According to the Organisation for Economic Co-operation and Development (“OECD”), “Base Erosion and Profit Shifting” (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. The OECD estimates that because of the BEPS practices countries have lost an estimated USD 100-240 billion in tax revenue annually which is equivalent to 4-10% of the global corporation income tax revenue.
The Action Plan contained 15 separate action points or work streams, some of which were further split into specific actions or outputs. The OECD notes that the BEPS package provides the 15 Actions to equip governments with the domestic and international instruments needed to tackle tax avoidance. Thus, countries now have the tools to ensure that profits are taxed where economic activities generating the profits are performed and where value is created. These tools also give businesses greater certainty by reducing disputes over the application of international tax rules and standardising compliance requirements.
Barbados became the 101st jurisdiction of the Inclusive Framework (“IF”) on BEPS. By joining the IF, Barbados works on an equal footing with all other IF members on the BEPS package and on developing further standards to address the BEPS issues.
To date, 140 countries and jurisdictions are working to implement the Action Plan to tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax environment and address tax challenges arising from the digitalisation of the economy.
Overview of the BEPS Package
- Action 1 Addressing the Tax Challenge Arising from the Digitalization of the Economy
- Action 2 Neutralising the Effects of Hybrid Mismatch Arrangements
- Action 3 Designing Effective Controlled Foreign Company Rules
- Action 4 Limiting Base Erosion via Interest Deductions and Other Financial Payments
- Action 5 Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
- Action 6 Preventing Treaty Abuse
- Action 7 Preventing the Artificial Avoidance of Permanent Establishment Status
- Action 8-10 Aligning Transfer Pricing Outcomes with Value Creation
- Action 11 Measuring and Monitoring BEPS
- Action 12 Mandatory Disclosure Rules
- Action 13 Guidance on Transfer Pricing Documentation and Country-by-Country Reporting
- Action 14 Making Dispute Resolution Mechanisms More Effective
- Action 15 Developing a Multilateral Instrument to Modify Bilateral Tax Treaties
As a member of the IF Barbados is committed to implementing the four (4) minimum standards. The minimum standards are:
- Action 5 Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
- Action 6 Prevent Treaty Abuse
- Action 13 Guidance on Transfer Pricing Documentation and Country-by-Country Reporting
- Action 14 Make Dispute Resolution Mechanisms More Effective