United Kingdom


  • Service: Tax
  • Type: Press release
  • Date: 19/07/2013

OECD Action Plan on Base Erosion and Profit Shifting is a “Significant development in global collaboration to modernize the international tax system” says KPMG  

  • Action plan could signal a potential “seismic shift” in the landscape and comes at the right time for an impartial review of long-standing international tax norms, says KPMG


  • But significant challenges lie ahead, KPMG warns


Today’s Action Plan on Base Erosion and Profit Shifting from the OECD presented to the G20 Finance Ministers at their meeting in Moscow represents a significant development in global collaboration to modernise the international tax system.  In the current environment, a review of international tax rules to identify areas for improvement and achieve some consensus on necessary changes is certainly appropriate. The scale of this report and its ambitions for change represent a potential seismic shift in the international tax landscape.


Commenting on the Action Plan on Base Erosion and Profit Shifting (the “Action Plan”) published by the OECD today, Chris Morgan, head of tax policy at KPMG in the UK, said:


“Today’s proposals are ambitious and welcome. As the Action Plan acknowledges, globalisation has benefited domestic economies.  Our economy needs businesses to flourish.  This yields economic benefits beyond purely that of generating corporation tax revenues by fostering the creation of jobs and wealth.  That said, it is widely recognised that the international tax rules need updating to take account of modern business practices.  Today’s Action Plan creates a road map which should help companies to plan their future tax strategies. 


“It is particularly welcome that there will be involvement of a wide range of stakeholders including non-OECD G20 members, the UN, business and civil society so the rules can be developed to address real rather than perceived problems and will carry broad support.”


Chris Morgan added a word of caution: “it is important that the OECD’s work concentrates on the future and is not used to reinterpret existing laws and practice as this would create uncertainty and so harm economic growth.”

Specific areas addressed by the OECD in its Action Plan on Base Erosion and Profit Shifting (“Action Plan”)


Today’s Action Plan focuses on a number of key areas including the digital economy, intangibles, hybrid mismatch arrangements, harmful preferential regimes, aggressive tax planning, and greater transparency and disclosure.


• The “digital economy” in its broadest sense presents difficult and complex issues and we welcome the planned holistic approach to understanding the business models in this sector before making specific proposals.


• The call for action to address what the report refers to as “hybrid mismatches” was anticipated and is likely to have a significant impact on multinational companies. This is also likely to be one of the most ambitious areas of the plan as it will require changes to domestic law and extensive coordination among countries.   


• The Action Plan also calls for revamping the work on what it describes as “harmful tax practices” adopted by certain jurisdictions.  In this regard, we believe providing clarity and establishing consensus around the criteria for identifying these practices versus acceptable tax competition would be welcome. 


• The Action Plan calls for improving mechanisms for “dispute resolution”.  We encourage the widespread adoption of mandatory arbitration and recommend the OECD go further in opening up access to the Mutual Agreement Procedure (MAP) to facilitate earlier and swifter resolution of disputes. 

Areas for On-Going Dialogue


KPMG points out that there are some areas of today’s report which raise greater challenges and could present practical difficulties for implementation:


• In its earlier report issued in February, the OECD indicated it did not intend to depart from the arm’s length principle in transfer pricing.  As most tax experts expected, today’s Action Plan emphatically rejects the introduction of unitary taxation or formulary apportionment. It  states  consideration will be given to measures which may “go beyond the arm’s length principle” in dealing with intangibles, risk and capital allocation. KPMG said any departure from the universally established standard will need careful consideration but what is being considered is probably a wider use of profits split methods as opposed relying on comparable transactions.  


• The Action Plan proposes changes to domestic legislation to require greater “disclosure” to global tax authorities of certain “aggressive transactions”.  Providing clear definitions and establishing consensus as to which transactions this will apply will be essential to the effectiveness of this proposal.


• The Action Plan calls for enhanced “documentation requirements”.  Chris Morgan said: “This proposal echoes the Lough Erne declaration which called for a version of country- by-country reporting involving companies providing a breakdown of their global allocation of income and tax payments to tax authorities.  It is important that this information will not be misused as this could leave taxpayers caught in an argument between two tax authorities and subject to double taxation.  It is therefore welcome that the Action Plan also proposes strengthening dispute resolution mechanisms.”


• A number of the proposals will require “domestic law changes” that will have  EU law implications (such as, limitations on the deductibility of interest expense, CFC rules and treaty anti-abuse rules).  KPMG notes that in the past, resolving these conflicts has presented significant challenges.  However, as EU law allows for targeted anti-avoidance rules it should be possible for an agreement to be found.


• The Action Plan proposes what it calls “adoption of a multilateral convention” among participating governments to implement a number of the proposed actions.  KPMG notes that this will present some considerable challenges, but it may be the only realistic mechanism for effecting change within the proposed time frames.

Dialogue with a range of stakeholders is crucial

Today’s report proposes significant changes to the international tax landscape in a very short period of time.  It is thus very encouraging that the OECD is emphasising the importance of consulting with a range of non-governmental stakeholders in moving forward.  Chris Morgan concluded: “We believe this is critical and we look forward to engaging constructively with the OECD during the consultation process.”



For further information please contact:

Margot Cowhig, KPMG Corporate Communications

Tel:  0207 694 4246 Mobile: 07920 274856: margot.cowhig@kpmg.co.uk

KPMG Press Office: 0207 694 8773



Notes to editors.


KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.


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