Brazil: BEPS: Rule Of Law Can Avoid Mountains And Cloudy Skies For Companies
The tax world followed with great interest today´s launch of the final package of BEPS. Having the BEPS report finalized is indeed a great achievement and, as pointed out by Mr. Angel Gurría, OECD Secretary General, in his Twitter, “Agreement of #BEPS package is a historic day in our effort to put an end to international #tax avoidance”.
At the same time that governments are thinking about BEPS as a manner of generating more tax revenues by avoiding the base erosion, companies are also concern on what this new tax era may bring. At this point, it is key to differentiate tax evaders – who indeed break tax laws and must be punished regardless any BEPS discussion – and companies that structure their businesses legally optimizing taxes due throughout the world, i.e. compliant companies. Even though BEPS makes reference to tax evaders in certain passages – such as discussions on the exchange of information, the fact is that BEPS´s heart is far beyond attacking tax evaders, but rather attack legal structures that may permit overall reduction of tax burden for multinational enterprises (MNE).
There is no problem with this purpose – reducing the gaps and loopholes – if the idea is to CHANGE THE LAW, imposing more requirements to companies on how to operate, establishing rules to measure where value is created, etc.
However, governments cannot take measures other than changing laws to attack transactions that are allowed by either international or local legislation. Simply changing interpretations or approach lead to situations of uncertainty, or even situations where taxpayers may be subject to arbitrary measures. This is the risk and main uncertainty – tax authorities of different countries picking and choosing certain BEPS recommendations to justify acts, interpretations or measures based on them, and not on the law. Just as an example, the headline of the Irish newspaper The Irish Times on BEPS states that “Employers’ group give Beps plan cautious welcome”.
Speaking about measures, there is no better measure than law – either local or international (treaty) law. The law must determine in a clear and objective way how taxpayers must pay their taxes. The law must determine what are the penalties that such taxpayers may suffer for not complying with the law. And the law must also determine the limits for governments to give tax incentives or tax shelters to foster investments and employment.
To avoid BEPS to being turned into a witch hunt, it is key to educate people that BEPS is proposing new standards OF LAW, i.e. new standards for internal laws, for treaties, for international laws, and in no way is proposing arbitrary conducts or interpretations. Coordinated new standards to avoid loopholes, double non-taxation effects, double deductions, deduction with exemption effects, etc.
And let´s remember that there should be no villains nor saints, but rather actors of economic field where tax rules must be objective and clear, reducing risks to both taxpayers, who need to know precisely how much taxes to pay, and governments, who need to know how much money they may count on to spend.
In this scenario, there is no question that rule of law is still a must. And will always be for companies to have clear skies to invest and do business.