Ofsted can make a school subject to “special measures” if it considers that the school is failing to give pupils an acceptable standard of education. I was reminded of this when an OECD paper published on 19 December proposed “special measures” to shore up the “arm’s length” principle underpinning the current, outdated international tax system. More on that below.
The OECD now has nine open consultations on proposed reforms to tackle base erosion and profit shifting (BEPS), following publication of six discussion papers in the week before Christmas.
The content is highly technical and will be virtually inaccessible to all but those with a professional interest in international tax. But the OECD’s action plan published in July 2013 and the earlier publication “Addressing Base Erosion and Profit Shifting” provide some useful context. The OECD said in February 2013:
“Base erosion constitutes a serious risk to tax revenues, tax sovereignty and tax fairness for many countries. While there are many ways in which domestic tax bases can be eroded, a significant source of base erosion is profit shifting … [Current] rules provide opportunities to associate more profits with legal constructs and intangible rights and obligations, and to legally shift risk intra-group, with the result of reducing the share of profits associated with substantive operations.”
As the BEPS project has progressed the discussions have become more technical, and inevitably the media coverage has been largely confined to trade journals and financial press. But as Sol Picciotto, co-ordinator of the BEPS Monitoring Group, has told Tax Analysts, these issues are “too important to be left simply to tax advisers”.
The discussion paper published on 19 December, dealing with the application of the arm’s length principle notes that BEPS actions 8, 9 and 10 are intended to “assure that transfer pricing outcomes are in line with value creation”. The paper runs to 45 pages, and part I (34 pages) proposes changes to section D of chapter I of the OECD’s transfer pricing guidelines. Continue reading