BEPS

Base Erosion & Profit Shifting is an Action Plan as part of recommendations of OECD (Organisation for Economic Co-operation & Development), published in October 2015.  The BEPS Inclusive Framework comprises around 130 countries committed to implementing those minimum standards.

The initiative is mainly targeting international Corporations which shift their profits to lower tax jurisdictions.

This plan sets out 15 BEPS actions, below:

1. Address the tax challenges of the digital economy
2. Neutralize the effects of hybrid mismatch arrangements
3. Strengthen CFC rules
4. Limit base erosion via interest deductions and other financial payments
5. Counter harmful tax practices more effectively, taking into account transparency and substance
6. Prevent treaty abuse
7. Prevent the artificial avoidance of Permanent Establishment (PE) status
8. Aligning transfer pricing outcomes with value creation: intangibles
9. Aligning transfer pricing outcomes with value creation: risks and capital
10. Aligning transfer pricing outcomes with value creation: other high-risk transactions
11. Measuring and monitoring BEPS
12. Require taxpayers to disclose their aggressive tax planning arrangements
13. Re-examine transfer pricing documentation
14. Make dispute resolution mechanisms more effective
15. Develop a multilateral instrument

Cyprus deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) with the OECD’s Secretary-General on January 23rd, 2020.  And has underlined its strong commitment to prevent the abuse of tax treaties and BEPS by multinational enterprises. For Cyprus, the MLI enters into force on 1 May 2020.

The main impact of the MLI for Cyprus’ DTTs covered by the MLI is the “Principal Purpose Test” (PPT). The PPT provides that a bilateral DTT benefit shall not be granted, if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the bilateral DTT. This measure is designed to tackle “treaty shopping” and puts a strong emphasis on ensuring that operations are supported by appropriate substance and reflect a principal commercial rationale.

More info could be found at:
          
https://www.oecd.org/tax/beps/beps-actions.htm

List of countries which signed up in support of BEPS

For more information and/or advice, feel free to contact us via email at [email protected]