Introduction and little considerations about the B.E.P.S. problem

In recent years the BEPS problem became very relevant to tax issues because it’s seen by the Countries as a very strong impediment to tax collection.

But, what is BEPS problem ?

Base Erosion and Profits Shifting is a worldwide phenomenon that involves  particulars tax techniques and strategies carried out by  Companies, which take advantage by the gaps and the mismatches of the tax rules, and they aim to the base erosion and artificially shift profits to low or no-tax jurisdictions.

In particular the causes of base erosion and profit shifting are manifold and include, among others, gaps and inadequacies of domestic laws, insufficient controlled foreign company rules, transfer mispricing, tax treaty abuses or problems arising from hybrid mismatch arrangements.

Commonlly, the BEPS strategy is generally carried out by multinational companies to avoid the high rate tax collection forescast by High Rate Tax Jurisdictions, e.g. U.S. And Western European Union States , and shift the profits in a No Tax or Very Low Tax Jurisdiction , a.k.a. “tax heavens”.

Very important is the consideration that, with the growth of the globalization of businesses and the digital economy, the States can’ t fastly keep the pace and ensure the avoidance of this phenomenon.

Certainly the erosion of the tax base and the shifting of profits distort competition, because the business that implement tax strategies abroad gain a competitive advantage over those that operate only in the domestic market.

This advange is composed of Non Taxation, or Very Low Taxation of the income.

Infact, with the same tax base, the multinational company has a much lower tax burden than a non- multinational companies as well.

This is a perfect violation to the communal principle of “substantive equality”, generally known and forecast by the Countries.

Furthermore, the Counties generally aim to :

• Boost the internal item of tax collection

• Narrow the gaps between Nationals Tax System

In addition, the BEPS problem involves a very important prerogative of the State: the tax sovereignty.

Indeed generally the Countries  define, on their own,  how to tax economic activities.

As history shows ( e.g. EU), generally tax sovereignty is something that Countries don’t  easily grant. This is seen as a very heavy limitation to its national sovereignty.

Only in the last years, and a after careful analysis of the phenomenon, the Countries have felt the need to contain the BEPS phenomenon.

First of all , with the indication of six well – determinated areas of necessary intervention.

Secondly, within the context of the OECD/G20 BEPS Project, with the determination of 15 Actions set up to contain the BEPS phenomenon.

Particullary:

1. Digital Economy;

2. Hybrids;

3. CFC Rules;

4. Interest Deduction;

5. Harmful Tax Practices;

6. Treaty Abuse;

7. Permanent Establishment Status;

8. Transfer Pricing;

9. BEPS Data Analysis;

10.  Discosure of Aggressive Tax Planning;

11. Transfer Pricing Documentation

12. Dispute Resolution;

13. Multilateral Instrument.