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Action Item 5: Countering Harmful Tax Practices More Effectively

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The Organization for Economic Co-operation and Development (“O.E.C.D.”) worked together with G20 countries to develop a 15-point action plan to deal with Base Erosion and Profit Shifting (“B.E.P.S.”). The goal of the B.E.P.S. Action Plan is to develop a single global standard for automatic exchange of information and stop corporations from shifting profits to jurisdictions with little or no tax in order to ensure taxation in the jurisdiction where profit-generating economic activities are performed and where value is created.

B.E.P.S. occurs in situations where different tax laws interact in a way that creates extremely low global tax rates or results in double non-taxation. This kind of planning gives a competitive advantage to multinational entities that have substantial budgets to engage high-powered tax advisers and to implement their plans.

The O.E.C.D. published deliverables that intend to eliminate double non-taxation resulting from B.E.P.S. The final measures will be completed in 2015 and will be implemented either through domestic law or the existing network of bilateral tax treaties.


Harmful Tax Competition: An Emerging Global Issue

In 1998, the O.E.C.D. published the report Harmful Tax Competition: An Emerging Global Issue (“the 1998 Report”) with the intention of developing methods to prevent harmful tax practices with respect to geographically mobile activities. These methods have been adopted in the Forum on Harmful Tax Practice (“F.H.T.P.”) with some modifications. Significant attention is given to:

  • Elaborating on a methodology to define a substantial activity requirement in the context of intangible regimes; and
  • Improving transparency through compulsory spontaneous exchange on rulings related to preferential regimes.