Cracking down on international tax abuse

Drew Morier

Dec 15, 2015

Ambitious proposals by the Organization for Economic Co-Operation and Development (OECD) to crack down on aggressive tax planning by multinational companies has the potential to become the largest shake-up in worldwide tax rules in nearly a century. The plan, known as the Base Erosion and Profit Shifting (BEPS) project contains 15 specific actions designed to establish coherent rules for corporate income taxation, prevent treaty abuse, tackle the tax challenges of a digital economy and amend the world’s 3,000 bilateral tax treaties through a multilateral instrument. The aim is to curb aggressive tax planning – the way to do it is by closing tax loopholes, increasing transparency and restricting the use of tax havens.

While some countries have moved ahead by announcing the introduction of legislation that covers some of the BEPS actions, other countries, such as the United States, have expressed reservations. Drew Morier, a partner in Osler’s Taxation group, is quoted in the December 2015 issue of The Bottom Line stating, “Canada should be reluctant, if not wary, before proceeding with many of the BEPS recommendations unless its most significant trading partners, particularly the U.S., have enacted comparable amendments.”

Unfortunately, the urgency to meet the ambitious timeframes, misinterpretation of the recommendations and a drive to reach consensus may lead countries to draft recommendations in a self-serving manner. Recommends Drew, “There is a greater need for tax professionals to stay informed about what’s happening outside Canada. There is also a greater need for tax professionals in Canada to exercise more judgment about whether something that a client is doing is not only legal but appropriate, taking into account the broader international tax perspective.”

The new Canadian federal government has yet to announce where it stands on the recommendations although tax professionals believe that Canada will take steps to enact some of the regulations.

Read Hope is reforms will end era of tax avoidance in the December 2015 issue of The Bottom Line.