Base Erosion and Profit Shifting – business support for collaborative solutions Will Morris is Director of Global Tax Policy at General Electric. He chairs the BIAC Committee on Taxation and Fiscal Policy The BEPS Action Plan Last year, the Organisation for Economic Cooperation and Development (OECD) embarked on one of the most ambitious programmes of tax policy work ever attempted. With the full endorsement of the Group of 20 (G20), the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan was released in July 2013. There is broad agreement that in some areas, international tax rules have not kept pace with globalisation. The OECD states that existing rules have revealed weaknesses which have created opportunities for BEPS: “where the interaction of different tax rules leads to double non-taxation or less than single taxation.” These are the situations that the BEPS project seeks to remedy. These concerns will be addressed through 15 BEPS Actions covering a wide range of international tax issues from the digital economy to the transfer pricing of intangibles. The significant political imperative behind the BEPS project has accelerated the time-frame, with all of the BEPS Actions being largely tackled over a two year period. This is extraordinarily fast relative to previous OECD tax policy projects. In fact, by September 2014, the OECD will have fully or partially completed its work on the digital economy, hybrid mismatches, harmful tax practices, treaty abuse, transfer pricing of intangibles and transfer pricing documentation, which will include a template for reporting country by country information to tax authorities around the world. Business engagement The BEPS Action Plan states clearly that the OECD’s core relationship with business is through the Business and Industry Advisory Committee (BIAC). In 2013, BIAC organised two International Dialogues on BEPS at the OECD in Paris. Those meetings provided opportunities for the business community to engage and assist in the development of the OECD’s thinking, through discussions and the submission of written comments (publically available on the BIAC website). BIAC acts as a key coordinator in gathering business comment on BEPS proposals or related questions from the OECD. The OECD issued has issued a calendar for planned stakeholder input during 2014. In the first three months of 2014, the OECD intends to release four draft documents for public consultation with a time-frame for comments of between 21 and 30 days: a stark contrast to the average period of over 80 days for analogous consultations during 2012 and 2013. This will put pressure on commenting stakeholders to process and feedback on a large volume of technical proposals in a short time-period. Although this will no doubt be a challenging timeframe for business, BIAC encourage its members to actively participate in the BEPS project. Only solutions reached with the full endorsement of governments, business and broader society can stand the test of time. Collaborative action The BEPS project juxtaposes the need for deep technical multi-year analysis with the important political expectation of immediate action. BEPS certainly represents a challenge for governments and business, but it also represents an opportunity to re-examine principles, and to reach consensus based agreements that can unite the OECD with non-OECD member countries in the G20 as well as Less Developed Countries. The technical expertise and practical experience that governments and business can bring to this forum is critical to the BEPS project’s success. This project represents a challenge and an opportunity, and BIAC’s members stand ready to assist the OECD and its member governments in any way that they can. The OECD BEPS Action Plan states clearly that accomplishing the BEPS Actions will require a “comprehensive process that involves all relevant stakeholders,” including working closely with non-OECD economies and consulting with business and civil society. In the end, all stakeholders in the BEPS project share a common interest: sustainable cross-border trade and investment that will create more wealth, more growth and more jobs. This is the core goal of the OECD and should be borne in mind by all stakeholders as the BEPS project continues to ensure that it is not jeopardised. Multilateral solutions The OECD is seeking to complete work on the BEPS Actions whilst preserving its consensus-based framework, a very ambitious task within the time allotted. The Action Plan itself notes that failure to achieve consensus may result in unilateral measures, “which could lead to global tax chaos marked by the massive re-emergence of double taxation.” Indeed, a number of OECD governments have already begun considering (and in some cases taking) unilateral action targeted at certain BEPS Actions including: elements of thin capitalisation rules; restrictions on certain payments between related parties; a ‘culture tax’ to generate revenues from video-sharing websites; a tax on smartphones and a law requiring internet advertising space to be sold only through companies registered locally for VAT. These worrying examples illustrate the willingness of countries to take action outside of the OECD BEPS project, and demonstrate again the need for all stakeholders to work towards common solutions expediently. BIAC strongly urges countries to act in a coordinated way and to avoid unilateral measures across all BEPS Actions. Independent proposals will result in disputes and double taxation, which will hinder growth and investment. Coordination across actions Given the accelerated timeframe of the BEPS project, there is a risk that the BEPS Actions are dealt with in silos to ensure deliverables are produced in time. BIAC strongly supports a coordinated approach to the BEPS Actions – one that that takes into account the interconnected nature of the tax issues identified. Proposals implemented under one Action will no doubt have significant consequences for others. For example, interest deductibility proposals will impact the transfer pricing work on financial transactions. It is also clear that the OECD’s work to ‘address the tax challenges of the digital economy’ will be significantly impacted by measures taken under almost all of the other BEPS actions. Full consideration should therefore be given to the wider impact of all proposals, intended and unintended, before implementation. Tax and transparency The BEPS project is broad in its technical reach, but it also relates to perception issues. Public confidence in the international tax system has been shaken. In order to help restore that confidence, in September 2013 BIAC offered its Statement of Tax Principles to promote responsible business tax management. The Statement acknowledges public disquiet but also affirms that most international businesses will work hard to pay the right amount of tax on their activities as required by local and international laws. Whilst this is a good starting point, there remain opportunities for business to improve public understanding of the tax system further. BIAC doesn’t believe that indiscriminately releasing more information into the public domain will address misunderstandings, but it does support consideration of how businesses can best explain their economic contribution, and the taxes paid in the jurisdictions in which they operate, to the public. Whilst raising public tax awareness, business has an opportunity to restore trust, and to potentially address certain BEPS concerns without the need for complicated changes to international tax rules. Rebuilding trust There is a clear temptation to see BEPS as a series of technical issues, for which a new set of complex international tax rules is needed. BIAC believes that at least some of the issues can be addressed through soft-law options, and even by focusing on dialogue and relationships in some cases. BIAC’s Statement proposes that relationships between international businesses and tax authorities should be transparent, constructive, and based on mutual trust. We also believe that tax authorities and business should treat each other with respect, and focus their efforts on areas of risk. BIAC has also released its Statement of Tax Best Practices for Engaging with Tax Authorities in Developing Countries which are intended to support responsible business tax management and to enhance co-operation, trust and confidence between tax authorities in developing countries and international business. Transparency, open dialogue and co-operation between tax authorities and business contribute to greater compliance and better functioning tax systems. In this regard, the OECD’s promising work on Co-operative Compliance should form part of the solution to the problems. Achieving sustainable solutions BIAC supports the development of coordinated multilateral solutions to the issues identified. However, achieving consistency in the implementation of proposed rules may prove to be a significant challenge. BEPS Action 15 suggests the development of a multilateral instrument to implement BEPS measures, and amend bilateral tax treaties. BIAC strongly supports this work – the importance of this Action in achieving consistency and avoiding double taxation should not be understated. BIAC also believes that business will find it easier to constructively contribute to the development of sustainable solutions if the risk of double taxation is mitigated. This could be achieved through the multilateral adoption of Mandatory Binding Arbitration to ensure effective dispute resolution. Conclusion BIAC seeks to promote the efficient working of the tax system to fund public services. BIAC also supports stability, certainty and consistency in global tax principles. The OECD is the right forum to develop international solutions to the issues identified in the BEPS Action Plan. It is BIAC’s hope that by working together, and by engaging quickly, business, governments, and civil society can take this opportunity to support the OECD in introducing solutions that address these concerns and lead to more sustainable cross-border trade and investment, creating more wealth, more growth and more jobs for generations to come. If you would like to discuss closer involvement in BIAC’s contribution to the BEPS project, please contact our secretariat Nicole Primmer (primmer@biac.org). Please also visit the BEPS area of the BIAC website (www.biac.org) for further details.
BIAC strongly urges countries to act in a coordinated way and to avoid unilateral measures across all BEPS Actions

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