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The Questionable Legitimacy of the OECD/G20 BEPS Project Sissie Fung*
Abstract The global financial crisis of 2008 and the following public uproar over offshore tax evasion and corporate aggressive tax planning scandals gave rise to unprecedented international cooperation on tax information exchange and coordination on corporate tax reforms. At the behest of the G20, the OECD developed a comprehensive package of ‘consensus-based’ policy reform measures aimed to curb base erosion and profit shifting (BEPS) by multinationals and to restore fairness and coherence to the international tax system. The legitimacy of the OECD/G20 BEPS Project, however, has been widely challenged. This paper explores the validity of the legitimacy concerns raised by the various stakeholders regarding the OECD/G20 BEPS Project. Keywords: base erosion and profit shifting, OECD, G20, legitimacy, international tax reform
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1 Introduction The global financial crisis of 2008 and the following public uproar over offshore tax evasion and corporate aggressive tax planning scandals gave rise to unprecedented international cooperation on tax information exchange and coordination on corporate tax reforms. Developing and industrialised rich countries alike have aligned themselves with the general tax policy direction set by the Organisation for Economic Cooperation and Development (OECD) to create a fairer and more transparent global tax environment. At the behest of the G20, the OECD also developed a comprehensive package of ‘consensus-based’1 policy reform measures aimed
to curb base erosion and profit shifting (BEPS)2 with respect to multinational corporations, which is based on three key pillars: introducing coherence of corporate income tax at the international level, reinforcing substance requirements in the existing international standards, and improving tax transparency as well as certainty and predictability for businesses.3 Launched in July 2013, the BEPS Project is based on the OECD’s 15point Action Plan4 that needed to be addressed and delivered by October 2015. Given the ambitious timeframe of the BEPS Project, during which discussion drafts were released and finalised one after another at a staggering speed with little time allowed for public comments, and the divergent views of capital importing and capital exporting countries on a vast array of international tax issues addressed in the Project, one might, however, wonder whether true consensus could be reached under such circumstances. As more and more countries are jumping on the OECD/G20 BEPS bandwagon and having committed themselves to the comprehensive BEPS Package and the ‘timely, consistent and widespread’ implementation thereof,5 the OECD and the G20 might have successfully attempted to change the international tax landscape. At the time of writing of this paper, ninety countries have joined the Inclusive Framework for BEPS Implementation, representing more than 90% of the world’s economy and more than 75% of the world’s population.6 The global endorsement of the BEPS Package and its implementation through domestic laws and tax treaty provisions in a coordinated manner is remarkable in many ways. For a start, governments are generally reluctant to relinquish their taxing power given the unique status it is asserted with the notion of sovereignty and ultimately with statehood itself.7 Taxation is not 2.
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Ph.D. Candidate at the Erasmus University Rotterdam and independent tax policy consultant to international organisations, including the Asian Development Bank. The opinions expressed in the paper are the author’s own and do not necessarily reflect the views of the Asian Development Bank. The author wishes to thank Arnaud de Graaf, Geerten M.M. Michielse, Maarten F. de Wilde, Sophia Murillo and two anonymous reviewers for this journal for very helpful comments on previous drafts of this paper. The author can be contacted at fung@law.eur.nl. OECD, Explanatory Statement (2015), OECD/G20 Base Erosion and Profit Shifting Project.
ELR December 2017 | No. 2 - doi: 10.5553/ELR.000085
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According to the OECD, BEPS ‘refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to locations where there is little or no economic activity or value creation’, <https://www.oecd.org/dac/financing-sustainable-development/Addis %20flyer%20-%20BEPS.pdf> (July 2015). OECD, Action Plan on Base Erosion and Profit Shifting (2013), at 13-14, and OECD, Mandatory Disclosure Rules, Action 12 – 2015 Final Report (2015), at 3. OECD (2013), above n. 3. See the G20 Leaders’ Hangzhou Communiqué of 4-5 September 2016, at para. 19. <www.oecd.org/tax/beps/inclusive-framework-on-beps-composition. pdf> (20 November 2016). As observed by Rosenbloom, ‘no area of law is closer to the subject of sovereignty than taxation’. H.D. Rosenbloom, ‘Sovereignty and the Regulation of International Business in the Tax Area’, 20 Canada-United States Law Journal 267 (1994).