. The OECD estimated that in 2013 global corporate income tax revenue losses could be between 4% to 10% of global revenues56, i.e. almost a quarter of a trillion dollars annually57. The main reasons behind cross-border tax evasion were aggressive tax planning by some multinational enterprises, interaction of domestic tax rules, lack of transparency and coordination between tax administrations, limited country enforcement resources and harmful tax practices. The affiliates of MNEs in low tax countries report almost twice the profit rate (relative to assets) of their global group, showing how BEPS can cause economic distortions58.

Two pillars of international anti-offshore legislation

Current international tax agenda relies on two building blocks: tackling tax avoidance via the OECD/G20 Base Erosion and Profit Shifting (BEPS) project; and promoting transparency and exchange of information among jurisdictions for tax purposes.

Addressing base erosion and profit shifting

The OECD coined the term «base erosion and profit shifting» (BEPS) and focused its efforts on creating legal framework to deal with this problem. The OECD report «Addressing Base Erosion and Profit Shifting» states, «Base erosion constitutes a serious risk to tax revenues, tax sovereignty and tax fairness for OECD member countries and non-members alike. While there are many ways in which domestic tax bases can be eroded, a significant source of base erosion is profit shifting»59. The report analyzes the main causes of BEPS and identifies «six key pressure areas: 1) hybrids and mismatches which generate arbitrage opportunities; 2) the residence-source tax balance, in the context in particular of the digital economy; 3) intragroup financing, with companies in high-tax countries being loaded with debt; 4) transfer pricing issues, such as the treatment of group synergies, location savings; 5) the effectiveness of anti-avoidance rules, which are often watered down because of heavy lobbying and competitive pressure and 6) the existence of preferential regimes»60.

The BEPS package developed by the OECD upon the request of G20 leaders covers three unifying tasks:

– to align rules on taxation with the location of economic activity and value creation;

– to improve coherence between domestic tax systems and international rules;

– to promote transparency.

The BEPS package was introduced in Kyoto, Japan, in June 2016. The BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to «disappear» or be artificially shifted to low or no tax environments, where companies have little or no economic activity61.

In line with the OECD BEPS package, the European Commission adopted the Action Plan (2015) for fair and efficient corporate taxation in the EU, which also deals with issues related to harmful tax practices. On 28 January 2016, the European Commission presented the Anti-Tax Avoidance Package and the Council adopted the Anti-Tax Avoidance Directive on 12 July 2016. The Directive proposes six legally binding anti-abuse measures to counteract some of the most common types of aggressive tax planning, which all Member States should apply against common forms of aggressive tax planning.

Key features of the Anti-Tax Avoidance Package include:

– legally-binding measures to block the most common methods used by companies to avoid paying tax;

– a recommendation to Member States on how to prevent tax treaty abuse;

– a proposal for Member States to share tax-related information on multinationals operating in the EU;