Interview with Pascal Saint-Amans Director of the OECD Centre for Tax Policy and Administration: Status of the BEPS plan and its effect in Mexico
Collaboration with IDCÂ Asesor Fiscal, JurĂdico y Laboral, Published in May, 2018
The BEPS plan has generated great interest throughout the world, both from taxpayers and advisors. When will we be able to know the first data about the influence of the plan on tax collection worldwide, as proposed by action 11? The Base Erosion and Profit Shifting (BEPS) Project was launched to tackle multinational enterprises’ tax avoidance practices. It started in 2013 with the report Addressing BEPS in February 2013, followed by the Action Plan on BEPS in July 2013, where 15 concrete actions were identified to address the issue. Two years later in October 2015, the comprehensive BEPS package was released. As part of the package, Action 11 (“Measuring and monitoring BEPS”) dealt with the economic analysis of tax avoidance, in particular, the quantification of the costs of BEPS practices by multinational enterprises: the revenue loss for governments was estimated between USD 100 and 240 billion per year, i.e. between 4% and 10% of the global corporate income tax revenues. Action 11 also identified key indicators of BEPS practices, showing that tax avoidance has been increasing over time. Today, as part of the ongoing implementation phase of the BEPS Project, data collection is in progress. Countries have started to reform their tax laws and to apply the measures agreed, and more data is becoming available. In particular, countries will start exchanging Countryby-Country reports in 2018, as part of the BEPS Action 13 which requires multinational groups with a turnover of more than EUR 750 million to report on their activities, assets, staff, profits, and taxes paid. In 2018, a new Corporate Tax Statistics series will be released to provide public information on CIT revenues and statutory rates, effective tax rates and Country-by-Country reports tabulations among other data. Going forward, a follow up report on Action 11 will analyse further the effects of the implementation of BEPS and refine BEPS indicators, by 2020. By then, a comprehensive overview of BEPS practices and countermeasures will be available.
Due to its characteristics, it is ideal for the implementation of the BEPS plan to be carried out uniformly in the countries that adopt it. What is the position of the OECD in relation to the US tax reform? A consistent implementation of the BEPS measures is indeed crucial. Tax sovereignties are harmed by unilateral actions when they undermine the consensus reach internationally. The OECD continues to advocate for a co-ordinated approach to the global issue of tax avoidance. Countries are working hard to implement the BEPS Project and some are going even beyond the minimum requirements; this is the case of the US tax reform. The picture that emerges from this reform is overall positive, as it results in a strong endorsement of the principles underlying the BEPS Project which has implemented a number of BEPS recommendations including to address hybrid mismatch arrangements, strengthen controlled foreign corporations rules, and limit interest deductibility. In addition, the tax reform act introduces a minimum tax on global intangible low-taxed income (GILTI), which targets intangible income derived outside the US, with an allowable deduction. The GILTI tax applies to both US and foreign companies’ foreign high returns, and is intended to stop US corporations from shifting profits out of the US. The GILTI, combined with the BEPSrelated aspects of the US tax reform, should reduce aggressive tax planning opportunities.
However, some aspects of the US tax reform raise concerns among countries. The base erosion anti-abuse rule (BEAT), which would have a significant effect on foreign MNEs selling services or licensing intangibles in the US market through a US distributor, including financial services; may conflict with both international tax and international trade obligations (double tax treaties and WTO rules). In addition, the foreign derived intangible income (FDII) may constitute a harmful preferential regime under BEPS Action 5 on countering harmful tax practices and may also go against WTO rules if considered as an export subsidy. We note that the US Treasury is willing to engage with its partners to limit the possible adverse effects, and here the OECD can provide a forum for countries to engage together.
It seems that our economy is becoming increasingly digital, but not all countries agree on the best way to tax this type of activities. Are there any challenges in the implementation of action 1, and what can we expect in the future? The challenges of the digitalisation of the economy were identified as one of the main focuses of the BEPS Action Plan, leading to the 2015 Action 1 Report. In March 2017, the G20 Finance Ministers mandated the OECD to deliver an interim report on the tax implications of digitalisation. This report, Tax Challenges Arising from Digitalisation Interim Report 2018 has been agreed in March 2018 by the Inclusive Framework on BEPS. The Interim Report provides an in-depth analysis of the main features frequently observed in certain highly digitalised business models and value creation in the digitalised age, as well as the potential implications for the existing international tax framework. It describes the complexities of the issues involved, the positions that different countries have in regard to these features and their implications, and which drive their approach to possible solutions. These different approaches towards a long term solution range from those countries that consider no action is needed, to those that consider there is a need for action that would take into account user contributions, through to others who consider that any changes should apply to the economy more broadly. Countries agreed to undertake a coherent and concurrent review of the “nexus” and “profit allocation” rules-fundamental concepts relating to the allocation of taxing rights between jurisdictions and the determination of the relevant share of the multinational enterprise’s profits that will be subject to taxation in a given jurisdiction. They will work towards a consensus-based solution, noting that at present, there are divergent views on how the issue should be approached. It was agreed that the Inclusive Framework would carry out this work with the goal of producing a final report in 2020, with an update to the G20 in 2019. The Inclusive Framework’s Task Force on the Digital Economy will meet next in July 2018. In addition, the Interim Report discusses interim measures that some countries have indicated they would implement, believing that there is a strong imperative to act quickly. In particular, the Interim Report considers an interim measure in the form of an excise tax on the supply of certain e-services within their jurisdiction that would apply to the gross consideration paid for the supply of such e-services. There is no consensus on the need for, or merits of, interim measures, with a number of countries opposed to such measures on the basis that they will give rise to risks and adverse consequences. The Interim Report describes, however, the framework of design considerations, identified by countries in favour of introducing interim measures, which should be taken into account when considering introducing such measures. Finally, the Interim Report identifies new areas of work that will be undertaken without delay. Given the availability of big data, international co-operation among tax administrations should be enhanced, in particular, as regards the information on the users of online platforms as part of the gig and sharing economies, to ensure taxes are paid when they are due. The Forum on Tax Administration, working with the Inclusive Framework, will develop practical tools and co-operation in the area of tax administration and will also examine the tax consequences of new technologies (e.g., crypto-currencies and blockchain distributed ledger technology).
Once the plan is formally concluded, and its recommendations adopted in many countries of the world, is anything missing? What is the perspective of the plan in the short and medium term? The implementation of the BEPS Project is led by the Inclusive Framework on BEPS and its 1131 members, who all work on an equal footing. Ensuring implementation and a global level-playing field is vital to making sure the era of doublenon taxation is truly over and the peer review processes of the four BEPS minimum standards have started. Results are already available. In-depth evaluations have been completed to assess the implementation of BEPS Action 5, covering both the exchange of tax ruling information (with over 11 000 rulings already identified and now being exchanged) and the identification of harmful preferential regimes (with over 160 regimes already reviewed, many of which have already been amended, and over 90 which are now in the process of being amended or abolished). On BEPS Action 13, on the implementation of Country-by-Country reporting (CbC reporting) obligations over 60 jurisdictions already have a comprehensive domestic legal framework for CbC reporting in place, and over 1400 exchange relationships are now activated. On BEPS Action 14 dealing with the improvement of mutual agreement procedures (MAP), 21 jurisdictions have already been subject to peer reviews, 8 are currently underway and 43 more have been scheduled through December 2019. In addition, important steps were reached in June 2017 and in January 2018, on the occasion of the first and second signing ceremonies of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, also known as the “BEPS Multilateral Instrument”. This instrument embodies the very essence of multilateralism. With 78 jurisdictions having signed to date2, it already covers over 1 200 bilateral tax treaties that will be updated to implement several of the BEPS measures. To enter into force, the BEPS multilateral instrument needs to be ratified by five jurisdictions. Following the domestic ratification processes, the instrument is expected to come into force this year, with an overall objective to modify up to 2,500 existing bilateral agreements.
What are the OECD recommendations for Mexico and other emerging economies regarding the proper implementation of the BEPS plan? Mexico, as a G20 and OECD Member, has been very active in the work on BEPS since its inception and has shaped the recommendations produced. In 2012, the G20 Mexican Presidency called on the OECD to identify causes and solutions to tackle aggressive tax planning, which effectively led to the launch of the BEPS Project. However, the implementation of BEPS needs to be more targeted for developing countries which are not OECD or G20 members. They face different challenges and sometimes lack of human and IT resources. A significant share of the countries members of the Inclusive Framework on BEPS are developing countries, and they are rightly demanding the benefits of this new tax environment and the support they need to implement and to shape the standards. Capacity building activities are important in that context, and the OECD has partnered with other international organisations to better co-ordinate its support and assistance activities directed at developing countries. For instance, the joint OECD/UNDP Tax Inspectors Without Borders (TIWB) initiative continues to support to gain the skills they need to properly administer their domestic tax laws – in relation to BEPS but also beyond. The benefits of such onfield assistance are impressive, with over EUR 328 million collected. The number of TIWB programmes is increasing, with 27 current programmes and 7 upcoming in 23 countries across all regions. In addition, the Platform for Collaboration on Tax (PCT) was established in 2016 by the IMF, the OECD, the UN and the WBG to support developing countries including through the development of BEPS-related toolkits to address key priorities identified by these countries. In February 2018, the PCT held its first Global Conference on Taxation and the Sustainable Development Goals (SDGs) at the UN headquarters in New York, reaffirming the common objectives of the four partner international organisations in relation to the tax agenda. These include how to mobilise domestic resources for development, how tax policies can support sustainable economic growth, investment and trade; work on the social dimensions of taxation (income and gender inequality and human development) as well as capacity development and international tax co-operation.
Through the above initiatives, we hope to ensure that developing countries not only participate but also fully benefit from the international negotiations on tax, therefore helping them to build fairer tax systems.
Interview by JesĂşs Aldrin Rojas M.
QCG Transfer Pricing Practice Partner
TraducciĂłn por Luer Traductores Asociados S.C.
