BEPS: Will the Current Commitments and Peer Review Model Prove Effective?

Had anyone asked a tax specialist seven years ago, say, whether countries could ever have agreed on anything like the Base Erosion and Profit Shifting (BEPS) package, and whether some of what they had agreed would also be implemented through a multilateral instrument (MLI), the reactions would most certainly have been extremely pitying. However, since the G20 leaders first called on the OECD in June 2012 to work out a plan to combat BEPS, countries within the OECD/G20 and EU have proved able to find common ground. This was seen when they responded to pressure from public opinion and rising levels of sovereign debt by starting to work on joint actions to combat tax planning by multinationals (MNOs) under the guidance of the OECD Secretariat and the European Commission. Another reason for their willingness to cooperate is that they know that tax policies based on ‘every man for himself’ are more likely to lead to lower rather than higher tax revenues. And that, in turn, will put even more pressure on high-quality and fair social, ecological and tax policies. It was in 2013 that the OECD identified a total of fifteen action items needing to be addressed in order to combat BEPS, followed two years later by the publication of a plan for each action point. Surprisingly, however, after two years of meetings, the OECD and G20 countries have so far only been able to agree on minimum standards for implementation in the case of four of these action items. The various countries committed themselves to: (1) implementing anti-abuse provisions (Action Point 6), (2) introducing standardized Country-by-Country reporting (Action Items 13), (3) revitalizing the peer review process so as to combat harmful tax practices (this includes embracing the modified nexus approach for IP regimes and the compulsory exchanging of information on six types of rulings) (Action Item 5), and (4) introducing effective mutual agreement procedures (Action Item 14). Of these four minimum standards, the first and the last are to be implemented via the MLI (Action Point 15), while a common approach has been devised for (1) neutralizing hybrid mismatches (Action Item 2) and (2) combatting excessive interest deductions (Action Item 4). Lastly the various countries reached agreement on best practice guidelines for a CFC measure (Action Item 3) and compulsory disclosure of aggressive tax structures (Action Item 12). This contribution considers the extent to which these commitments to combatting BEPS will prove effective in practice. We zoom in specifically on the choice by the OECD and G20 for a monitoring and peer review model to ensure countries comply with their BEPS commitments. In an earlier contribution to EC Tax Review we criticized the way in which the EU had responded to the BEPS outcomes by opting for a directive as its implementation instrument of choice. We concluded at the time that it would be preferable for the EU to implement the outcomes through a peer review system, structured along the lines of the model opted for by the Global Forum on Transparency and Exchange of Information for Tax Purposes (Transparency Forum) rather than through a directive. * Professor of International Policy and Fiscal Autonomy. The author is on the staff of the Erasmus School of Law (Erasmus University Rotterdam) and the Netherlands Ministry of Finance. His contribution to this article was written as part of the ESL research program on ‘Fiscal autonomy and its boundaries’ and reflects the personal views of the author. Email: degraaf@law.eur. nl. ** Tax advisor at TaxFlow, The Hague, Netherlands. Email: klaasjan@taxflow.nl. 1 This contribution has been adapted from an article published earlier this year in the Dutch Maandblad Belastingbeschouwingen. 2 See para. 48 of the declaration by the G20 leaders during their summit meeting in Los Cabos on 18–19 June 2012. This declaration can be found on https://www.g20. org/Content/DE/_Anlagen/ G7_G20/G20-loscabos-leaders-declarat ion.pdf? __blob= publicationFile&v=2. 3 See also A. C. G. A. C. de Graaf, ‘Excessieve’ gedragingen en internationaal fiscaal beleid 20–23 (The Hague: Sdu Uitgevers 2013). 4 See also D. Lesage, Mondialisering en fiscale rechtvaardigheid. Belastingpolitiek in een open wereldeconomie 12, 51–52 and 67–71 (Louvain: Uitgeverij Acco 2006); and D. Lesage, Een kader voor rechtvaardige fiscaliteit als mondiaal publiek goed, in Het beheer van de wereld 105 (D. Lesage et al. eds, Ghent: Academia Press 2006). 5 OECD, Action Plan on Base Erosion and Profit Shifting (Paris: OECD Publishing 2013). 6 Arnaud de Graaf & Klaas-Jan Visser, ATA Directive: Some Observations Regarding Formal Aspects, (4) EC Tax Rev. 199–210 (2016).