Tel: 0207 237 0374
Tax avoidance by companies and the OECD BEPs initiative
The OECD launched an Action Plan to tackle international tax avoidance at the request of the G20 Finance Ministers in July 2013. This will have a major impact on cross-border real estate investors. At the time of the launch, many commentators were very sceptical about the ability of the OECD to deliver on this. We said at the time that we thought that this hugely underestimated the determination to move this forward. The BEPS Action Plan provided for 15 actions scheduled to be finalised in three phases: September 2014, September 2015 and December 2015. The OECD published the first seven elements of its Action Plan in September 2014. All 15 Action plans in updated form were published by the OECD on 5th October 2015 and were adopted by the G20 Finance Ministers Meeting in Lima on 9th October 2015. Even without the attention from the Panama revelations, the BEPS initiative had very significant momentum.
The most innovative step was through Action Plan 15, "Developing a Multilateral Instrument". This is possibly the most significant aspect of the whole BEPS initiative. One of the major challenges facing the BEPS project is the volume of work that would be required to implement changes to the more than 3,000 bilateral double tax treaties in existence. The original Action Plan 15 paper considered the practicality of addressing this through a single multi-lateral instrument to which countries could sign up. It is therefore designed to accelerate the implementation of the proposals set out in the other actions rather than to introduce new measures. It is likely to mean that many of the measures would be introduced earlier than would otherwise be the case. Considerable progress has been made. An ad hoc group to develop the multilateral instrument was approved by the OECD Committee on Fiscal Affairs and endorsed by the G20 Finance Ministers and Central Bank Governors in February 2015.
The Group, which is chaired by Mike Williams, Director of Business and International Tax with the UK Treasury, began its work in May 2015 with the aim to conclude this and open the multilateral instrument for signature by 31 December 2016.
Astonishingly there are fund managers who are blissfully unaware of the whole BEPS initiative.
More details on the BEPS initiative and what it means for the real estate investment management industry can be found here.
The revelations in the "Panama papers" have focussed attention on money laundering. In the UK, there has been a particular realisation that investment in real estate has been a significant opportunity for money-laundering. This is hardly news, but has prompted a response from the Government that further action will be taken to combat the problem. We do not yet know how this will differ from the initiatives already well underway in the European Union.
The updated framework for this was established in 2015 in the form of the European Anti Money Laundering Directive IV. It came into effect on 26th June 2015. Implementation will take place over the next two years. In its reaction to the Panama papers, the FCA said that it will work closely with the Treasury on the Directive, which requires implementation in the UK by mid-2017. The regulator added it will continue to work with the European Supervisory Authorities on drafting guidance to support the Directive and will also continue to be a major participant in the financial action task force and carry out a mutual evaluation review of the UK in late 2017.