Tax profession welcomes latest move to tackle profit shifting

The CIOT says it is an important move by countries to prevent companies using tax strategies to exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.

It is the first multilateral treaty of its kind and will allow jurisdictions to transfer results from the OECD/G20 base erosion and profit shifting (BEPS) project into their existing networks of bilateral tax treaties. The convention was developed through a negotiation involving more than 100 countries and jurisdictions.1 The UK Government played an important role, with Mike Williams of HM Treasury chairing the Working Group producing the Treaty.

In some areas the UK’s existing treaty provisions and domestic law, such as the Diverted Profits Tax (sometimes called the ‘Google Tax’) already provide sufficient protection against BEPS and the UK has indicated it will not need to implement the treaty provisions where that is the case.

Glyn Fullelove, Chair of CIOT’s Technical Committee, said: “We welcome the convention because it represents a move closer to the goal of preventing base erosion and profit shifting by multinational enterprise and includes improved measures to assist in resolving tax disputes, including optional binding arbitration. We are glad that the UK has played a major role in the convention.

“As far as UK companies are concerned, many of the BEPS prevention measures have already been implemented into domestic law, or are expected to be implemented in the near future, and these domestic measures are likely to have a more significant impact than the Multilateral Convention. The UK has also indicated that it will not implement the convention where existing treaty provisions or domestic law already provides suitable protection against BEPS.

“UK companies should be aware that they will need to check that treaty provisions previously relied on are still in effect, and particular sectors, such as fund management, may be more impacted than others.

“Notwithstanding the convention may have limited practical effect for many companies, the very fact of its signature by so many countries shows there is no let-up in the efforts to reduce base erosion and profit shifting, and that measures can be agreed at an international level. We are firm believers that international co-operation of this kind is far better than unilateral action by individual states.”

The OECD/G20 BEPS Project aims to deliver solutions for governments to close the gaps in existing international rules that allow corporate profits to disappear or be artificially shifted to low or no tax environments, where companies have little or no economic activity. The OECD estimates revenue losses from BEPS at $100 - $240 billion annually, or the equivalent of four to 10 per cent of global corporate income tax revenues.