This content is from: United States

The OECD’s BEPS report: How did others react?

Now the dust from last week’s G20 finance ministers’ meeting in Moscow is beginning to settle, the question is to what extent the OECD’s action plan for tackling base erosion and profit shifting (BEPS) marks a turning point in the history of international taxation, and whether the timeframes outlined in the report are realistic.

Concerns have been raised about the level of detail contained in the report and the inclusion of developing countries in any policy-making initiatives, as well as how progress on tackling the issues associated with BEPS will interact with continuing (and repeatedly-delayed) attempts to reform the US tax code.

Officials, taxpayers, advisers and lobbyists outline their reactions to whether the action plan can achieve its stated objectives and what the major challenges will be.

Market reactions:

“The action plan, which we will roll out over the coming two years, marks a turning point in the history of international tax cooperation. It will allow countries to draw up the coordinated, comprehensive and transparent standards they need to prevent BEPS. International tax rules, many of them dating back to the 1920s, ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to permit double non-taxation. The action plan aims to remedy this, so multinationals also pay their fair share of taxes.”

Angel Gurria, OECD secretary-general

“As the presidency of the G20, we commend the work of the OECD to ensure the international tax system promotes growth and competition without distorting the basic tenets of fairness – that it allows multinational corporations to prosper without loading a higher tax burden on domestic companies and individual taxpayers.”

Anton Siluanov, Russian finance minister

“This could be the biggest reform of global taxation in a lifetime. Taken together, the many areas covered, and how they interact, amount to a full-scale review.

The BEPS action plan is a movement, not an isolated project. The scale of its ambition means change is not going to happen overnight. Change will come from countries adopting domestic rules, changes to international tax treaties and changes to the practical application of existing rules by both tax authorities and businesses.”

Richard Collier, tax partner at PwC

“This is a comprehensive plan, and BIAC [the Business and Industry Advisory Committee to the OECD] is convinced the OECD is the right body to be handling this project. As the leading international tax standard-setter, the OECD has not just the analytical ability, and the structures, but also an excellent record over the last few years of reaching out well beyond their membership to the BRICS and less-developed countries. I know some NGOs are disappointed, but if you look at the action plan carefully, many elements of these reviews could have far-reaching effects. The fact that it is not a wholesale shift to formulary apportionment doesn’t mean that the sum of the parts is potentially less radical.

Some of your earlier correspondents have raised the question of competition between countries and the effect this might have on eventual outcomes. That obviously is a risk, but I think, given the political pressures out there, business actually has a real interest in coordinated international responses. Absolutely the worst outcome would be a failure of this project that led to countries reaching instead for unilateral solutions to BEPS problems. That would inevitably lead to double taxation which is the one guaranteed killer of growth-enhancing cross-border trade and investment.”

Will Morris, chairman of the BIAC Tax Committee (and GE’s global tax policy director)

“While we welcome the international attention being given to corporate tax avoidance, we’re very disappointed in the OECD’s failure to recommend public country-by-country reporting for multinational companies.

Requiring companies to disclose where they’re operating, where they’re making their profits, and where they’re paying taxes is a straightforward way to detect and deter corporate tax dodging. Global momentum is clearly moving toward requiring multinationals to publicly report information on a country-by-country basis, and this report underlines the OECD’s position as a laggard in the international tax arena. The world is moving ahead on this issue, and it’s time for the G20 and OECD to hop on the train or get left behind.”

Tom Cardamone, managing director at GFI

“I warmly welcome the G20 finance ministers’ commitments on concrete measures to better tackle tax evasion and corporate tax avoidance worldwide. This confirms a paradigm shift in international taxation – one that will make it fairer, more effective and better equipped for the 21st century economy.

What is important now is that these commitments are followed through with swift action. We must strike while the iron is hot, and keep to the ambitious timeline set out by the OECD.”

Algirdas Semeta, European Commissioner for Taxation, Customs, Statistics, Audit and Anti-fraud

“The plan is a welcome and long overdue step towards tackling tax dodging by unscrupulous multinationals. The OECD clearly acknowledges that existing international tax rules make it easy for multinational corporations to avoid paying their fair share of tax – as shown by the recent Google and Amazon scandals. We all now agree – with the possible exception of some multinationals and tax havens – that the current situation is unfair and requires urgent reform.”

Alex Prats, principal economic justice adviser at Christian Aid

“The proposal from the OECD could see significant changes to the interaction of tax regimes on a global basis. But their aim of linking the revenues of multinational businesses to particular territories and requiring reporting on a multilateral basis will be extremely complex to agree and implement.

Any global reforms will have to be brought in through changes between countries on a bilateral basis (as well as any global agreements) and also amend existing domestic laws. This process will take a considerable amount of time, even with the cooperation of all relevant parties.”

Sandy Bhogal, head of tax at Mayer brown in the UK

“International tax rules affect everyone and it is often the poorest countries that suffer the greatest losses due to tax abuse. Negotiations on new international tax rules must include all countries, including those that are not OECD or G20 members – from the very start.”

Claire Godfrey, senior policy adviser at Oxfam

“Bringing today’s proposals to fruition within the 24-month timetable presents an enormous challenge. There is undoubtedly an urgent need to work quickly as uncertainty helps no one, but modernising over 75 years of international tax laws in just two years’ time without jeopardising the aspects of the current system that operate as intended and are fit for purpose will not be straightforward.”

Greg Wiebe, global head of tax at KPMG

“The OECD is having a hard time moving beyond the arm’s-length standard for transfer pricing, which is impossible for many low-income countries to implement. We believe the OECD should work more closely with non-G20 countries on exploring alternatives, including unitary taxation. As a first step, the OECD should also strengthen its support for public country-by-country reporting by multinationals – so we can see exactly how much profit they are parking in tax havens.”

Jim Henry, chairman of the Global Alliance for Tax Justice

“Everyone agrees the global tax system needs modernising. But that’s where the unanimity stops. Until the proposals and chances of implementation of the OECD plan are clear, this review of corporate taxes is going to put a dampener on enthusiasm for the UK as a home for global business. This G20-driven initiative will face tough opposition from most of the G8 countries who wish to focus on tax transparency first.”

Richard Asquith, head of tax at TMF Group

“The OECD report on BEPS has laid down a challenge to the UK and governments around the world to fix the broken tax system. Are they prepared to cooperate fully with other nations to establish an equitable set of rules, or will competitive self-interest continue to win the day? Ultimately, the proposals will be judged by their effectiveness in turning a broken and unjust system into one that produces a fair result for all countries, companies and citizens. This is an opportunity the international community cannot let slip through its fingers.”

Chris Jordan, tax campaigns manager at ActionAid

“Today’s report proposes significant changes to the international tax landscape in a very short period of time. We are encouraged that the OECD is emphasising the importance of consulting with a range of non-governmental stakeholders as it moves forward. KPMG believes this dialogue is a critical step to the plan’s ultimate success, and we look forward to engaging constructively with the OECD during the consultation process.”

Manal Corwin, principal and national leader for International Corporate Services at KPMG (and former deputy assistant secretary for tax policy, international tax affairs, at the US Treasury Department)

“We agree with the OECD that in the majority of cases existing international tax rules and principles work well but some need updating to reflect today’s changing global business environment.

We support the reform of areas of international taxation which can cause confusion about where tax should be allocated and risk multiple or no taxation, but this must be coordinated internationally.

The OECD is right to approach this in a considered and analytical way that takes into account administrative and compliance burdens on businesses and gives them future certainty.”

Katja Hall, chief policy adviser at the Confederation of British Industry (CBI)

“Any plan to tackle the current inequalities in taxing international trade will only work if it is adopted on a truly global, all-or-nothing scale. No market can choose to sit this out if it is going to be effective. Recent research shows funds flowing from the most compliant to the least compliant tax havens as information exchange powers bite – tax evasion is being forced to those places where it can still happen. The risk will be that the same displacement happens with the BEPS initiatives if there are loopholes left after the action plan is completed. Consumer power alone is not the answer to bringing business taxes in line with public expectations; the rules themselves will need to be clear and comprehensive so that taxpayers can understand what is expected of them and comply with it effectively. The OECD has a challenging task ahead of it as implementation of this plan needs to meet the starkly differing aims for developed nations and developing economies.”

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA)

“One of the main conclusions from the report was that taxation has not kept up with business and technological developments. Though this BEPS action plan is very ambitious, it may not be ambitious enough. The action points are trying to solve some of the issues without providing a new creative global solution which can be used for the next 10 to 20 years. A lot more work needs to be done to have detailed solutions available within the proposed timeframe. The OECD has been looking at some of these issues for years and it is very ambitious that they now expect to solve them within this timeframe.

One of the main questions is whether the US will change its tax system based on these action points as the current US tax system is one of the main reasons for some of the tax (planning) issues in the world today.”

Marc Sanders, partner at Taxand Netherlands

Related