Base Erosion and Profit Shifting (BEPS) is one of the hottest current tax issues globally, attracting growing attention worldwide. Under the request from G20, the Organisation for Economic Co-operation and Development (OECD) published a report called Addressing BEPS in February 2013 and promised to develop a comprehensive action plan by July 2013. On 19 July 2013, the OECD finally released the 40-page BEPS Action Plan (AP), which contains 15 items of actions or work streams to prevent and counter BEPS.
There is no doubt that the BEPS Project will have significant impact on some of the fundamental rules governing the taxation of cross border transactions (e.g. tax treaties, transfer pricing, and both domestic and international anti-avoidance provisions). According to the AP, most of the actions will take one to two (or even more) years to complete. However, it may take considerably longer to fully apply these changes in practice.
There are indications that the BEPS Project and related developments are already leading to changes in the behaviour of tax authorities. Governments, revenue authorities, and businesses will all have a material role to play going forward as proposed changes are implemented.
We believe there are many interests for China, as a G20 state, to adopt the BEPS initiatives and take part in developing the details of the AP to protect its tax base. Taxpayers in China, both foreign MNC and Chinese MNC, should follow closely these developments and take corresponding actions to get themselves well prepared for the impact on their business operations not just only in China but also worldwide.
Other issues of China Tax/Business News Flash Visit our Tax Library.