Ministers and high-level officials from more than 60 countries and jurisdictions on Wednesday are to sign a multilateral convention to reduce the opportunity for tax avoidance by multinational enterprises.
The Organization for Economic Co-operation and Development, which developed the convention, said the signing ceremony marks an important milestone in the international tax agenda and brings closer the prevention of base erosion and profit shifting by multinational enterprises.
Last year the Cayman Islands committed in principle to the project, which reforms the application of tax rules in cross-border business to combat the erosion of tax bases and the artificial shifting of profits to low or no-tax jurisdictions.
The effects of the BEPS project on Cayman are relatively “benign,” according to former Minister for Financial Services Wayne Panton, but government committed to the initiative “for reputational reasons.”
The signing ceremony for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS will take place during the annual OECD Week in Paris, which brings together government officials and members of civil society from OECD and partner countries for debate on the most pressing social and economic challenges confronting society.
The new Convention, which is the first multilateral treaty of its kind, will allow jurisdictions to transpose results from the OECD/G-20 BEPS Project into their existing networks of bilateral tax treaties.
It was developed through a negotiation involving more than 100 countries and jurisdictions, under a mandate delivered by G-20 Finance Ministers and Central Bank Governors at their February 2015 meeting.
The OECD/G-20 BEPS project provides solutions for governments to close the gaps in existing international rules that allow corporate profits to be artificially shifted to low or no tax environments, where companies have little or no economic activity.
Revenue losses from BEPS are estimated at US$100 to US$240 billion annually, or the equivalent of 4 to 10 percent of global corporate income tax revenues, the OECD said.
Cayman’s adoption of the BEPS principles is in part as a result of the threat of a European Union blacklist of jurisdictions that it deems uncooperative in tax matters. Non-adherence to the cross-border tax principles is one of the criteria for inclusion on the list, in addition to the ineffective exchange of tax information and unduly low or no tax rates designed to attract profits from other jurisdictions.