raise tax revenues. MNEs, which may generally be perceived by the governments and the broader population as not paying their fair share of taxes, will likely be in the crosshairs of the tax authorities, including the China and the Hong Kong tax authorities, as an appealing revenue source to cover some of the recovery package costs.
OECD BEPS - The 2015 Final Reports and the next step
On 5 October, the OECD has issued the Final Reports on the BEPS 15 Action points and it is expected that the G20 Finance Ministers will discuss and endorse the Reports and the recommended changes at their meeting on 8 October, in Lima, Peru. It is undeniable that the BEPS Action plan will dramatically reshape the existing international tax rules. The OECD/G20 Base Erosion and Profit Shifting (BEPS) Project provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to ‘disappear’ or be artificially shifted to low/no tax environments, where little or no economic activity takes place.
The OECD ‘Action Plan on Base Erosion and Profit Shifting’ (‘BEPS’) - issued on 19 July 2013 - identifies 15 key actions along with timelines, with most actions being addressed within two years. The scale of the plan is ambitious, and will result in a dramatic change in the landscape of tax planning in the international arena. An underlying theme is tackling the artificial separation of taxable income from the activities that generate it. Going forwards, the focus will be much more on the underlying substance and where value is really created within an international business.
