By Irma Johanna Mosquera Valderrama
The recent blogposts by Allison Christians and by the OECD (Ben Dickinson) raise the question whether the OECD is doing everything they can to include developing countries in the international tax negotiations?
As it is already known, with the introduction of the standard of exchange of information and now the BEPS Project, the OECD with the political support of the G20 has gained a predominant role in international law making. In order to address the concerns of legitimacy of the OECD and the G20 vis-à-vis developing countries, the OECD introduced the Global Transparency Forum and the BEPS Inclusive Framework where non-OECD, non-G20 countries could participate in equal footing on the implementation of these initiatives. The content of the Standard of Exchange of Information and of the BEPS 4 Minimum Standards were already decided by the OECD-G20 and therefore, the equal footing is for assessing the implementation of these Standards. The adoption of the peer review reports is made on the basis of a consensus minus one rule.
In addition, a BEPS Multilateral Instrument has been introduced to modify the bilateral tax treaties. This Multilateral instrument contains some of the 4 Minimum Standards (Action 6 and Action 14) and other BEPS Actions identified as best practices. It is in force since July 2018 and has been signed (at the time of writing) by 90 jurisdictions. The evaluation of the BEPS Project and its 4 Minimum Standards will take place in 2020, and therefore, developed and developing countries are currently working in the implementation of these Standards following the peer review by the BEPS Inclusive Framework and the OECD Secretariat.
With the discussion of BEPS Pillar 1 to address the taxation of highly digitalized business and Pillar 2 to introduce the GLoBE (Global Anti-base erosion) Proposal, the BEPS Inclusive Framework has taken another role mainly as a forum of discussion and decision making on the content of Pillars 1 and 2. However, due to the difficulties to reach a consensus, the OECD Secretariat has recently (October 2019) introduced its own proposal (i.e. Unified Approach) in order to seek consensus by OECD, G20 and non-OECD, non-G20 countries on taxation of highly digitalized business (Pillar 1). In addition, in November 2019, the OECD released a consultation document to seek input on the technical issues of the GLoBE Proposal (Pillar 2).
This description shows that the OECD has taken another role in international tax law making, and that the OECD is seeking input from non-OECD countries including developing countries and other stakeholders in this process. In this new role of the OECD, the United Nations is losing some of its relevance in respect of developing countries by focusing on other non-BEPS issues (e.g. taxation of technical services). Furthermore, in respect of Pillar 1, despite the concerns of the United Nations Sub Committee Tax Challenges Related to the Digitalization of the Economy highlighted in the report of April 2019, the recent October 2019 meeting of the UN Committee of Experts on International Cooperation in Tax Matters did not succeed on reaching a consensus to provide an alternative proposal to the OECD “Unified Approach”.
Since an international tax organization does not exist the OECD is taking this role with the political support of the G20. But this role is not exempt of criticism which should be addressed by the OECD in a constructive way. The response should not be only how many countries are participating in the BEPS Inclusive Framework, but what is the OECD and G20 doing to ensure that this participation is sustainable and feasible for developing countries? and why Pillar 1 and Pillar 2 should be introduced as soon as possible despite the fact that countries are still trying to comply with BEPS 4 Minimum Standards? Is GLoBE really necessary right now or should just be introduced at a later stage? And is the peer review of BEPS 4 Minimum Standards facilitating exchange of best practices or it is just a way to ensure compliance?
Since the project GLOBTAXGOV funded by an Starting Grant of the European Research Council is investigating international tax law making and building on a new model of global tax governance, it is important to share our concerns in the role of the OECD and also on the participation of developing countries in international tax law making. In this project 2 PhDs are investigating the implementation of the BEPS 4 Minimum Standards in 12 countries (developed, emerging and developing countries). This is done not only by carrying out desk research but also empirically through interviews to government officials, tax advisors, business, business associations, judges and academia in the 12 countries (i.e. the United States, Mexico, Ireland, Spain, Colombia, Australia, Singapore, Nigeria, Senegal, South Africa, India, and the Netherlands).
Regarding the question about whether the OECD is doing everything they can to include developing countries in the international tax negotiations? We have two remarks. The first one, is the speed of the process, in the last 10 years, the international tax architecture is changing at a fast pace, first in 2009 with exchange of information, then in 2013 with BEPS Project, and now with Pillars 1 and 2. However, it is not clear how these changes benefit developing countries and if these changes deviate the attention of developing countries from other tax problems e.g. taxation of informal economy, tax incentives in light of SDGs, among others. This is not only a concern of scholars but also of some international organizations (IMF) and some NGOs. For instance, the IMF paper Corporate Taxation in the Global Economy argues some points on developing countries that have been already argued by us in the GLOBTAXGOV project. This points are: developing countries (i) no equal footing on standard setting; (ii) BEPS has increased complexity; (iii)other non-BEPS related issues are more important (iv) difficult to meet the BEPS standards and to benefit e.g. country by country reporting (v) tailored solutions are needed;(vi) attention should be given to tax competition ( pp. 11, 13, 43, 44,and 45).
The second remark is the lack of resources. Due mainly to the peer review of the BEPS 4 Minimum Standards and the ratification of the Multilateral Instrument, the personnel of the tax administration is dedicating a lot of (personnel, financial) resources to make these changes, to attend the peer review meetings in Paris, and to attend (and perhaps to participate) in the discussion of the BEPS Inclusive Framework (taking place in Paris).
It is not clear whether by attending these meetings, countries are participating in the content of these discussions, or it is just a matter of taking notes to report to the Ministry of Finance of their own country. This is a problem that requires long term investment in training of government officials in English language, negotiation skills, and in technical (complex) tax issues. At this moment, only senior government officials can participate more active in these meetings, but since there is no budget to travel to Paris, or there is no time due to other important (domestic) tax issues, then, the participation in these meetings is being done by less senior experienced government officials or no government official at all.
Due to the number of meetings in Paris, for European countries is easy to go back and forth in one-two days, but for African, Asian and Latin American countries this means at least 4 days out of office. The OECD has also introduced regional consultations but these consultations will not replace the discussions that take place in Paris, and therefore, countries need to attend the meetings in Paris. Some questions that can be raised are: is this sustainable? Is this feasible? Is the number of topics that are being discussed at this time, making it difficult for countries to participate? If one example can illustrate this, is this week (21 and 22 Nov. ) meetings on Pillar 1 in Paris, and in two weeks (9 Dec) the meeting on Pillar 2 also in Paris. Even for someone in Europe the attendance to these meetings is not easy, and some of us choose to listen via webcast, so that we can be informed, but the webcast does not give you the opportunity to exchange ideas with other countries or stakeholders which mainly take place during breaks/lunch.
In addition, the number of responses to the public consultations for instance to Pillar 1 require also time to read these responses, and in some cases high tax technical knowledge to understand the content for instance of the consultation document of Pillar 2. The question is how to allocate resources efficiently? And even if you are full time academic (with a research grant that allows you to do mainly research), there is still no time to read everything and to comment on everything especially with the OECD timeline to give the input and the short time between the publication of the responses and the public consultation meeting. Therefore, choices need to be made and this is not only for academics, but also for business, tax advisors and government officials.
From the OECD documents and discussions in public panels there is clearly a need to reach consensus and to show results to the G20 by 2020 since there are already unilateral measures in digital taxation. However, this consensus should not be rushed since the discussions should be sustainable and feasible and it should provide long term consensus that benefit not only developed but also developing countries.