The Organization for Economic Cooperation and Development has agreed on a new framework that will allow all interested countries and jurisdictions to participate in drawing up international tax rules.
The OECD said Tuesday it plans to present a proposal for broadening participation in its Base Erosion and Profit Shifting, or BEPS, project for international corporate tax reform to G20 Finance Ministers at their next meeting on February 26 to 27 in Shanghai.
The new forum will provide for all interested countries and jurisdictions to participate as BEPS Associates in an extension of the OECD’s Committee on Fiscal Affairs. As BEPS Associates, they will work on an equal footing with the OECD and G20 members on the remaining standard-setting under the BEPS Project, as well as the review and monitoring of the implementation of the BEPS package.
The BEPS Project aims to help governments close the gaps in existing international rules that allow corporate profits to be artificially shifted to low- or no-tax jurisdictions, where companies have little or no economic activity. Revenue losses from BEPS are conservatively estimated at $100 billion to $240 billion annually, or 4 to 10 percent of global corporate income tax revenues.
“Drawing on the G20’s leadership, countries worldwide are working closer than ever to shut down the loopholes that facilitate tax avoidance,” said OECD Secretary-General Angel Gurría in a statement. “The plan we are presenting today will create the largest and most inclusive forum for discussions and decisions on implementing the BEPS measures and ensuring a stronger and fairer international tax system. It is another strong signal that behavior which was considered both legal and normal in the past will no longer be accepted.”
The framework’s mandate will focus on the review of implementation of the four BEPS minimum standards, in the areas of harmful tax practices, tax treaty abuse, country-by-country reporting requirements for transfer pricing, and improvements in cross-border tax dispute resolution. It will also include ongoing data gathering on the tax challenges in the digital economy and measuring the impact of BEPS, as well as monitoring implementation of the remainder of the BEPS package and finalizing the remaining BEPS standard-setting work, notably as concerns work on tax treaties and transfer pricing.
BEPS Associates will also work to support implementation of the BEPS package, particularly in developing countries, through the development and provision of practical toolkits that address the top priority issues they have identified.
The OECD’s move drew mixed reactions from advocacy groups like ActionAid. “ActionAid welcomes the fact that the OECD has recognised the need for developing countries to have more of a role in global tax policy,” said ActionAid tax justice policy adviser Anders Dahlbeck in a statement. “However, inviting them to simply implement rules they weren’t part of writing misses the point. Developing countries are estimated to lose $200 billion a year to corporate tax avoidance, hitting the poorest women and girls hardest. The OECD’s BEPS reform proposals fail to tackle tax avoidance by large multinationals in developing countries. Further reforms to the international tax system are needed that include developing countries as equal partners from the start to ensure that multinational companies pay their fair share of tax in poor countries.”
“Inclusion after the fact is a poor substitute for a voice in how the standards are designed,” said Oriana Suárez of the Latin American Network on Debt, Development, and Rights. “Developing countries now being invited into the BEPS system did not have a say while the rules were being set.”
“The OECD is certainly one part of the global fight against tax evasion and tax avoidance, but it’s not well-positioned to be the sole standard bearer for the globe,” added Porter McConnell of the Financial Transparency Coalition. “Having its members speak on behalf of the rest of the world’s countries is patronizing and it’s ultimately ineffective.”
“Again, we’re seeing an attempt by the OECD to get global buy-in for a system that was designed by the few,” said Alvin Mosioma of the Tax Justice Network - Africa. “G77, a group of 134 developing countries, have for years been demanding a stronger voice and a true seat at the table, but the latest OECD proposal fails to respond to this demand.”
“The frustrating reality is that we’ve already seen proposals to create an inclusive intergovernmental UN body for setting global standards, but it has repeatedly been blocked by the same OECD countries that are asking others to join their system,” said Pooja Rangaprasad of the Financial Transparency Coalition. “Despite the latest announcement by the OECD, a UN body continues to be the most effective and inclusive global solution.”
If the proposal is endorsed by the G20 at the Finance Ministers meeting in Shanghai next week, members of the new framework will hold their first meeting in Kyoto, Japan in June.
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