Countries that accept BEPS minimum standards may participate in global tax effort, OECD says
Any country that agrees to adopt the OECD/G20 base erosion profit shifting (BEPS) project minimum standards and pay an annual fee will be allowed to participate in future BEPS project work, according to a plan agreed to by the OECD today.
The OECD’s framework for BEPS plan implementation, to be presented for approval by the G20 finance minsters at their February 26–27 meeting, calls for the participation of countries outside the OECD and G20, called “BEPS associates,” who will work on an equal footing with OECD and G20 countries on future BEPS work.
The associate countries must agree to implement into their domestic laws and tax treaty practices the BEPS package minimum standards on harmful tax practices (Action 5), treaty abuse (Action 6), country-by-country reporting (Action 13), and dispute resolution (Action 14).
This means that countries would need to agree to fully implement the mutual agreement procedure (MAP) in their tax treaties and resolve MAP cases in a timely fashion; add language to their tax treaties to prevent treaty shopping; limit benefits of any intellectual property or other preferential tax regime based on an agreed method that requires substantial activity; and follow the OECD/G20 agreement on country-by-country reporting for transfer pricing. Countries must also pay an annual fee that reflects the member’s economic circumstances.
Countries will then be allowed to work alongside OECD and G20 members on the framework’s mandate, which includes completion of some remaining standard setting work in the area of transfer pricing and tax treaties; review of the implementation of the four minimum standards; ongoing data gathering on the tax challenges of the digital economy; and measuring the impact of BEPS, the OECD said.
“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,” OECD Secretary-General Angel Gurría said.
Nongovernmental organizations rejected any idea that the OECD/G20 BEPS process has been inclusive; however, and some said that the UN was the appropriate body to set international tax standards.
“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.”
Similarly, Alvin Mosioma of Tax Justice Network, Africa, said: “we’re seeing an attempt by the OECD to get global buy-in for a system that was designed by the few.” Mosioma added that the G77, a group of 134 developing countries, has “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.”
Claire Godfrey of Oxfam said more fundamental reforms to the global tax system are needed to stop tax avoidance. She said the reforms should be developed through a “truly international forum, such as the UN.”
Pooja Rangaprasad of the Financial Transparency Coalition agreed. “Despite the latest announcement by the OECD, a UN body continues to be the most effective and inclusive global solution,” she said.
The first meeting under the new framework will take place in Kyoto, Japan, on June 30–July 1.