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European Economic and Social Committee

24 May 2017, Brussels

David Bradbury

Head of the Tax Policy and Statistics Division OECD’s Centre for Tax Policy and Administration

Base Erosion and Profit Shifting (BEPS) Project Inclusive Framework

• n BEPS

Transparency agenda Tax policy for inclusive growth

Base Erosion and Profit Shifting Project

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Background to the BEPS Project

September 2013: G20 Leaders endorsed ambitious and comprehensive BEPS Action Plan with 15 Actions October 2015: 13 reports delivered just 2 years later New or reinforced international standards and concrete measures to help countries tackle BEPS Unparalleled effort - OECD/G20 countries working together on an equal footing with many developing countries

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Objectives of the BEPS Project

Towards a greater alignment Restore confidence in the system Build a global consensus

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The final BEPS package

Detailed report on measuring and monitoring BEPS Four minimum standards Reinforced international standards on tax treaties and transfer pricing Common approaches and best practices for domestic law measures

• Digital economy and the multilateral instrument

Analytical reports with recommendations

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15 Actions around 3 main pillars

Coherence

Hybrid Mismatch Arrangements (2) Harmful Tax Practices (5) Interest Deductions (4) CFC Rules (3)

Substance

Preventing Tax Treaty Abuse (6) Avoidance of PE Status (7) Transfer Pricing Aspects of Intangibles (8) Transfer Pricing Risk and Capital (9) Transfer Pricing High Risk Transactions (10)

Transparency & Certainty

Measuring and Monitoring BEPS (11) Disclosure Rules (12) Transfer Pricing Documentation (13) Dispute Resolution (14)

Multilateral Instrument (15) Digital Economy (1)

More than 100 empirical studies report evidence of BEPS

• As a percentage of tax revenues, this is expected to be higher in developing

countries given their greater reliance on corporate tax revenues

New OECD research finds that global net annual revenue loss of 4-10% of CIT - USD 100-240 billion - at 2014 levels

• Effective Tax Rates of large MNEs are lower than similar domestic firms
• Higher profit rate affiliates located in countries with lower statutory tax rates
• Favours intangible investments, companies locating debt in high-tax

countries and distorts the location of FDI

• Creates negative tax spillovers across countries

BEPS creates many economic distortions Anti-avoidance rules are effective in preventing BEPS in individual countries, but coordinated measures could be more effective

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What do we know about the scale and impact of BEPS?

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ETRs - large MNEs v large non-MNEs

Large MNE entity Large non-MNE (domestic) entity

Effective Tax Rate Differentials

Large MNE entity Large non-MNE (domestic) entity

4 - 8½ pp differential MNEs Non-MNE similar domestic firm

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The Inclusive Framework on BEPS (1)

• G20 Leaders in Antalya in November 2015 when receiving the final

BEPS package

Call for establishment of a more inclusive framework Established in Kyoto in June/July 2016

• Membership now includes 96 countries and jurisdictions, accounting

for about 93% of global GDP

Now has almost 100 members

• Widespread support, including from the EU, G20, APEC and BRICS

leaders

Strong support for the Inclusive Framework at the highest levels

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The Inclusive Framework on BEPS (2)

• Peer review of the minimum standards and monitoring of the

implementation of the overall package of measures

Monitoring the implementation of the BEPS measures Standard setting for remaining BEPS issues

• Measurement and monitoring of BEPS and BEPS countermeasures

(Action 11)

Ongoing monitoring and data gathering aspects of implementation

• Feeds into the toolkit work and could potentially impact the

remaining BEPS standard setting work

Implementation support, guidance and toolkits

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Strong commitment from the EU

• EU early adopter of key VAT measures (Action 1) – amended Directive

2006/112/EC

• Hybrid mismatches (Action 2) - ATAD (2016/1164/EU)
• CFCs (Action 3) - ATAD (2016/1164/EU)
• Interest limitation rules (Action 4) - ATAD (2016/1164/EU)
• Compulsory spontaneous exchange of rulings (Action 5) - amended Directive

2011/16/EU

• Country-by country reporting (Action 13) - Council Directive 2016/881/EU
• Dispute resolution (Action 14) – EU exploring new options for enhancing the

effective resolution of international tax disputes, with the arbitration provision aligning with the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI)

• Signing ceremony for the MLI on 7 June 2017; 16 EU members have already

indicated their intention to opt-in and this number is expected to increase

EU has shown strong leadership in driving the coordinated implementation of BEPS measures

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Global Forum and transparency

• April 2009: G20 announces “the era of bank secrecy is over” and the Global

Forum was restructured - now 140 members

• Exchange of Information on Request (EOIR). By 2016, over 250 peer reviews

conducted and 116 jurisdictions rated

• New rounds of EOIR have commenced against strengthened terms of

reference, including availability of beneficial ownership (2016-2020)

Global Forum on Transparency and Exchange of Information for Tax Purposes

• In 2014, Global Forum endorsed the Common Reporting Standard, allowing

the AEOI

• 100 countries have committed to make first exchanges by 2017/18
• Supported by the Common Transmission System (CTS)

Automatic Exchange of Information (AEOI)

• Expected in July 2017

G20 request to prepare a list of non-cooperative jurisdictions

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Tax Design for Inclusive Growth

New OECD Taxation Paper released

Tax Design for Inclusive Economic Growth

Bert Brys, Sarah Perret, Alastair Thomas & Pierce O’Reilly Paper No.26 OECD Taxation Working Paper series

http://www.oecd-ilibrary.org/taxation/

Tax-by-tax assessment Systems approach Tax policy principles for inclusive growth

Approach of the paper

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Efficiency and equity implications

• f taxes

Design of individual taxes

• Economic structure and challenges
• Interactions with benefit systems
• (Non-tax) drivers & characteristics of informality
• Social preferences for redistribution
• Existence of compensation mechanisms
• Time horizons
• Tax administration and tax enforcement
• Tax remittance
• Behavioural responses to tax changes
• Tax planning and income shifting
• Tax incidence
• International tax rules

Tax system factors Non-tax system factors

A systems approach to tax design for inclusive growth

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Some tax policy design principles for inclusive growth

Taking into account overall tax system progressivity Broadening tax bases Affecting pre- tax behaviours and

• pportunities

Enhancing tax administration and policy

Keep bases broad and rates low Remove regressive tax expenditures Broaden social security financing Equitable taxation

• f capital income

Horizontal equity to enhance vertical equity Strengthen link between lifetime taxes & benefits Compensate losers

• f reforms

Align private & social costs and returns Promote the

• ptimal use of

human capital Provide incentives for formalisation Intergenerational and gender equity Tackle tax evasion and avoidance Strengthen tax administration

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Improve tax indicators/analysis

Contact details

David Bradbury

Head of the Tax Policy and Statistics Division Centre for Tax Policy and Administration

2, rue André Pascal - 75775 Paris Cedex 16 Tel: +33 1 45 24 15 97 – Fax: +33 1 44 30 63 51 David.Bradbury@oecd.org || www.oecd.org/tax

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