DEMPE is not complicated – It is simply IP substance

For those who cared then, there was a lot of panic when the first drafts of the OECD BEPS (base erosion and profit shifting) action items were circulated.

The Action Plan had implications that were not limited to taxation and economic development. In later drafts it became more evident that intellectual property would receive extensive attention. Action Items 8 to 10 address the aspects of intangible assets with respect to preventing base erosion and profit shifting.

DEMPE, The Elephant In The Room For Multinationals

Background

At the 2012 G20 Summit in Los Cabos, participants raised concerns about multinational corporations (MNCs) using tax avoidance structures to exploit inconsistencies and gaps between different legal systems in order to shift profits to low-tax (or no-tax) jurisdictions. The G20  charged the OECD with the responsibility of coming up with an action plan to avoid Base Erosion and Profit Shifting (BEPS).

The resulting Action Plan was adopted at the 2105 G20 Summit in Antalya.

On June 7th 2017, ministers and officials from 76 countries and jurisdictions signed a multilateral instrument (MLI) that will allow rapid implementation of the BEPS actions into more than 1,100 bilateral tax treaties already in existence among the parties.

The only 3 OECD members to not yet sign are the USA, Brazil and Saudi Arabia.

What does this mean for IP owners?

Because IP accounts for the majority of enterprise value for MNCs, a simple shift in IP ownership can have a large impact in transferring profits (and therefore taxes) to other jurisdictions. The Action Plan paid special attention to the role of IP in base erosion and profit shifting.

The ramifications for IP ownership could be profound.

Why the European Commission Apple decision IS significant for policy and behaviour

In August 2016, the European Commission issued a final decision in its investigation into the way Apple paid tax in Ireland. The sheer scale of the decision was dramatic and made headlines around the world. In the aftermath, analysts said that the ruling was limited to the specific facts around the Apple case and would not apply to other international companies in Ireland.

This may be true, but the reality is that this case is a significant wake-up call. It is an indication of a much larger issue.