CYIL vol. 15 (2024)

EDITA FILADELFIOVÁ

CYIL 15 ȍ2024Ȏ

2.1 BEPS The base erosion and profit shifting (BEPS) project aims to combat the erosion of the tax base and profit shifting from countries where value is created to jurisdictions with favorable tax regimes to avoid paying taxes. As business operates internationally, governments must act collectively to address BEPS and restore confidence in domestic and international tax systems. The OECD estimates that BEPS practices cost countries $100-240 billion in lost revenues annually, equivalent to 4-10 percent of global corporate income tax revenues. The purpose of the project is to introduce legislative tools to prevent the abuse of international tax treaties, reduce gaps in various tax systems, and introduce several standardized reporting practices among countries. 17 Large multinational corporations, which generate high profits yet manage to pay very low taxes, have long been the subject of discussion. For example, Sullivan mentions the business giant Apple Inc., which reported foreign (i.e., non-U.S.) effective tax rates of only 4.7 percent for the fiscal year 2011. 18 Over time, these significant financial resources began to be missed by states, leading to a need to correct this pursuit of tax-advantageous and attractive countries. Therefore, a key goal of the BEPS project is to “ provide governments with more effective tools to ensure the effectiveness of their sovereign tax policies .” 19 The entire project began in 2013 with the publication of the so-called Action Plan to prevent the erosion of the tax base and profit shifting, as companies were avoiding taxation in their home countries by pushing their foreign activities into jurisdictions with low or no taxes. At the request of the G20 group, the OECD issued the action plan, which includes several domestic and international measures to address the problems identified, along with a timeline for their implementation. 20 At the same time, the European Union also addressed the issue, with the Commission issuing a recommendation of non-binding character and relatively low significance in terms of content. 21 After nearly two years of work, the OECD came up with 15 measures to prevent the so called BEPS for individual governments: 1. Tax challenges arising from digitalization, 2. Neutralization of the effects of hybrid mismatches, 17 OECD, 2024. International collaboration to end tax avoidance. (cit. 2024-02-28). Available online: https://www. oecd.org/tax/beps/. 18 SULLIVAN, M. A., 2012. Apple Reports High Rate but Saves Billions on Taxes . In: Tax Notes 134. pp. 777–778. 19 OECD, 2015. OECD/G20 base erosion and profit shifting project: explanatory statement . Paris: Organisation for Economic Cooperation and Development, p. 4, Available online: https://www.oecd.org/ctp/beps-explanatory statement-2015.pdf. 20 OECD, 2013. Action Plan on Base Erosion and Profit Shifting . Paris: OECD Publishing, 2013. (cit. 2024-02-29). Available online: https://doi.org/10.1787/9789264202719-en. 21 Commission recommendation of 6 December 2012 on aggressive tax planning, 2012/772/EU. 22 The changes were eventually reflected in our Slovak law amending and supplementing Act No. 595/2003 Coll. on income tax as subsequently amended. 23 The review of preferential tax regimes of jurisdictions is conducted in coordination with the OECD Forum on Harmful Tax Practices (FHTP), which carries out a very similar procedure. Unlike the FHTP, the Code of Conduct Group also examines regimes related to manufacturing activities, regimes exempting income from foreign sources 3. Controlled foreign company rules, 22 4. Limitation of interest deductions, 5. Harmful tax practices, 23

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