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First inclusive framework meeting on base erosion and profit shifting
24 August, by Mathew Rabui

The First Inclusive Framework Meeting on Base Erosion and Profit Shifting (BEPS) was held in Kyoto, Japan on 30 June -1 July 2016. I attended as part of a government delegation from Papua New Guinea (PNG). PNG has been engaged in the BEPS process coordinated by the Organization for Economic Cooperation and Development (OECD) since 2014. This is the first time for PNG to attend an Inclusive Framework Meeting. Related materials on the BEPS Project Action Plan can be sourced from this link.

The BEPS project is a joint initiative developed by the OECD member states and the G20 countries. An Action Plan was issued in 2013 and reports about the Action was released in 2015. BEPs is all about multinational corporate tax avoidance or planning and these are some of the examples Google, Apple and Starbucks.

In the G20 Leaders Communique from Antalya Turkey, the OECD was given a mandate to develop an Inclusive Framework to include other interested countries on an equal footing. This was confirmed in the G20 meeting in Shanghai in February 2016. Two of the BEPS Actions were Actions 1 and 11. Action 1 focuses on Tax Challenges of the Digital Economy. In Action 1, it is envisaged that digital economy poses challenges for international taxation and concerns about companies having a significant digital presence in a country without being liable to tax in that country. There are a number of ways to address Action 1. This can be done through identifying the main tax challenges associated with the digital economy and develop options for both direct and indirect taxation. On one hand, Action 11 focuses on Measuring and Monitoring BEPS. The Action Plan in relation to this includes; the magnitude or scale of BEPS that was not known and lack of data and the difficulty associated with measuring BEPS.

What was the experience in the Inclusive Framework Meeting?

At the Inclusive Framework delegates of 21 countries shared experiences and challenges facing the BEPS project when listening to different officials and the OECD-G20 member countries. At the Inclusive Meeting a total 81 countries were officially recognized as BEPS Members and from this, 36 countries have committed to the project. Also at the Inclusive Framework Meeting eight countries were selected to become the Members of the Steering Group for the BEPS Implementation. These countries include, Brazil, China, Georgia, India, Nigeria, Senegal, Singapore and South Africa.

From the Asia Pacific Region, 11 countries have attended including Australia, Bangladesh, Brunei Darussalam, China, Hong Kong, Indonesia, New Zealand, Japan, Singapore, Hong Kong and PNG.

The atmosphere in which the meeting was held was very positive because of the Japanese hospitality in the city of Kyoto. I noticed that bowing of heads when walking past is embedded in the Japanese culture and this shows how respectful the Japanese people are towards people from other nationalities and among the Japanese people themselves. At the meeting I gained a lot by listening to participants from various countries on the subject of BEPS. For me personally, this was interesting in a sense that understanding the theory on BEPS during my course of study means very little to me if I was not able to understand the practicality of how the BEPS Project works and this meeting has paved way for my own understanding. Participating in the full session over a 3 days period has really helped me to comprehend the issues of profit shifting by Multinational Enterprises (MNEs) who have taken advantage of globalization and the digital economy to progress their interests by reducing the global tax burden. This is especially a challenge in poor jurisdictions that have weak tax administration. Transfer pricing was a concern raised by many developing countries who have attended the inclusive meeting.

At the Inclusive Framework meeting, the new participant countries could sign up to be Associate Members. These countries will have to commit to the comprehensive BEPS Package including its four minimum standards and to its consistent implementation, actively contributing to the Project, including through policy dialogue and exchange of information. The terms and modalities of participation of potential BEPS Associates will be governed by general rules applicable to participation in the Committee on Fiscal Affairs (CFA). Also an annual fee of 20,000 EUR have to be paid effective as of 2017. For countries that have become BEPS Associates effective 2016 will pay only 10,000 EURO.

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