In February 2013, the OECD issued its report addressing “base erosion and profit shifting” (BEPS) by multinational enterprises: see my quick update at On July 19, 2013, the OECD released its Action Plan for this ambitious project (see The goal in many cases will be to restore source taxation and increase information reporting. The OECD’s worry is that without consensus change in this area countries will be forced to act unilaterally to protect their own corporate tax base – with the result being “global tax chaos marked by the massive re-emergence of double taxation” (page 11). The present situation has emerged in large part from widespread legal use of (a) gaps in the interaction of domestic tax systems (in particular, hybrid mismatch entities and instruments), and (b) favorable bilateral tax treaties (in particular, special purpose entities in third countries interposed between source countries and home countries). As a result, significant income from cross-border activities is currently not taxed at all or is taxed at only nominal rates (page 10). The OCED’s timetable for its Action Plan is currently estimated as follows (page 24):

  • Over the next 12 to 18 months: action on hybrid mismatch arrangements, perceived treaty abuse, transfer pricing concerns with intangibles, documentation requirements for such transfer pricing, and the digital economy.
  • Over the next two years: action on certain CFC rules (which facilitate perceived treaty abuse), interest deductibility, PE status, other transfer pricing concerns (i.e., contractually-assumed risks, over-capitalization of special purpose entities, and highly-unusual transactions), data collection, mandatory disclosure rules, and improved dispute resolution.
  • More than two years: action on remaining transfer pricing concerns (for certain financial transactions) and a multilateral instrument to swiftly implement changes to existing bilateral tax treaties.