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Impact of BEPS as Tax Administrations Grapple with Implementation (video)

January 29, 2016 | In this video, KPMG LLP's Mike Dolan highlights several areas, including the role of the OECD’s Forum on Tax Administration (FTA), that are likely to become the focus of tax administrations over the coming months as they begin to address the OECD’s BEPS project recommendations.

The OECD's BEPS Final Report, Part III - Tax Adminstration
This article provides more insights on this topic and includes five key takeaways that are highlighted below.


Mike Dolan: I think as everybody noted in October, the BEPS action plan as published by the OECD are fairly substantial set of actions, and they fall now on the tax administrations around the world to implement. What I wanted to do today was share just a couple of the areas where I think those implementation actions and demands of those actions are going to be particularly vexing.

Transfer pricing documentation and country-by-country reporting

The first area would be in the country-by-country (CbyC) reporting, Action 13. There I think we see a very ambitious schedule that all tax administrations will have to be ready by the end of 2017 to take the 2016 report. The multinational enterprises will be filing those reports in their countries of jurisdiction, and then those countries of jurisdiction, those jurisdictions of residence, will have to in turn take the data in, make sure it gets shared with other tax administrations, and proceed to act effectively on it themselves.

Within that challenge are a number of different facets. Some countries are going to find themselves in a position to have to propose additional domestic legislation. Other countries, even if they don't require legislation, are certainly going to have to do some pretty wholesale internal provision of guidance and regulations.

We note on December 23, the U.S. published its version of CbyC regulations, and in those regulations, while they contain a fair amount of specificity, it was clear from the drafting comments that the U.S. sought to make its proposals as consistent with the OECD templates and models as possible with a clear intention of trying to create less turmoil, less frustration, less burden on the taxpayers who will be required to report under country-by-country.

Embedded in the country-by-country proposal is also a general concern for security. I think it's clear to anybody who has looked at these action plan items for any length of time at all that one of the primary drivers of tax administrations is going to have to be that the data when received is used exclusively for the risk assessment purpose it was designed. Because to the extent it deviates from that, you create an entire different world of concern.

Alignment of transfer pricing with value creation

The second area that I would comment on as an action item that I think is going to draw a lot of tax administration interest is in the action items 8, 9 and 10 that deal with transfer pricing. And there what the BEPS action plan does is essentially encourage people to conform their transfer pricing rules to the rules as OECD has established them.

Some places that will be a significant variation in their current routine. In other places, not so much. But this is clearly the place where the importance of consistency can't be overstated because to the extent that people pick and choose or deviate to any considerable extent from the recommended guidance, you end up with multiple jurisdictions presumably trying to lay claim to the same amount—same items of income. And this is a place that's untenable over the long term, both for tax administrations and for their taxpayers.

More effective dispute resolution mechanisms

The third area that I think warrants some comment is Action 14, and that's sort of a compendium of actions, if you will, directed at best practices among tax administrations. There are 17 specific recommendations, some best practices even beyond those recommendations, recommendations for things like binding arbitration across the board.

And then lastly those items are put under the custody, if you will, of something called the Forum on Tax Administration (FTA). This is a body that a lot of people probably haven't paid much attention to. It's sort of operated below the radar screen since 2002 when it first came into existence. Back then, it was largely focused on abusive transactions. It's morphed over time into probably being the most significant, if not the only real standing body that worries about the practical aspects of tax administration. It's got 47 OECD member and non-member countries that are part of it, and its virtues are that it's a practical-based outfit. Forty-seven of the leading tax administrators come together regularly and they talk about practical kinds of solutions.

The downside is to the extent that the action planning process develops any kinds of inertia or develops any kinds of delays in implementation, it would be easy to see how an extra-legal organization like the FTA, albeit it, you know, noble-purposed as they are, end up sort of filling in the blanks with informal, non-legislative kinds of solutions in the name of sort of expediency and making the process go forward.

So these are just a couple of the areas that I think will now be a focus as a shift comes to implementation, and I think they're ones that taxpayers and tax administrations alike are going to track fairly carefully over the next coming months.

Thanks very much.

Visit KPMG's Base Erosion and Profit Shifting (BEPS): Tax Transparency site for more insight.


The information contained herein is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

Five Key Takeaways—Challenges for Tax Administrators

  1. Implementation will require new internal infratructures—statutory, regulatory, and administrative.
  2. Transparency rules will necessitate new protocols for information.
  3. Countries may adopt inconsistent interpretations.
  4. Minimum standards could require revisions to procedures.
  5. The FTA remains an extra-legal institution capable only of supporting what the individual member countries choose to embed in their respective laws and treaties.