BEPS (Base Erosion and profit Shifting)
Status as at March 2019
The OECD/G20 BEPS (base erosion and profit shifting) project resulted in an action plan aimed at preventing multinationals from shifting their profits to countries with low taxes or even avoiding taxation altogether. The OECD and G20 countries agreed that the problems can be solved only with internationally coordinated measures. The primary aim of the BEPS project is to ensure that profits are taxed in the jurisdiction where the economic activity that gave rise to the profit took place.
The BEPS project
The BEPS project aims to combat base erosion and profit shifting. In particular, the interactions between national tax legislations and aggressive tax planning should not result in inadvertent double non-taxation.
On 19 July 2013, the OECD published the 15-point Action Plan on BEPS in order to address the problem in a holistic manner. Switzerland participated actively in all of the BEPS working parties within the OECD devoted to the BEPS project. The OECD published the final reports on 5 October 2015. The outcomes officially mark the end of the project.
What does BEPS mean for Switzerland?
The OECD published 13 final reports containing recommendations. For Switzerland, the following standards are important:
- Patent/IP boxes
The BEPS measure also defines a new standard for the preferential taxation of patents and other intangible property. The income from eligible intangible property can benefit from preferential taxation only if it is generated from research and development generally carried out in the place of taxation.
- Spontaneous exchange of information on rulings
The established framework governs the spontaneous exchange of information on specific advance tax rulings and similar instruments.
- Preferential regimes
The OECD completed the assessment of the preferential tax regimes of its member states and of other jurisdictions participating in the BEPS project, including Swiss regimes.
- Dispute resolution mechanisms
As a minimum, the states undertake to grant access to the mutual agreement procedure when the application of a double taxation agreement could lead to double taxation.
- Prevention of treaty abuse
New anti-abuse provisions should make it possible to prevent the advantages of double taxation agreements (DTAs) from being granted to entities that are not domiciled in one of the contracting states and that are thus not entitled to access the agreement benefits.
- Country-by-country reports
Now, country-by-country reports are to be drawn up and exchanged automatically. The county-by-country reports provide an overview of multinationals' global allocation of income and taxes paid, together with other indicators of the location of economic activity within the group.
The overarching principle is that taxation should occur where the economic activity is performed and added value is created. All participating states will have to amend their laws and practices accordingly. This is likely to lead to a level playing field.
Switzerland has already taken account of some BEPS project outcomes or is in the process of doing so within the framework of ongoing reforms. The legal basis for the spontaneous exchange of information was created with the ratification of the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.
The taxation of multinationals should be made more transparent with the automatic exchange of country-by-country reports. The corresponding law and the multilateral agreement came into force on 1 December 2017. Multinationals in Switzerland are thus obliged to start drawing up a country-by-country report from the 2018 tax year. Switzerland and its partner states will therefore exchange country-by-country reports from 2020.
Some BEPS project actions require the adjustment of DTAs. The corresponding final reports contain DTA model provisions, some of which are minimum standards. In order to implement the adaptation of existing DTAs quickly and cost-effectively, a BEPS multilateral instrument (MLI) was drawn up by a group of over 100 states and territories The first signing ceremony took place on 7 June 2017, when almost 70 states and territories, including Switzerland, signed the BEPS convention. On 22 August 2018, the Federal Council adopted the dispatch on the BEPS convention and published the results of the consultation. The dispatch was submitted to Parliament. On 22 March 2019, Parliament approved the convention in the final vote. The convention is subject to an optional referendum.