25 July 2013

The OECD has released its Action Plan on Base Erosion and Profit Shifting, promised in its February 2013 report. The Action Plan sets out 15 areas for study leading to potential international tax reforms. Businesses should be aware of these developments to determine how any recommendations, if enacted, will impact their current or proposed tax strategy and transfer pricing policies.


The OECD published a report on Base Erosion and Profit Shifting (BEPS) in February 2013 at the request of the G20 against the backdrop of the debate on tax revenues. That report promised an action plan to address perceived weaknesses in the international tax rules. This Action Plan was published on 19 July 2013 with the support of G20 finance ministers and an invitation for non-OECD members to participate in discussions.

Globalisation of the economy and operating models adopted by businesses have opened up opportunities for multinational enterprises (MNEs) to greatly reduce their tax burden, according to the OECD. They take the view that this is harmful to government revenues, uncompetitive to domestic taxpayers who cannot access these opportunities, and potentially damaging to MNEs themselves through reputational risk. 


The OECD have set out 15 actions for study over the next 18 months to two years. Most of these will result either in changes to OECD guidance, for example on transfer pricing or the OECD Model Tax Treaty, or recommendations to support domestic governments in consistent, multilateral reforms. An instrument is also proposed to enable amendment of tax treaties without the need for renegotiation.

The key areas covered in the Action Plan are:

Digital economy

Examining the difficulties of taxing activities in the digital economy under the current system and how corporate and indirect taxes might be better aligned with value creation through both sales activities and the collection and use of customer lists and data. 

Hybrid mismatch arrangements

Neutralising the effects of arrangements that are not treated consistently by two tax authorities, for example by double deduction or deduction without corresponding income recognition. Hybrid arrangements, interest and financial instruments are specified. 

Harmful tax practices and treaty abuse  

Evaluating preferential tax regimes and tackling treaty abuse through anti-abuse provisions in treaties and addressing the practice of treaty shopping (i.e. interposing third countries into otherwise bilateral arrangements to reduce taxes). 

Controlled Foreign Companies (CFC) rules 

Developing recommendations regarding the design of CFC rules in order to counter BEPS and in co-ordination with other Action Plan items.

Permanent establishment (PE)

Developing changes to the definition of permanent establishment to prevent artificial avoidance of PE status, for example through the use of commissionaire arrangements or specific activity exemptions.

Transfer pricing 

Developing rules to ensure that transactions reflect value in accordance with the arm’s length standard, with particular focus on intangibles, contractually assigned risks and high risk transactions not or only rarely seen between third parties (including where capital is allocated within a group without appropriate commercial rationale). However the OECD rejects formulary apportionment.

Disclosure and transparency

Developing recommendations for the design of consistent mandatory disclosure rules for “aggressive or abusive transactions” and a wider definition of “tax benefit”. Transfer pricing documentation will also be reviewed to include a requirement to show the global allocation of income, economic activities and tax across the value chain using a common template.  


While the Action Plan may not lead to legislative change for some time, it does provide an indication of tax authority thinking and as a result where they will focus their attention in the coming months and years.

Businesses should especially pay immediate attention to the potential impact of the Action Plan where: 

  • A business is reliant on any of the arrangements identified in the Action Plan to manage its group effective tax rate;
  • The implementation of a business’ transfer pricing model involves either the contractual movement of risk to another group entity, commissionaire arrangements, or dependence on value attributed to intangible assets;
  • A new or changed tax and transfer pricing model is being designed or implemented that will need to be robust in the longer term.

An immediate impact of the OECD’s announcement may be that tax authorities request more information from international businesses about their tax and transfer pricing policies. Where these arrangements are supported by the economic activity of the business, are supportable under law and are effectively implemented, tax and transfer pricing risk should not increase.
All businesses should review their current tax planning arrangements and transfer pricing policies to ensure that the resulting effective tax rate of the group is sustainable in the longer term. 


If you have any queries, or to discuss any of these issues in detail, please contact your usual BDO advisor or: 

BDO Belgium

Werner Lapage
Partner – Tax
+32(0)2 778 01 00
[email protected]

Marc Verbeek
Partner – Tax
+32(0)2 778 01 00
[email protected]


BDO Global

John Wonfor
Partner – Global Head of Tax
+1 416 319 3105
[email protected]