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The OECD effort to rebuild the global tax system should focus on practical work that benefits the international tax community rather than trying to get as many countries as possible around the table, a former Treasury official said.
The OECD’s so-called inclusive framework for implementing the four minimum standards of the international project to fight base erosion and profit shifting has brought in many countries that aren’t members of the OECD, which launched the BEPS project, or even of the Group of 20 nations, which endorsed BEPS outcomes, Robert Stack, a former U.S. deputy assistant Treasury secretary for international tax policy, noted March 27. The G-20’s members account for about 85 percent of the global economy, he said.
The Organization for Economic Cooperation and Development has said making the framework as broad as possible will speed global adoption of BEPS recommendations, and it regularly announces new members, most recently tallying 94. It recently announced that work on taxation of the digital economy, one of the big unfinished to-do items from the BEPS project, will be done under the inclusive framework.
But Stack said success of the OECD project will be based not on how many countries are around the table in the framework, but “whether it can produce work products fit to purpose and that address needs of companies and the international tax community.”
Stack spoke during the first day of the March 27-28 global transfer pricing conference in Paris sponsored by Bloomberg BNA and Baker McKenzie LLP.
The OECD released recommendations from the 15-item BEPS plan, which was intended as a rewrite of existing rules that allow multinationals to drastically reduce their tax bills. The recommendations included major updates to transfer pricing rules to better take intangible assets into account, as well as documentation rules and requirements for the largest multinationals to report on their taxes paid and profits earned in each country of operation.
Stack said the OECD Working Party No. 6’s continued work on other outstanding BEPS items, including profit attribution and profit splits, “is on its way in a difficult environment to right those rules in ways they should be written. I would encourage them to continue down that path.”
He said developing countries and the BEPS Monitoring Group, an advocacy NGO, have pushed to get profit split rules written in a way that makes them a “back door to formulary apportionment.” And he said political pressure and the EU and other countries have spurred them to try to “to use transfer pricing as effectively like anti-abuse rules,” pushing aside the arm’s-length standard that has underpinned OECD transfer pricing for decades.
Stack said the OECD’s inclusive framework complicates matters because smaller developing countries, to which the framework gives a say in the project, face fundamentally different challenges than OECD countries do. And although the OECD and G-20 endorsed all the BEPS recommendations, framework countries only have to commit to implementing the four BEPS minimum standards, country-by-country reporting, countering harmful tax practices, preventing treaty abuse and improving the mutual agreement procedure—the procedure for resolving cases of double taxation between countries.
Consequently, it’s not clear what those countries have actually agreed to. “One thing I do think we should get out of this project is that the countries that are sitting around the table say, ‘that’s what attribution of profit looks like, that’s what profit splits look like, and that’s what we’re agreeing to.’”
And once the agreement is made, “We should take a look around and make sure countries are actually doing what they agreed to do,” he said.
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