I spoke recently on a panel in Tokyo on the future of
international tax planning after BEPS (the OECD's &
G20's Action Plan to counter Base Erosion & Profit
Shifting). The panel also featured a senior official at the OECD
and practitioners from the US, Japan, Germany, France, Ireland and
It was refreshing to hear the OECD official acknowledge that the
international corporate tax planning targeted by BEPS constitutes
legal arrangements and transactions and not illegal tax evasion.
Moreover, she also acknowledged that in the area of
treaty-shopping, governments themselves have to take some
responsibility for creating treaty shopping and arbitrage
opportunities through negotiation of inconsistent treaties, for
example with differing withholding tax rates on interest, dividends
or royalties or capital gains exemptions that are broader in some
treaties than in others. That said, the OECD is clearly determined
to counter previously accepted corporate tax planning practices
that reduce the effective rates of corporate tax for multinational
The OECD released a number of draft instruments and reports on
key BEPS Action Items in September, including transfer pricing
documentation, hybrid mismatch arrangements, anti-treaty shopping
measures and the digital economy. These reports must be finalized
and the other Action Items reported upon by the fall of 2015, which
means we can expect the next year to be busy. Some consultation
drafts on the remaining Action Items, notably on Permanent
Establishments and Transfer Pricing Guidelines on Low Value
Intra-Group Services, have already been released.
While OECD member governments broadly support the overall goals
of BEPS, significant differences appear to exist among them in how
these goals should be achieved, particularly in what changes to
domestic tax legislation or treaties are warranted and desirable.
As a result, there remains considerable uncertainty about how much
of the BEPS agenda will be implemented and how. There is a real
concern that tax policy made in a fishbowl under political pressure
will be bad tax policy but there is also a significant concern that
a failure of the BEPS process will lead to irreconcilable
unilateral actions on the part of governments under pressure to
"do something", resulting in double taxation and yet
greater complexity both on the part of multinationals in tax
compliance and revenue authorities in administration.
Dollar-for-dollar, corporate tax is already one of the most
expensive taxes to pay and to collect and the BEPS Action Plan
should consider carefully how to reduce this burden on governments
and taxpayers, not increase it.
One positive sign in terms of international co-ordination is the
recent Canadian experience on anti-treaty shopping: 18 months after
launching its own plan for a domestic treaty override to combat
treaty shopping, the Canadian government announced at the end of
August the suspension of this domestic initiative pending the
release of the OECD's draft instrument under Action 6 on
anti-treaty abuse, which occurred in September.
Taking a broader perspective, it will be important for the OECD
and G20 members to be mindful of the bigger picture, which is one
of a wobbly global economic recovery with weak growth in many
countries that will require large and sustained investments in the
"real economy". Much of that investment is, of necessity,
going to be cross-border and industry and governments have a common
interest in seeking an international tax framework that is
efficient to comply with and enforce. Ultimately, we need to be
careful not to let the BEPS tail wag the global investment dog.
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guide to the subject matter. Specialist advice should be sought
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