Last week the All Party Parliamentary Group on Responsible Tax (APPG), a new group of six drawn from the Commons and Lords, released a short report examining the OECDs Base Erosion and Profit-Shifting (BEPS) recommendations. Whilst crediting the OECD for achieving consensus on the need to develop new global tax rules, the APPG was quick to criticise, stating that the plan will 'fall short'.
The BEPS project was a huge undertaking and the final recommendations run to thousands of pages. Governments around the world began implementing the recommendations from 1 January 2016. The APPG offers no factual evidence to support the claim that the project will fail to deliver a better global tax system. Instead, their position appears to be based on theoretical arguments that were put to them in evidence. Two in particular are whether the arm’s-length principle can ever give the right tax answer, and whether public country-by-country (CbC) reporting is the minimum requirement to restore trust in the tax system.
The BEPS project drew an early conclusion that the arm’s-length principle, which requires global groups to transact using prices that third parties would use, should be maintained. This conclusion was reached after considering alternative methods. It may be imperfect, but it appears to have been considered the 'least-worst' and most practical approach.
Regarding the publication of CbC reports, the OECD did not recommend this either. Instead, it put forward a process that will ensure the reports will be shared between tax authorities. This was most likely a strategic play to get the US on board with BEPS. The CbC reporting rules in the US, which were released in June, follow closely the OECD’s original recommendations, and state that US companies will not be required to make tax data public. They even say that CbC reports will not be shared with any territory that does not keep them confidential. There is no question that the OECD need US buy-in, so it makes sense to recommend an approach that has a realistic chance of being implemented.
As a fledgling project, it seems too soon to condemn BEPS, but if the APPG maintains a view that the OECD is wrong, it would be interesting the see their detailed recommendations for a workable plan.
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