14 September 2013
EPAM Legal Highlights: Russia combats base erosion and profit shifting



On July 19th Organization of Economic Cooperation and Development has delivered its Action Plan on Base Erosion and Profit Shifting. Later on (September 5th) Russian Minister of Finance Mr. Anton Siluanov stated that G20 endorsed Action Plan on BEPS. It has been also declared that necessary steps for its implementation shall be taken in two year period. If G20 maintains its support for Action plan on BEPS, this will become the most important report for the recent years having huge impact on the international taxation.



OECD Action Plan on BEPS includes, following measures:

  1. Address the tax challenges of digital economy
  2. Neutralize the effects of hybrid mismatch arrangements
  3. Strengthen CFC rules
  4. Limit base erosion via interest deductions and other financial payments
  5. Counter harmful tax practices more effectively, taking into account transparency and substance
  6. Prevent treaty abuse
  7. Prevent artificial avoidance of PE status
  8. Assure that transfer pricing outcomes are in line with value creation for intangibles, risks and capital, other high risk transaction
  9. Establish methodologies to collect and analyze data on BEPS and the actions to address it

10. Require taxpayers to disclose their aggressive tax planning arrangements

11. Re-examining Transfer pricing documentation

12. Make dispute resolution mechanism more effective



It can be expected that OECD Action Plan on BEPS will have a strong impact for Russian future tax policy, due to various reasons.

-          The overall premise to maintain support of the Action plan is that current stagnant economy forces many states to look for new sources of budget's replenishment that requires joint efforts in the context of global economy.

-          The Action Plan on BEPS is broadly in line with the latest developments in Russian tax field that includes introduction of new transfer pricing legislation in 2012, limitation of interest deduction through changing practice of thin capitalization rules application as well as prevent of tax treaty shopping by the first steps in application of a beneficial owner concept. It also addresses the tax issues which have been raised in the main direction of Russian tax policy on 2013 and planned 2014 – 2015 years. 

-          Over and above OECD plan perfectly complies with current political environment and rhetoric which calls business from off-shores (not only for tax reasons).

Further developments in this field shall be closely considered within every international investment project which involves global tax issues.