Multilateral solutions as regional solutions?
The BEPS Project is regarded as a multilateral solution to prevent base erosion and profit shifting, but are these solutions truly multilateral?
Unlike the former OECD-G20 projects that only provide for exchange of information between countries, in the Base Erosion and Profit Shifting (BEPS) Project the focus is on substantive issues that when fully implemented will change the international tax architecture of countries. The BEPS Project and its 15 Actions aims to ensure that multinationals pay their fair share. Even though this objective is legitimate, research on the implementation of BEPS shows that countries are taking different approaches to the implementation of BEPS Actions.
In this context, the overall aim of the GLOBTAXGOV research project is to assess the feasibility and legitimacy of the current model of global tax governance and the role of the OECD and EU in international tax lawmaking. This research project has received funding from the European Research Council (ERC starting grant) to investigate the implementation of the international standards developed by the OECD-G20 and by the European Union in 12 countries: The United States, Mexico, Colombia, Ireland, Spain, the Netherlands, India, South Africa, Nigeria, Senegal, Singapore and Australia.
BEPS, EU and unilateral developments
In principle, the adoption of the OECD-BEPS Inclusive Framework by more than 113 countries (March 2018) demonstrates the level of support from developing and developed countries, including EU countries, to the adoption of the international standards of the BEPS Actions. But one interesting question that requires further research is: Are these standards truly international or do the regional and unilateral solutions play a role in the way that these standards are implemented in the countries?
For instance, I have observed while analysing the implementation of the BEPS in the Netherlands since 2015 until now, that at EU level the Dutch government is in favour of the implementation of the BEPS Actions through the EU Directives. For the Dutch government, the EU Directives are hard law measures that can safeguard the principles of equality and certainty for the taxpayer (Documents of the Second Chamber of Parliament, 2017-2018, no. 794). The Netherlands is currently in the process of transposing the Anti-Tax Avoidance Directives (ATAD 1 and ATAD 2) into its domestic legislation. The legislative proposals are expected to be submitted to the Second Chamber before the summer of 2018 (ATAD 1) and by 2019 (ATAD 2). Since these Directives go beyond the BEPS Actions by introducing measures such as exit taxation and a general anti-avoidance rule (GAAR), it is expected that the implementation of the BEPS Actions in the Netherlands will have some regional EU elements. Non-EU countries, therefore, should be aware of these developments.
Furthermore, the current discussion at OECD level and at EU level on the digital economy will generate a similar question: are EU countries following the EU proposal for a virtual permanent establishment or will EU countries follow the OECD-BEPS Project, mainly its Action 1 and Action 7? Some challenges are expected as a post written by Wouter Lips in the GLOBTAXGOV blog shows: “International tax policy making is messy and complicated and made in multiple rivaling policy arenas (OECD, EU-level, US, UN, national legislations, …) at the same time”.
In this discussion, countries are also taking unilateral measures that may conflict with their international commitments. For instance, Italy has chosen to adopt a new definition of permanent establishment that will also affect e-commerce and the digital economy. In a post in the GLOBTAXGOV blog, Enza Sonetti rightly asks how this new definition of permanent establishment will be reconciled with the choices and reservations made by Italy in the BEPS Multilateral Instrument?
International tax lawmaking
These developments also add to the complexity of the implementation of BEPS. In a recent article that I wrote in the framework of the GLOBTAXGOV project, I showed that countries are taking different approaches to the implementation of BEPS. One question that should also be considered is how the different implementation of BEPS by the countries and developments in the EU will influence international tax lawmaking. This question will be further researched in the GLOBTAXGOV project.