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But questions remain over OECD base erosion plan, says expert
International action must be taken against tax avoidance and evasion, the heads of the G20 nations have agreed.
The decision was made at last week’s summit in Saint Petersburg, where a range of tax-related issues was discussed, including avoidance by multinational companies, information exchange and the need to work with developing countries to bolster their ability to collect tax due.
World leaders backed the Organisation for Economic Co-operation and Development’s (OECD) action plan on base erosion and profit shifting (BEPS) presented in July to G20 finance ministers.
Member countries pledged to examine how the international tax rules allow multinationals enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions, and committed to taking the necessary collective and individual action to tackle the issues identified by the OECD.
The leaders also committed to a new global standard based on automatic tax information exchange, and asked the OECD to draw up the standard by February 2014.
They also called on all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, to widen the number of countries benefiting from the means of tax information exchange.
Finally, the G20 heads emphasised that developing countries should be able to reap the benefits of a more transparent international system to collect more tax. The OECD and other organisations were asked to work together to develop a roadmap of how developing countries can participate in automatic information exchange.
Keith O’Donnell, a board member of Taxand , an international group of independent tax firms, claimed the Saint Petersburg proposals left “substantial questions… over the nature of the BEPS initiative and its outcomes”.
He added, “Perhaps the most fundamental question is about who will be driving the reform, particularly if it is to be a truly global project. A number of the G20 constituents, including large, developing economies such as Argentina, China and Brazil, are not members of the OECD. There is therefore substantial risk that the OECD will lack the firepower to harness and control the G20 on this issue and implementation will undoubtedly be a nightmare issue further down the line.”
O’Donnell, who is based in Luxembourg where he is managing partner of business advisory firm Atoz, said he was concerned “the EU dimension” had been disregarded by the OECD proposals.
“Given the substantial amount of law and case law already in place, how will reform of the tax system be introduced, and how will it be compatible with EU rules?” he asked.
“The action plan also throws out any prospective idea around unitary taxation: somewhat of a slap in the face to the EU’s work on the common consolidated corporate tax base.”
The main worry for O’Donnell, a former Ernst & Young partner, is that the OECD report failed to address the question of whether or not the taxation of business is the best way forward – from economic and moral perspectives – as a solution to economic stagnation.
“The document avoids discussion of the intellectual basis for the recommendations, particularly around the concept of ‘fairness’ and what constitutes ‘aggressive’ tax planning. The OECD needs to benchmark the correct way forward and agree what is ‘fair’ and whether or not it is, for example, a specific effective tax rate,” he said.
