What is BEPS, why is it important for infrastructure investors and what is GIIA doing about it?
Base Erosion and Profit Shifting, or BEPS, refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid.
Led by the OECD, the BEPS initiative is a multi-step plan to co-ordinate the reshaping of international tax regimes in an effort to reduce tax avoidance and increase the tax transparency of organisations.
Why is this important for infrastructure investors?
There is a significant risk that the implementation of a number of these actions would result in tax limits/restrictions to long-term investment arrangements. This disruption would affect the availability of long-term capital and impact the types of infrastructure investment arrangements available. It is therefore important that a solution is found to facilitate continued growth of long-term investment into infrastructure through as many routes as possible (including joint ventures, consortia, and funds alongside other like-minded investors).
What is GIIA doing about it?
The scale and pace of change in the international tax environment as a result of the OECD recommendations is unprecedented. The real challenge now is keeping appraised of how countries are interpreting the various OECD recommendations. In a bid to maintain momentum on this, GIIA seeks to:
- Through the GIIA Tax Working Group, continue engagement with tax and regulatory authorities to represent the collective views of its member base, working to mitigate detrimental decisions arising from poorly informed debate, rushed BEPS measures, or tax authority engagement that is not constructive (or timely);
- Educate tax authorities on the structure of typical infrastructure investment commercial and economic models to bring awareness around the use of certain structures and to highlight that they are designed for a multitude of ‘non-tax’ reasons;
- Bring awareness of the impact of various BEPS measures and their potentially unintended consequences on the infrastructure community and investors; and
- Encourage dialogue between investors, regulators and various government tax authorities to protect investor confidence and prevent major barriers to investment.
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More information about the OECD BEPS Action Plan can be found at: www.oecd.org/tax/beps/