Late 2017 saw the release of the first peer review for the implementation of the BEPS Action 5 standard on the exchange of information on certain tax rulings. Action 5 (Harmful Tax Practices) requires exchange of information on five categories of tax rulings: those relating to certain preferential regimes, unilateral advance pricing arrangements or other cross-border rulings on transfer pricing, rulings providing for a downward adjustment of taxable profits, permanent establishment rulings and related party conduit rulings.
The review is the first of what is to be an annual occurrence through 2020 and covered the practices of 44 jurisdictions for the year 2016. It found that all jurisdictions either had the necessary legal framework or were working toward implementation. The next report will include, in addition to an update on the progress of the same 44 jurisdictions, other members of the Inclusive Framework on BEPS.
An earlier Action 5 report, “Harmful Tax Practices – 2017 Progress Report on Preferential Regimes,” identified 20 nations with regimes considered “preferential.” In January, the OECD changed the status of Canada’s regime for international banking centers to “abolished” from “potentially but not actually harmful,” and updated two Barbados regimes – its international financial services and credit for foreign currency earnings/credit for overseas project or services regimes – from “potentially harmful” to “in the process of being amended.”
The Bahamas, Zambia, and Serbia joined the Inclusive Framework on BEPS, bringing the total participating jurisdictions to 112. Curaçao joined the BEPS Multilateral Convention, Jersey deposited its instrument of ratification, and officials from Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia partook in a signing ceremony at OECD headquarters in January. These actions brought the total number of signatories for the Multilateral Convention, which updates bilateral treaties to reflect priorities of the BEPS Project, up to 78. The Bahamas also signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, becoming the 116th jurisdiction to join the Convention.
The end of 2017 also saw release of the latest OECD Model Tax Convention. It was updated to reflect a consolidation of treaty-related matters from the BEPS Project, including under Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements), Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances), Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and Action 14 (Making Dispute Resolution More Effective).
The second batch of stage 1 peer reviews for BEPS Action 14 (Dispute Resolution) were released, featuring evaluations of how seven countries – Austria, France, Germany, Italy, Liechtenstein, Luxembourg, and Sweden – are implementing new minimum standards. The reports offered more than 170 recommendations, the remedies to which will be scrutinized in stage 2.
One of the most contentious aspects of the BEPS project, the country-by-country (CbC) reporting under Action 13, moved forward. It saw another wave of activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports. Automatic exchange of CbC reports is set to start June 2018, after which the business and privacy-minded communities will need to be on alert for government abuse of sensitive information.
On the topic of contentious privacy issues, Panama, a nation besieged by the press and international tax collectors alike for its low-tax environment and respect for privacy rights, continued its apology tour by sending Publio Ricardo Cortés, director-general of Revenue, to OECD headquarters to sign the Common Reporting Standard Multilateral Competent Authority Agreement. Panama became the 98th jurisdiction to join as a signatory to the CRS MCAA, and exchanges are set to commence in September 2018.
In non-BEPS related news, the OECD continued its push for higher taxes on fossil fuels. A recent report, Taxing Energy Use 2018, compared patterns of energy taxation across 42 OECD and G20 countries. Overall, it argues that energy taxes are “well below where they should be to reflect climate costs alone.” OECD Secretary-General Angel Gurría finds this result “disconcerting.” Although supposedly focused on taxing energy to combat climate change, the report tellingly neglects the possibility of using the revenue to reduce other taxes, instead also touting the supposed benefit of “funding vital government services.”
Economic surveys were produced for Brazil, Norway and Finland. Brazil was encouraged to cut spending but also to focus more benefits on the poor, and to reduce trade barriers. Norway was urged to prepare for a housing market correction. And Finland was contradictorily praised for its high burden of government as a share of GDP and welfare provisions but warned that a low unemployment rate was the result of high taxation and generous handouts. Finland was also warned that a plan for universal basic income would either be too expensive or provide too little benefit. The fiscal threat posed by aging workforces was also a common concern among the reports.
The Platform for Collaboration on Tax, a joint initiative between the OECD, IMF, UN and the World Bank Group, held its First Global Conference February 14 to 16 in New York. The agenda featured numerous ideologically driven panels. For instance, “The Future of Corporate Taxation: Time to End the Race to the Bottom,” entailed the usual effort to undermine tax competition, while social agendas were well represented with panels on “Smarter Taxation for Better Gender Equality,” “Equity Challenges: Taxation for Better Income Distribution,” and “Mobilizing Resources for Gender Equality.” No panels on the destructive economic impact of excessive taxation were held.
Finally, the OECD is struggling to defend its role as the world’s self-appointed tax enforcer from EU encroachment. The OECD has long been challenged by low-tax jurisdictions and advocates for fiscal sovereignty, but over time has sapped much of the opposition’s will using both a carrot and stick approach. Even the organization’s constant moving of the goal posts has yet to produce a coordinated revolt from targeted jurisdictions. However, if jumping through the OECD’s ever moving hoops is not enough to satisfy European tax collectors, jurisdictions are likely going to revisit the wisdom of complying with OECD demands.
Ironically, this means that the biggest threat to the OECD’s credibility ultimately comes from even more radical tax grabbers. Self-preservation, in other words, might turn the OECD into a quasi-ally against EU extremists, though they have yet to demonstrate any effectiveness.
The EU laughed off OECD concerns regarding its recently created tax haven blacklist. Now, the OECD has again warned the EU to watch its step with efforts to tax digital firms ahead of the OECD’s own work on the issue. Assuming the European bureaucrats again ignore them, the OECD may start to lose much of the perceived authority it relies upon to gain the cooperation of the many countries it badgers into adopting policies against their own interests.