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Banks Should Fall Outside BEPS Work: IBFed

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13 August 2015
by Jason Gorringe,, London

The regulatory environment surrounding the banking industry already constrains the behavior of banking groups in ways which obviate base erosion and profit shifting (BEPS) risks, the International Banking Federation (IBFed) said in a paper released on August 7.

Entitled Base Erosion and Profit Shifting (BEPS): Why International Banks Are Different, the paper argues that "the regulation of international banks and their unique characteristics distinguishes them from multinationals operating in other industries, and means that they are not the natural focus of the OECD's BEPS agenda." The paper concludes that taxable profits for banks arise where the real economic activity is undertaken.

The paper points out that "a combination of the regulatory requirements, business needs, and clear transfer pricing rules mean that there are limits on the deductions that international banks are able to claim for their funding and regulatory capital. Similarly, international banks are not able to [merely] shift profits to low tax jurisdictions. Rather, income attributed to a particular jurisdiction needs to be supported by a robust and independent analysis."

The paper states that banks are already subject to domestic and international banking regulations; are closely monitored by domestic regulators; and are also required to disclose information beyond what is normally expected from other public companies.

Finally, the paper urges that BEPS rules be developed and applied to international banks in a way that does not: thwart commercial banking business and the [intermediary] benefits that banks provide to the economy; give rise to inconsistencies between the new tax rules and the regulatory environment banks face; or place an excessive compliance burden on the banking sector (or its clients).