Action 3 of the BEPS Action Plan focuses on developing recommendations for the design of CFC rules to combat base erosion and profit shifting, including combating aggressive tax avoidance measures.

The 71-page discussion draft considers all the constituent elements of CFC rules and breaks them down into the ‘building blocks’ that are necessary for effective CFC rules.

The majority of these building blocks include recommendations, and the building block that does not yet include a recommendation but discusses possible options that could be included in effective CFC rules.

The discussion draft also identifies specific questions where input is required in order to advance the work on CFC rules. The options and recommendations included in this discussion draft do not represent the consensus view of the OECD Committee on Fiscal Affairs (CFA) or its subsidiary bodies, but they are intended to provide stakeholders with substantive options for analysis and comment.

The OECD recognises that groups can create low-taxed non-resident affiliates to which they shift income and that these affiliates may be established in low-tax countries wholly or partly for tax reasons rather than for non-tax business reasons.

In designing CFC rules, a balance must be struck between taxing foreign income and the competitiveness concerns inherent in rules that tax the income of foreign subsidiaries. 

CFC rules combat this by enabling jurisdictions to tax income earned by foreign subsidiaries where certain conditions are met.

However, some countries do not currently have CFC rules and others have rules that do not always counter BEPS situations in a comprehensive manner.

The work on the Action Plan has to be completed by September 2015.

The closing date for the consultation is 1 May 2015 at the latest (no extension will be granted) by email to [email protected]

A public consultation meeting on Action 3 will be held in Paris at the OECD Conference Centre on 12 May 2015.

Further information on the discussion draft is available here