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Base Erosion and Profit Sharing (BEPS) Action Plan: Changes to the International Tax System

In November 2015, Prime Minister Justin Trudeau and the other G20 leaders endorsed the OECD’s package of measures released as part of the base erosion and profit shifting (BEPS) project. The BEPS project, an ambitious plan undertaken jointly by the OECD and G20 to overhaul the global international tax system, culminated in hundreds of pages of recommendations that, if adopted, could have a significant impact on cross-border trade and the competitiveness of Canadian businesses.

In 2019, the OECD published its Programme of Work [PDF] to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalization of the Economy (Program of Work). This Program of Work intends to lead to a global consensus on revisions to the international tax system in an effort to prevent countries from imposing unilateral measures to tax the income of multinationals (particularly those operating highly digitized businesses). The OECD’s Program of Work contains two principal measures: Pillar One, which would allocate additional taxing rights to market jurisdictions (such as by revising the “permanent establishment” nexus for establishing source country taxing rights and revising the “arm’s length” standard for allocating profits), and Pillar Two, which would introduce a global minimum tax to prevent the shifting of profits to low-tax jurisdictions. This Program of Work was endorsed by Canada and other G20 countries and, if adopted globally, will mark a fundamental overhaul of the entire international tax system and could significantly increase taxes and administrative costs of multinational enterprises.

Lawyers in Osler’s leading Tax Group are experts on the complexities of international taxation and understand the challenges of a rapidly changing global economy. Here they offer timely insight into global tax reforms and the ongoing developments of the OECD/G20 BEPS Action Plan.

As the Action Plan unfolds, Osler will continue to provide updates on the impact of the plan initiatives. Continue to visit this page for useful information.

BEPS Actions Implementation - Canada

Please click on Pillar One or Pillar Two below to access additional information and related resources.

Pillar One – Unified Approach

Summary

Pillar One intends to address certain perceived base erosion and profit shifting issues by introducing a co‑ordinated set of new domestic rules and tax treaty changes that would result in the allocation of additional taxing rights to market jurisdictions. See also "Action Item 1: Digital Economy."

Selected Resources

Pillar Two – GloBE Proposal

Summary

Pillar Two intends to address certain perceived base erosion and profit shifting issues by introducing a co‑ordinated set of new domestic rules and tax treaty changes that would result in a global minimum tax. See also "Action Item 1: Digital Economy."

Selected Resources

This chart is an overview of the 15 action items, outputs and resources that we have curated to provide you with detailed information for each action item. Click on an action item below to access the information.

Action Item 1: Digital Economy

Summary

Addressing the Tax Challenges of the Digital Economy.
See also Pillar One and Pillar Two.

Output

Report

Selected Resources

Action Item 2: Hybrids

Summary

Neutralising the Effects of Hybrid Mismatch Arrangements: model treaty provisions and recommendations regarding the design of domestic rules to neutralise the effects of hybrid instruments and entities (e.g. double non-taxation, double deduction, long-term deferral)

Output

Domestic Law/Model

Selected Resources

Action Item 3: CFC Rules

Selected Resources

Controlled Foreign Company Rules (CFC Rules)

Summary

Designing Effective Controlled Foreign Company Rules – recommendations to strengthen rules of CFC’s.

Output

Domestic Law

Selected Resources

Action Item 4: Interest Deductions

Summary

Limiting Base Erosion Involving Interest Deductions and Other Financial Payments – common approaches based on best practices for preventing base erosion through the use of interest expense.

Output

Domestic Law/TPG

Selected Resources

Action Item 5: Harmful Tax Practices

Summary

Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance – revamps the work on harmful tax practices with a focus on improving transparency, including compulsory spontaneous exchange on rulings related to preferential regimes, and on requiring substantial activity for preferential regimes, such as IP regimes.

Output

Identify OECD/ Non- OECD and Revise Criteria

Selected Resources

Action Item 6: Treaty Abuse

Summary

Preventing the Granting of Treaty Benefits in Inappropriate Circumstances – model treaty provisions and recommendations regarding the design of domestic rules to prevent treaty abuse.

Output

Domestic Law/Model

Selected Resources

Action Item 7: Permanent Establishment Status

Summary

Preventing the artificial avoidance of Permanent Establishment Status – changes to the definition of permanent establishment to prevent its artificial circonvention. e.g. via the use of commissionaire structures and the likes.

Output

Model

Selected Resources

Action Item 8-10: Transfer Pricing

Summary

Aligning Transfer Pricing Outcomes with Value Creation – Guidance to assure that transfer pricing outcomes are in line with value creation in relation to intangibles, including hard-to-value ones, to risk and capital, and to other high- risks transactions.

Output

TPG/Model

Selected Resources

Osler is ideally positioned to assist clients facing the seismic shift in the application of transfer pricing rules in Canada and around the world. Read more

Action Item 11: BEPS data analysis

Summary

Measuring and Monitoring BEPS – Methodologies to collect and analyse data on BEPS and the actions to address it.

Output

Recommendations/TPG

Selected Resources

Action Item 12: Disclosure of aggressive Tax Planning

Summary

Mandatory Disclosure Rules – recommendations regarding the design of Mandatory disclosure rules for aggressive tax planning schemes.

Output

Recommendations/TPG

Selected Resources

Action Item 13: Transfer Pricing Documentation

Summary

Transfer Pricing Documentation and Country–by–country Reporting- revised guidance on transfer pricing documentation, including the template for country-by-country reporting, to enhance transparency while taking into consideration compliance costs.

Output

Recommendations/TPG

Selected Resources

Osler is ideally positioned to assist clients facing the seismic shift in the application of transfer pricing rules in Canada and around the world. Read more

Action Item 14: Dispute Resolution

Summary

Making Dispute Resolutions Mechanisms More Effective – solutions to address obstacles that prevent countries from solving treaty-related disputes under MAP, as well as arbitration.

Output

Model

Selected Resources

Action Item 15: Multilateral Instrument

Summary

Developing Multilateral Instrument to Modify Bilateral Tax Treaties – analyse of the legal issues related to the development of multilateral instrument to enable countries to streamline the implementation of the BEPS treaty measures, as well as the mandate to carry out that work.

Output

New Treaty

Selected Resources

Background on the BEPS Action Plan

To better understand the background behind the OECD/G20 BEPS Action Plan, we have a few videos that outline the shifts in the international tax system and global reactions to the plan.

OECD, G8 and G20 Study − Changes Ahead to the International Tax System

Patrick Marley, Taxation Partner, discusses shifts in the international tax system (July 2013)

Richard Tremblay, Taxation Partner, discusses the shift in the international tax system (July 2013)

International Reaction to the OECD Action Plan

Patrick Marley, Taxation Partner, comments on International Reaction to the OECD Action Plan (November 2013).

Key Contacts

Patrick Marley
pmarley@osler.com
tel: 416.862.6583

Matias Milet
mmilet@osler.com
tel: 416.862.6648

Drew Morier
dmorier@osler.com
tel: 416.862.5971

Kaitlin Gray
kgray@osler.com
tel: 403.355.7451

International Tax Planning

Canadian and multinational clients engaged in international transactions rely on Osler to provide timely tax planning and liability management advice.

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Transfer pricing

OECD transfer pricing guideline amendments, the influence of BEPS and interest in tax arbitrage has increased scrutiny of transfer pricing policies and strategies.

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