BEPS; Crushing 5 Risks for Every Seychelles Business

Chances are you’ve heard the term BEPS being thrown around in recent years, especially if you work in finance or own an international business. But for those of us running companies in Seychelles, it’s easy for complex global tax policies like BEPS to feel removed from our day-to-day operations.

What is BEPS?

BEPS stands for Base Erosion and Profit Shifting. In plain English, it refers to tax avoidance strategies used by multinational companies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Countries identified as offshore jurisdictions were sometimes unintentionally facilitating this behavior.

Led by the Organization for Economic Co-operation and Development (OECD) and G20, the BEPS initiatives began in 2013. It has 35 member countries working together on a comprehensive set of policies to reform international tax rules and plug loopholes that allowed base erosion and profit shifting to thrive.Their goal is to ensure businesses pay taxes in the countries where economic activity and value are generated.

The BEPS project is an international obligation, which Seychelles committed itself to at the request of OECD in 2016, to conform to international standards on tax matters in relation to the implementation of measures against tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.

The 15 Action Plans

Through 15 separate action plans, BEPS provides recommendations for domestic and tax treaty provisions. Some focus on specific issues like interest deductions and hybrid arrangements, while others aim to improve transparency and dispute resolution between tax authorities. BEPS has now become the global standard for international taxation.

Here are the 15 Action Plans that were agreed upon by BEPS members:

1. Action 1 – Addressing the Tax Challenges of the Digital Economy
2. Action 2 – Neutralizing the Effects of Hybrid Mismatch Arrangements
3. Action 3 – Designing Effective Controlled Foreign Company Rules
4. Action 4 – Limiting Base Erosion Involving Interest Deductions and Other Financial Payments
5. Action 5 – Countering Harmful Tax Practices More Effectively
6. Action 6 – Preventing Treaty Abuse
7. Action 7 – Preventing the Artificial Avoidance of Permanent Establishment Status
8. Action 8 – Guidance on Transfer Pricing Aspects of Intangibles
9. Action 9 – Risks and Capital – Aligning Transfer Pricing Outcomes to Value Creation
10. Action 10 – Other High-Risk Transactions – Assure CUP Method is Applied Correctly
11. Action 11 – Measuring and Monitoring BEPS
12. Action 12 – Mandatory Disclosure Rules
13. Action 13 – Re-examining Transfer Pricing Documentation
14. Action 14 – Making Dispute Resolution Mechanisms More Effective
15. Action 15 – Developing a Multilateral Instrument

These 15 Action Plans target major issues like the taxation of the digital economy, interest deductions, harmful tax practices, treaty abuse, transfer pricing and more. They set clear standards for countries to implement multilaterally so businesses have consistency across borders when it comes to international tax rules.

Relevance to Seychelles

While Seychelles isn’t an OECD or G20 member, our government has taken noticeable steps to align with BEPS recommendations. New rules restrict conduit financing and impose economic substance requirements for companies. Thin capitalization rules also went into effect. Authorities have grown more vigilant about transfer pricing practice and transactions with related parties.

For Seychelles businesses, BEPS means it’s essential your company structures, financing arrangements, and transfer pricing adheres to the intent of the new standards. That helps avoid disputes with foreign tax authorities down the line as BEPS continues spreading worldwide over coming years.

International firms with operations, subsidiaries, or related parties in low-tax nations must review intercompany agreements and financing terms to demonstrate business purpose beyond tax savings. Digital businesses with global client bases require extra attention to BEPS proposals reforming nexus and profit allocation rules for the digital economy.

The good news is that with advance planning, most companies can restructure international affairs to both comply with BEPS and still take advantage of legitimate tax benefits through locations like Seychelles. Speaking to tax advisors experienced with BEPS can help navigate requirements and maintain a competitive edge.

Conclusion

In summary, BEPS implications warrant attention for businesses in Seychelles or other offshore jurisdictions operating internationally. Staying informed about these tax reforms minimizes compliance risks. Our experts can guide you in optimizing processes and agreements within this global tax framework.