Summary on BEPS

Base erosion and profit shifting (“BEPS”) are tax practices used by multinational companies to shift their profits to low or no tax jurisdictions, due to the existence of legal gaps in tax matters that ease the avoidance of double taxation of income.

In order to look for solutions that eliminate said practice, the OECD together with the G20 published in October 2015 the final report of the BEPS Action Plan, which sets forth 15 actions to eradicate its use. Among them are the following:

1. Address the challenges of the digital economy: focusing on locating companies that develop their activities digitally.
2. Reinforcement of norms relating to international tax transparency: the focus is on limiting the use of the subsidiary entities based in low or no tax jurisdictions to transfer the benefits there.
3. Interest Deductions: the focus is on establishing recommendations to avoid the taxable base erosion through excessive erosion for payment of interest and other financial concepts.
4. Treaty Abuse: the focus is on fighting the excessive use of the agreements to avoid double taxation.
5. Transfer pricing: the focus is on modifying the norms related to transfer pricing, since a review of the guidelines of the OECD on the matter is stipulated.
6. Aggressive tax planning disclosure: focusing on the inclusion of rules for the disclosure and information of abusive transactions, arrangements or structures.
7. Transfer pricing documents and country by country report: the focus is on reviewing the documents at three levels: a first level named “master file”, a second level called “local file” and a third level that would be a country by country for multinationals that have a consolidated annual income that exceeds 750.000.000 Euros.