BEPS action 5

 

BEPS (Base Erosion and Profit Shifting) refers to the practice of multinational companies shifting profits to low-tax jurisdictions to minimize their overall tax burden. To address this issue, the Organisation for Economic Co-operation and Development (OECD) developed the BEPS Action Plan in 2013, which includes 15 actions to tackle different aspects of BEPS. BEPS Action 5 specifically targets the problem of harmful tax practices.

A harmful tax practice is defined as a tax regime that provides for a reduced effective tax rate, and lacks transparency and substance. These tax regimes can be used by multinational companies to shift profits to low-tax jurisdictions and reduce their overall tax burden. Action 5 aims to address this problem by identifying and addressing harmful tax practices, and by promoting transparency and substance.

One way that Action 5 aims to identify and address harmful tax practices is through the exchange of information between countries. Under Action 5, countries are encouraged to share information on their tax regimes, including any preferential tax regimes, with other countries. This information can then be used to identify harmful tax practices and take steps to address them.

Another way that Action 5 aims to promote transparency and substance is through the implementation of minimum standards for transparency and substance. These standards include requirements for the existence of a sufficient level of economic activity in the jurisdiction, and the provision of accurate and timely information to tax authorities. By implementing these standards, Action 5 aims to ensure that companies cannot shift profits to low-tax jurisdictions simply by claiming to have a presence there, but lack of economic activity and substance.

In addition, Action 5 also focuses on the issue of "no or only nominal taxation" in some jurisdictions. The action plan aims to ensure that companies cannot shift profits to these jurisdictions simply by claiming to have a presence there and paying only nominal taxes. It also aims to prevent companies from avoiding taxes in other jurisdictions by claiming that their profits are earned in a jurisdiction with no or only nominal taxation.

In conclusion, BEPS Action 5 is a key action of the BEPS Action Plan that targets harmful tax practices. It aims to identify and address harmful tax practices, and promote transparency and substance. The action plan focuses on the exchange of information between countries, the implementation of minimum standards for transparency and substance, and the issue of "no or only nominal taxation" in some jurisdictions. The implementation of these actions is crucial in ensuring that multinational companies pay their fair share of taxes and preventing them from shifting profits to low-tax jurisdictions.