TRADE & FINANCE 21
THE OECD BEPS PROJECT: STRIVING
FOR A LASTING LEGACY
There are three things that finance ministers
should be asking from the BEPS Project at this
juncture:
• Firstly, the proposals have been developed
in isolation, which is understandable given the
aggressive timetable. The interaction among
the recommendations must be considered.
Even more importantly, countries must consider
how the various recommendations would
mesh with their existing rules in these areas.
Countries will need to adapt the rules to fit their
circumstances, but alignment with the objectives
of the BEPS project should be maintained.
• Secondly, the implementation and
administration of the recommended measures
is every bit as important as their policy design.
Effective tax administration is critical in an
environment where fundamental changes in tax
rules are being made. Countries will need to
ensure that they are deploying the necessary
resources in this area. There is a strong role for
the OECD to play in developing best practices
and providing support in identifying and
addressing the tax administration challenges so
that countries realize the objectives of the BEPS
agenda.
The first major challenge of the
G20/OECD Project on Base Erosion
and Profit Shifting (BEPS) has been
met, with the publication of the 15
Action items in advance of the G20
Finance Ministers meeting.
This was a significant task, bringing together
many countries and perspectives in an effort to
forge consensus on how business should be
taxed. That consensus was important in the
1920s when the network of double tax treaties
was in its infancy. It is even more essential now,
as the extent of global trade has increased
to levels unimaginable at that time, driven by
advances in technology and communications.
Reaching this stage in proceedings has involved
a significant level of compromise, and the fact
that this has been achieved is testament to the
power of combining tax technical firepower with
political will. While this was the first challenge,
there are many to follow if the objectives are to
be realized. What has been produced so far is a
blueprint for change, and its success will depend
on how nations implement the recommendations.
Strong political leadership will again be required;
consensus must be retained and should not be
diluted by different interpretations of how each
Action might be construed. Without clarity and
consistency regarding implementation, we will
see further disparities and conflicts between
tax systems, which in turn will increase costs of
investment, undermine certainty and potentially
damage both businesses and countries.
One of the BEPS Project’s aspirations was to
create a system for resolving the numerous tax
disputes that are likely to arise, as businesses
and countries adjust to both new rules and a far
greater volume and transparency of information.
The inability to secure broad consensus
on mandatory, binding arbitration is a real
disappointment around the BEPS actions that
will inevitably prolong controversy and potentially
weaken the case for investment in some
countries. Businesses desire certainty over the
taxes they pay; this ability to achieve certainty is
required at the time of sanctioning investment,
or through established procedures to avoid
protracted discussions and cost for many years.
Such mandatory resolution procedures apply
already to some bilateral investment treaties,
and a strong commitment to resolving multiple
jurisdiction disputes must be integral to the
work on BEPS going forward. It is hoped that
further efforts can be made to deliver the kind
of certainty or process of resolution that will
allow businesses to proceed with investment
decisions with confidence.
Given the failure to deliver on global mandatory
binding arbitration, other forms of dispute
resolution will be under even greater pressure.
The political consensus should be extended
to include monitoring of the level and nature
of disputes that arise around the globe, with
a focus on countries where there is a clear
divergence from the coherence intended by
the BEPS Project. This peer-led review should
be active and transparent if we are to avoid
disputes that lead to an erosion of the BEPS
Project’s objectives.
• Finally, but perhaps most crucially, effective
mechanisms for dispute resolution will be
more important than ever. To leave the goal of
Action 14 unfulfilled would ultimately undermine
the very essence of the OECD, namely to
improve the economic and social well-being
of people around the world. The focus on
double non-taxation should not be allowed to
give rise to unpredictable, unresolved double
- or even multiple - taxation. As the G20 and
OECD look ahead to the next phase of the
BEPS Project, the focus on improving dispute
resolution mechanisms must continue and the
objective of eliminating double taxation must
be given renewed emphasis. Increased cost of
controversy and increased double taxation are
not outcomes that policy makers should accept.
In conclusion, this meeting will mark a critical
juncture in the BEPS Project. However, if the
G20/OECD BEPS Project is to deliver a lasting
legacy, this meeting must represent completion
of the planned roadmap, but merely the start of
the journey. Q