The OECD presented its Base Erosion and Profit Shifting (BEPS) Action Plan at the G20 Finance Ministers’ meeting in Moscow last month. The Action Plan is a follow up to the OECD's report on Base Erosion and Profit Shifting BEPS as published in February of this year. BEPS is an initiative for tackling aggressive tax planning. According to the OECD, the main purpose of the Action Plan is to provide countries with instruments, domestic and international, aimed at better aligning rights to tax with real economic activity. The Action Plan also considers the best way to implement in a timely fashion the measures government can agree on.

The Action Plan has 15 action points:

Action 1 - address the tax challenges of the digital economy by assembling a dedicated tax force on the digital economy to identify the issues.

Action 2 - neutralise the effects of hybrid mismatch arrangements. Change the OECD model tax convention to ensure that hybrids are ineffective, change domestic law provisions to prevent exemption for payments that are deductible by the payor, eliminates double dipping within domestic law, and improve the tie-breaker rules on the location of transactions and structures.

Action 3 - strengthen CFC rules. It is acknowledged this has been a weakness in the OECD approach thus far.

Action 4 - limit base erosion via interest deductions and other financial payments, by developing recommendations regarding best practices.

Action 5 - counter harmful tax practices more effectively by taking into account transparency and substance.

Action 6 - prevent treaty abuse by developing model treaty provisions and recommendations regarding the design of domestic rules so as to prevent the granting of treaty benefits in inappropriate circumstances.

Action 7 - prevent the artificial avoidance of PE status by developing changes to the definition of permanent establishment, especially with regard to commissionaire arrangements and specific activity exemptions.

Action 8 - develop rules to prevent BEPS by moving intangibles among group members.

Action 9 - develop rules to prevent BEPS by transferring risks or allocating an excess of capital to group members.

Actions 10 - for other high-risk transactions, develop rules to prevent BEPS on transactions which would only very rarely occur between third parties.

Action 11 - establish methodologies to collect and analyse data on BEPS and the actions to address it

Action 12 - require taxpayers to disclose their aggressive tax planning arrangements through mandatory disclosure arrangements.

Action 13 - re-examined transfer pricing documentation and develop rules regarding transfer pricing documentation to enhance transparency for tax administration.

Action 14 - make the dispute resolution mechanism more effective

Action 15 - develop a multilateral instrument designed to provide an innovative approach to international tax matters.

It is expected that the Action Plan will largely be completed in a two-year period. Actions to be delivered in 12 to 18 months are those in the areas of hybrid mismatch, treaty abuse, transfer pricing aspects of intangibles, documentation for transfer pricing purposes, the digital economy report and the work on harmful tax practices.

Actions to be delivered in two years relate to CFC rules, interest deductibility and preventing the artificial avoidance of PE status, the transfer pricing aspects of intangibles, risks, capital and high-risk transactions, data collection, mandatory disclosure rules and dispute resolution.

Actions requiring more than two years include the development of a multilateral instrument to swiftly implement changes to bilateral treaties.

G20 countries who are not OECD members will be invited to take part in the project as associates. Business and civil society will be consulted and focus groups will be established for each action point.