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Tax Changes Ahead for Multinational Companies


The Organisation for Economic Co-operation and Development (OECD) has published its proposals to bring about the biggest change to the way multinational companies pay corporate tax since the 1920s.

The plan aims to ensure that multinational companies pay tax in the countries where profits are made, not shifted to the lowest cost jurisdiction. The OECD has been working on a 15 point plan to combat Base Erosion and Profit Shifting or the "BEPS" Project, over the last two years.

BEPS is the use by large multinational companies of the complex network of international tax treaties and modern technology to reduce the amount of tax they pay on profits. The OECD has said BEPS is a significant and serious source of concern in terms of lost government revenues and it particularly hits the revenue base of developing countries, which are more dependent on corporate tax than developed states.

On October 5, 2015, the OECD released its final package of measures to tackle BEPS, representing the most ambitious effort in history to harmonize tax laws across national boundaries. The final reports were due to be submitted to the G-20 meeting in Lima, Peru on October 8, 2015. With the OECD work now complete, it is up to the countries to implement recommendations.

Uncertainty is likely, when governments will need to interpret the guidance and apply it to national legislation. This could create discrepancies and differences in different counties, particularly in those where English is not the first language. Tax practitioners anticipate more aggressive audits around the world as countries implement the OECD's recommendations and a huge increase in double tax disputes as a result. One of the action items in the BEPS project that could mitigate that, is Action 14, intended to improve dispute resolution under the mutual agreement procedure (MAP) in tax treaties.

Though the substance of the OECD recommendations will require very careful analysis, it's clear that in a number of areas, such as permanent establishment and transfer pricing, the BEPS package contains proposals which would much better align tax systems with the dynamics and realities of modern business.

The final OECD BEPS documents can be found in the following link: