An overview of the areas in which the OECD BEPS Actions will affect the day to day business of project finance transactions
The OECD's anti-base erosion and profit shifting project (BEPS) has already led to major international tax reform. The project's focus is on tackling cross-border tax avoidance and harmonising tax rules on cross-border transactions. The overriding aim is to ensure that multinational groups are taxed consistently with the location of their activities. Over 95 countries have committed to introducing minimum standards proposed in the areas of preventing treaty shopping, country-by-country reporting, fighting harmful tax practices and improving dispute resolution. A significant further group have participated as invitees whilst considering whether to join. In addition to minimum standards adopted, non-mandatory recommendations on hybrid mismatch arrangements and best practices on interest deductibility present a general direction in international tax policy direction that a large proportion of participants can be expected to adopt. The EU has added its own weight to these areas through the introduction of the Anti-Tax Avoidance Directive (“ATAD”) in 2016 and "ATAD 2" this year.
The changes impact not only planning for new investments but also established financing structures.
To enable some of the changes, given the vast treaty network, the OECD has worked on a Multilateral Instrument (“MLI”) which works to amend double tax treaties without bilateral renegotiation of each treaty. The MLI incorporates both minimum standards and OECD recommended best practice in a number of areas. The key aspects of the BEPS project that are likely to apply to a typical project finance transaction are below.