BEPS tax reforms ‘cannot be the endpoint’, G20 told

16 Nov 15

The OECD’s base erosion and profit shifting (BEPS) reforms do not go far enough in changing the international corporate tax system, G20 leaders have been told.

In a letter to leaders at the G20 summit in Antayla, Turkey, Nobel Prize-winning economist Joseph Stiglitz and others from the Independent Commission for the Reform of International Corporate Taxation (ICRICT) said that, while a good start, reforms need to go much deeper to ensure multinational corporations pay their fair share.

The group, which includes other economists, academics and politicians, wrote: “We as a commission urge you to support globally representative efforts to further reform the rules and institutions that set standards for the international corporate tax system.

“Adoption of the BEPS outcomes at the G20 leaders summit cannot be the end point, but should mark the beginning of a wider and deeper debate on global tax reform.”

The letter warned that before any further changes can be properly considered and implemented, more “appropriate” institutional arrangements that represent all countries equally must be in place.

The OECD represents 34 advanced economies ‒ some of the wealthiest in the world. While developing countries did have input in the formation of BEPS recommendations, which were finalised this October, many argue they were not equally represented and the plans do not sufficiently represent their interests.

Stiglitz and the ICRICT said that all countries should have an equal voice in creating global rules and that the international tax law conversation should take place within the United Nations, as demanded by the G77 group of least developing countries and China at the UN Financing for Development Conference in Ethiopia in July.

Nevertheless, the letter welcomed the BEPS reforms as progress that “would have been thought impossible five years ago”.

One of the plan’s “biggest deficiencies” is that is does not address the “separate entity approach” to taxation, under which different parts of a multinational enterprise are treated as if they are not part of the same company during transactions.

Many argue this provides a mechanism for companies to artificially shift or manipulate their profits and avoid paying tax. The ICRICT said it had offered an alternative route to taxing multinationals but this was not adopted in the BEPS project.

The commission also said it was concerned about the shift towards resolving tax treaty disputes through mandatory, binding and confidential arbitration.

“A central function of the public sector is dispute resolution, which generally operates under standards of due process and transparency. We believe this core function should not be privatised,” they wrote.

Current standards for arbitration in tax disputes “fall far short of what we should expect in a 21st century system of resolution”, they added.

Tax competition between developed countries also needs to come to an end, they argued, with advanced economies coming to an agreement on a global minimum corporate tax rate.

“We are concerned that a continued ‘race to the bottom’ could ultimately undermine any public revenue gains from global efforts to curb corporate tax avoidance,” it read.

Meanwhile, in the UK a cross-party group of parliamentarians with a focus on responsible tax has launched a call for ideas and contributions on how to make the system fairer and more responsible.

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