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A fundamental change to tax rules

THE OECD presented a final package of measures earlier this month which was discussed by G-20 finance ministers at their meeting in Lima, Peru on Oct 8.

According to OECD secretary-general Angel Gurria, the measures represent the most fundamental changes to international tax rules in almost a century.

"They will put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation, and when fully implemented, these measures will render BEPS-inspired tax planning structures ineffective," Mr Gurria said.

Undertaken at the request of the G-20 leaders, the work to address BEPS is based on the 2013 G-20/OECD BEPS Action Plan, which identified 15 actions to put an end to international tax avoidance. Among other things, the final package of BEPS measures includes new minimum standards on: country-by-country reporting, which for the first time will give tax administrations a global picture of the operations of multinational enterprises; treaty shopping, to put an end to the use of conduit companies to channel investments; and curbing harmful tax practices.

The BEPS package also revises the guidance on the application of transfer pricing rules to prevent taxpayers from using so-called "cash box" entities to shelter profits in low or no-tax jurisdictions.

Nearly 90 countries are working together on the development of a multilateral instrument capable of incorporating the tax treaty-related BEPS measures into the existing network of bilateral treaties. The instrument will be open for signature by all interested countries in 2016. The BEPS measures were agreed after a transparent and intensive two-year consultation process between OECD, G-20 and developing countries and stakeholders from business, labour, academia and civil society organisations.