BEPS

At CSB Group we understand that things can become rather complex when dealing with International Tax regulations and different Jurisdictions. Our team of professionals, can guide you with the best taxation approach in order to achieve a comprehensible tax optimisation scenario.

International Tax – BEPS 

As outlined by the Organisation for Economic Co-operation and Development (OECD), Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax jurisdictions, thereby avoiding their fair share of tax. The OECD's findings revealed that BEPS practices cost countries between USD 100 and 240 billion in lost revenue annually, prompting coordinated international action at an unprecedented scale.

Over 135 countries and jurisdictions, including Malta, collaborated to develop and implement the BEPS Package, comprising 15 Action Points designed to tackle tax avoidance, strengthen the coherence of international tax rules, and foster a more transparent global tax environment. These Action Points address a broad range of issues across the international tax landscape:

• Action 1 addresses the tax challenges arising from the digitalisation of the economy, seeking to ensure that digital businesses are taxed where value is created and users are located.
• Action 2 targets hybrid mismatch arrangements, which exploit differences between jurisdictions' tax treatment of instruments or entities to generate double non-taxation.
• Action 3 strengthens controlled foreign company rules to prevent the artificial diversion of profits to low-tax subsidiaries.
• Action 4 limits base erosion through interest deductions and other financial payments, introducing the concept of a fixed ratio rule to cap deductible interest expense.
• Action 5 counters harmful tax practices, including preferential regimes, by requiring substantial activity and promoting transparency through the spontaneous exchange of tax rulings.
• Action 6 prevents treaty abuse, including treaty shopping, by introducing minimum standards and clarifying that tax treaties should not be used to generate double non-taxation.
• Action 7 addresses the artificial avoidance of permanent establishment status, tightening the rules to ensure that businesses cannot fragment activities to fall below the threshold.
• Actions 8 to 10 ensure that transfer pricing outcomes are aligned with value creation, tackling arrangements involving intangibles, risk, capital, and other high-risk transactions.
• Action 11 establishes methodologies to collect and analyse data on BEPS, enabling better measurement of its scale and economic impact.
• Action 12 requires taxpayers and intermediaries to disclose aggressive tax planning arrangements, enhancing transparency for tax administrations.
• Action 13 introduces standardised transfer pricing documentation requirements, including the country-by-country report, master file, and local file, to give tax authorities a clearer picture of global operations.
• Action 14 improves the effectiveness of dispute resolution mechanisms, ensuring that treaty-related disputes are resolved in a timely and principled manner.
• Action 15 led to the development of the Multilateral Instrument (MLI), a single multilateral treaty that allows jurisdictions to swiftly implement BEPS-related treaty measures without the need to renegotiate each bilateral tax treaty individually.

Malta has taken significant steps to implement the BEPS Package into its domestic legal framework. The Anti-Tax Avoidance Directives (ATAD I and ATAD II) have been transposed into Maltese law, introducing measures on interest limitation, exit taxation, general anti-abuse rules, controlled foreign company provisions, and hybrid mismatch arrangements. Malta is also a signatory to the Multilateral Instrument (MLI), through which a number of its bilateral tax treaties have been updated to reflect BEPS minimum standards. Transfer pricing documentation requirements have been introduced through subsidiary legislation, and mandatory disclosure obligations under DAC6 apply to reportable cross-border arrangements. 

BEPS and its continuing developments may significantly impact your business and corporate structure. CSB Group is fully equipped to advise you on the implications of the BEPS framework for your specific circumstances and assist with bringing your business in line with its requirements through careful and compliant planning.