A great deal of attention has been paid recently to transfer pricing, since it is through pricing mechanisms that multinational companies withdraw their profits from taxation. Even by the most conservative estimates, the sum lost taxes in the world amount to hundreds of billions dollars per annum.
In 2013, at the request of the G20 countries, the BEPS Action Plan (Base Erosion and Profit Shifting) was adopted, which is described by many experts as the most fundamental changes in international tax rules.
The plan itself consists of 15 actions, which are to resolve the issue of withdrawing profits from taxation:
1. Preparation of the package aimed at taxing the digital sector of the economy.
2. Elimination of differences in hybrid taxation instruments.
3. Dealing with tax evasion throughout controlled foreign companies’ application.
4. Proposals on limiting interest deductions from the assessment base.
5. Measures for information exchange and requirements of physical presence for obtaining preferential treatment.
6. Measures for preventing abuse due to application of double taxation avoidance conventions provisions.
7. Changing norms in the permanent establishment status.
8.9.10. A number of measures related to transfer pricing, including those with regard to intangible assets, transactions with a high degree of risk.
11. Procedures for collecting and analyzing information.
12. Aggressive tax planning disclosure requirements.
13. Requirements for preparing transfer pricing documentation.
14. Development of mechanisms and procedures for dispute solving.
15. Mechanisms for amending bilateral agreements.
“Everything connected with transfer pricing is subject to one principle: profits should be taxed in the state where they were generated”, comments Yaroslav Romanchuk, managing partner of the International Legal Center EUCON.
In the near future, all these measures of the BEPS Action Plan are planned to be implemented.
On 5 October 2015, the final package of measures of the Organization for Economic Cooperation and Development (OECD), within the framework of the implementation of the BEPS Action Plan, was published.
On 8 October 2015 at the annual summit in Lima (Peru), the G20 countries at the level of finance ministers supported the package of measures.
On 15-16 November 2015 at the meeting of G20 countries at the highest level in Antalya (Turkey), a decision is expected to be made regarding further implementation of the mentioned measures.
According to Mr. Romanchuk, equally important aspects on the BEPS Action Plan implementation are measures aimed at the exchange of tax information between countries. In 2013, Ukraine became a member of full standing of (121st at that time) of the Global Forum on Transparency and Exchange of Information of OECD. The purpose of the Global Forum is to implement international standards of transparency and information exchange into the national legislation of each country.
The countries, which have joined the forum, were the first to have agreed a specific timetable of launching the information exchange system. It is planned to start an active exchange in 2017.
According to the standard, once a year the information exchange on accounts of individuals and legal entities, trusts, funds takes place. As specified by Yaroslav Romanchuk, this refers to balances and cash flows, interest and dividend accrual. The information will be sent from the jurisdiction where the bank is located to the jurisdiction where the account holder is registered. Also, tax administrations will exchange information.
A number of states are joining the active information exchange in 2017-2018, the USA and Russia are among them.
The states, which are the first to start information exchange: Albania, Anguilla, Argentina, Aruba, Austria, Belgium, Bermuda Islands, British Virgin Islands, Cayman Islands, Columbia, Croatia, Curacao, Cyprus, the Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, South Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, the Netherlands, Norway, Poland, Portugal, Romania, San Marino, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Turks and Caicos and the UK.
“Due to the upcoming changes in the rules of international taxation and control mechanisms we recommend taking them into account when planning transactions and economic and financial activities in the world markets. Measures to restructure the business, including as much as transfer of units to new jurisdictions, will be quite reasonable”, Mr. Romanchuk believes.
Yaroslav Romanchuk – Managing partner ILC EUCON
Source: journal The Ukrainian Journal of Business Law, №11 november 2015, http://www.ujbl.info/article.php?id=690