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This is a freeview 'At a glance' guide to BEPS and Diverted Profits Tax.

What is BEPS? What is Diverted Profits Tax? Will either of these affect me or my SME clients? Subscribers see Diverted Profits Tax.

At a glance

What is BEPS?

BEPS stands for 'Base Erosion and Profit Shifting'.

Will it affect me or my clients?

It is unlikely to affect typical UK-based Small and Medium-Sized Enterprises (SMEs) or their owners as they're probably too small.

What is the BEPS project?

The governments of 62 countries have reached an agreement to tackle these tax gaps, committing to implement 'minimum standard' measures. The process has been very open, with much public consultation and various public meetings held.

What's happening now?

The Organisation for Economic Co-operation and Development (OECD) has published a series of papers making up their Final Report on 5 October 2015. These papers set out a 15-point action plan for areas identified by the BEPS project as needing to be addressed. Some measures can be implemented quite quickly but others will require changes to bilateral tax treaties or to domestic laws and will take a little longer.

HMRC has already begun to consult and implement some changes, such as patent box and deductibility of interest.

On 7 June 2017, 68 countries and jurisdictions signed a Multilateral Instrument (MLI) in order to implement the treaty-based recommendations of the BEPS process. Some eight more countries are expected to sign later on. This will update some 1,100 bi-lateral treaties and includes measures to prevent treaty abuse, changes to the definition of Permanent Establishment (PE), changes to the residence tie-break for companies, mutual agreement procedures and mandatory binding arbitration. The new measures will apply once participants adapt their treaties and ratify the MLI and this is expected to be by 1 July 2018.

In the 2017 Autumn Budget, it was announced that Finance Act 2017-18 would include a provision to ensure that the existing powers for giving effect to Double Taxation Agreements in UK law, which have previously only been used to give effect to bilateral arrangements, can also be used to give full effect to the MLI.

Reporting under BEPS

There will be a requirement to submit annual country-by-country reports setting out information relating to global activities, transfer pricing strategies and the level of income and taxes paid in each location. It is limited to groups with consolidated turnover in excess of €750 million.

What sorts of changes are going to be made?

The measures include plans to amend or align policies in the following areas: 

What about the UK's Diverted Profits Tax?

Diverted Profits Tax (DPT) is a measure included in the Finance Act 2015. The UK decided that profit shifting was such an issue that it required immediate action ahead of the BEPS project outcome. 

DPT will be charged when:

See Diverted Profits Tax

The OECD 15 BEPS Action Points are as follows:

1. Address the tax challenges of the digital economy.  

2. Neutralise the effects of hybrid mismatch arrangements.

3. Strengthen controlled foreign companies rules.  

4. Limit base erosion via interest deductions and other financial payments.  

5. Counter harmful tax practices more effectively, taking into account transparency and substance.

6. Prevent treaty abuse.

7. Prevent the artificial avoidance of permanent establishment status.

8-10. Assure that transfer pricing outcomes related to intangibles are in line with value creation.

11. Establish methodologies to collect and analyse data on BEPS and the actions to address it.

12. Require taxpayers to disclose their aggressive tax planning arrangements.

13. Re-examine transfer pricing documentation.

14. Make dispute resolution mechanisms more effective.

15. Develop a multilateral instrument. 


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