Base Erosion and Profit Shifting
Base Erosion and Profit Shifting (BEPS, 세원잠식 및 소득이전, 稅基侵蝕與利潤移轉)
OECD had been released a project named BEPS (Base Erosion and Profit Shifting) to set up an international framework to combat “tax avoidance” by multinational enterprises (“MNEs”, 다국적기업).
Structure of BEPS Action Plan
- Address the Digital Economy
- Controlled Foreign Companies (CFC) Rules
- Interest Deductions
- Harmful Tax Practices
- Treaty Abuse
- Permanent Establishment Status
- Transfer Pricing
- BEPS Data Analysis
- Transfer Pricing Documentation
- Dispute Resolution
- Multilateral Instrument
Controlled Foreign Companies
Income Tax System designed to limit artificial deferral of tax by using offshore low taxed entities.
- The countries which are located at Tax Haven
- The countries which haven’t double tax agreements
Double Irish with a Dutch Sandwich
is a tax avoidance technique employed by certain multinational companies.
- Company (Korea, United States, other countries) (HQ)
- 2 Ireland based companies (IA, IB)
- 1 Netherland based company (NA)
- 1 Tax Haven company (such as Bermuda, Virgin Island) (TH)
- Example (Company)
- HQ company sell intellectual property to TH company.
- TH company revalue intellectual property more higher.
- revalue will be translated as an intangible asset under GAAP, IFRS
- TH company licensed intellectual property to IA company.
- IA company licensed intellectual property to NA company.
- NA company licensed intellectual property to IB company.
- IB company sells software to customer.
- Example (Customer)
- Customer pays $10,000 to IB company.
- Reversely transferred as a royalty.
- TH company accumulates the cash and lend cash to HQ company.
Similar to the Double Irish technique, but instead of using a Bermuda or Virgin Island located at Caribbean island, the Malta and its double tax treaty with Ireland to avoid taxation of certain multinational companies.
- United Kingdom
- Diverted Profits Tax (“DPT”)
- Republic of Korea
- Adjustment of International Taxes Act (“국세조세조정에 관한 법률”)
- Republic of China
- CbC (Country-by-Country) Report, Master File and Local file required
- New Zealand
- Taxation (Neutralising Base Erosion and Profit Shifting) 2018
- Hong Kong Special Administrative Region
- the Inland Revenue (Amendment) No. 6 Bill 2017
anti-BEPS Tax Regimes
- U.S. Tax Cuts and Jobs Act of 2017
- EU Commission 2018 Digital Services Tax
To be continue..