The action plan is broken down into 15 action points on areas such as the digital economy, hybrid mismatches, transfer pricing and transparency, and, according to Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, will mean the end of “the golden age of “we don’t pay taxes anywhere”.”
Globalisation and the digital economy have allowed companies to be increasingly mobile.
“These developments have been exacerbated by the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning, thus providing MNEs with more confidence in taking aggressive tax positions,” the action plan states.
The potential impact of the report is huge.
“The plan marks a turning point in the history of international tax cooperation,” said Angel Gurria, the OECD’s secretary-general, who launched the document in Moscow this morning alongside the finance ministers of France, Germany, Russia and the UK. Gurria added that the plan lays out the processes necessary to prevent double non-taxation.
“This could be the biggest reform of global taxation in a lifetime,” said Richard Collier of PwC.
While Guillermo Teijeiro, co-founding partner of Teijeiro & Ballone Abogados in Argentina, said that “for better or worse, this report will occupy a corner of tax policymakers’ and tax experts’ desks for years to come”.
But while Gurria and Collier acknowledged the size, scope and potential impact of the initiative, non-governmental organisations (NGOs) and tax justice campaigners have attacked the report for not going far enough.
“This report is a long list of tweaks to try and fix a broken tax system, and tweaks simply aren’t enough,” said Kirsty Walker, of UK Uncut.
Some criticism was inevitable, but the OECD and the G20’s objective is to strike a balance between removing national mismatches and clamping down on tax arbitrage while also allowing businesses and economies to grow, a point which Russian Finance Minister, Anton Siluanov acknowledged this morning makes the task much harder:
“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.”
Changing international tax rules will produce winners and losers. Richard Asquith, head of tax at the TMF Group, believes the action plan will include elements that “significantly undermine” national efforts such as those championed by George Osborne in the UK, aimed at promoting their jurisdiction as an optimum location for business.
Non-governmental organisations warn that national interests must not be prioritised over international reform, and that the BEPS report has laid down a challenge to governments around the world “to fix the broken tax system”.
The Confederation of British Industry (CBI) also commented on the need for international cooperation and coordination to ensure that businesses have certainty.
“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 so UK firms are not disadvantaged,” said Katja Hall, chief policy adviser at the CBI.
But Chris Jordan, ActionAid’s tax campaigns manager, questions whether jurisdictions will be willing to cede some degree of sovereignty or competitiveness to achieve the desired outcomes. Countries are reluctant to place themselves at a competitive disadvantage by “moving first” in this direction, meaning coordinated action is the only way forward.
“Are governments prepared to cooperate fully with other nations to establish an equitable set of rules, or will competitive self-interest continue to win the day?” he asks.
Sandy Bhogal, Mayer Brown’s head of tax in the UK, warns that even with widespread coordination, completing the task will neither be easy nor quick.
“Notwithstanding the fact the G20 leaders are far from united [though the plan is supposed to have the endorsement of all G20 finance ministers] on how to proceed, 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,” he said. “This process will take a considerable amount of time, even with the cooperation of all the relevant parties.”
Action 15 in the plan is aimed at doing this. It calls for the establishment of a multilateral instrument to put the measures discussed in the plan into place and to amend tax treaties.
Jordan stressed the importance of “all the relevant parties” meaning the inclusion of developing countries.
“For developing countries that lose billions of dollars each year to aggressive tax avoidance, the stakes couldn’t be higher,” he said. “It’s vital they have a seat at the table, so global tax rules aren’t stitched up by the major powers.”
Claire Godfrey, senior policy adviser at Oxfam reiterated this call, saying: “Negotiations on new international tax rules must include all countries, including those that are not OECD or G20 members – from the very start”.
Saint-Amans said non-OECD members would participate in the BEPS project through the work of the organisation’s Taskforce on Tax and Development and that all BEPS technical work would be cleared by the OECD’s three separate global fora on transfer pricing, VAT and exchange of information and transparency, which also include countries that are not OECD members.
Timeframes for action
The report sets out an ambitious timeframe of completing action points within 12 to 24 months. We have seen with proposals such as the EU’s common consolidated corporate tax base (CCCTB) that coordinated multilateral action is difficult to achieve and often takes much longer than expected at the outset of measures being proposed.
But Philip Kermode, director, Directorate-General for Taxation and Customs Union of the European Commission, thinks that while it is preferable to “deal with the problem in some sort of holistic way,” there is a lot to be said for trying to achieve “some form of early harvest which would indicate that one was going in the right direction”.
“Some of the more obvious cases of mismatch like, for instance, the hybrid loans or hybrid entities, should in theory be easier to resolve,” he suggested.
Point of taxation, transfer pricing issues and issues around the right-to-tax are more complex and problematic and are likely to take longer to reform than anti-avoidance issues and mismatches.
Manal Corwin, principal-in-charge of international tax policy at KPMG US, and former deputy assistant secretary of tax policy for international tax affairs at the US Treasury, proposes a two-speed solution.
“A way forward [could be] to look for areas where there tend to be an early harvest to address and satisfy some of the urgency that has been created by the public environment, while at the same time taking a more considered and deliberate approach which takes more time and more coordination where there are a lot of factors to be considered to get it right.”
Jordan said the proposals would ultimately 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” and that the international community now has an opportunity that it cannot “let slip through its fingers”.
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