Opening remarks by Angel Gurría, OECD Secretary-General
Paris, 6 March 2013
(As prepared for delivery)
Ladies and Gentlemen:
Welcome to the Second Annual Global Forum on Transfer Pricing. We are indeed very enthusiastic about this event.
As the world emerges from the worst economic crisis of our lifetimes, many governments still face high levels of debt and large budget deficits and are in pressing need of revenues. Detangling tax loopholes that enable corporations to shift profits to more favourable tax jurisdictions and avoid taxes will help governments access untapped sources of revenue at time when they need it most.
This is the purpose of the OECD’s work on base erosion and profit shifting, or BEPS. This work, requested by the G20, begins to set the record straight on BEPS. We’ve found that BEPS unfairly distorts competition, reduces corporate tax revenues for governments, and jeopardizes the integrity of the tax system as a whole. Let me outline some of our key findings in greater detail.
Our tax rules have not kept pace with the way business operates.
As our report underlines, one of the key causes of BEPS lays in the fact that international tax rules have not kept pace with the changing economy and the way global businesses operate today. Domestic rules for international taxation and internationally agreed standards are still grounded in an economic environment characterised by a lower degree of economic integration across borders.
But today’s environment is characterised by global taxpayers, with an increasing importance of intellectual property as a value-driver and constant development of information and communication technologies.
We all know that global companies are a significant source of growth, investment, employment and tax. This is why the OECD has worked tirelessly over the past decades to ensure that businesses do not pay double tax when operating internationally.
However, now is the time to also ensure that the rules do not result in double non-taxation. Much too often asymmetries in domestic tax systems offer multinationals the opportunity to significantly reduce and even eliminate taxation on profits from cross-border activities.
Some businesses have gone too far and tax administrations must be tough in enforcing compliance. But we cannot blame business for using the rules that policy-makers themselves have put in place. Tax planning strategies that exploit loopholes are mostly legal in the countries in which they are implemented.
Therefore, it is the governments’ responsibility to revise existing rules or to introduce new ones. Governments must ensure the fairness of the corporate tax system. In the context of fiscal consolidation, with VAT and personal income tax increases, the perception that some corporations do not contribute their fair share poses serious political and social challenges.
Transfer pricing is a key area of reform.
Transfer pricing, this Conference’s topic, is an important part of the BEPS puzzle. It is one of the 6 key pressure areas that we identified in our BEPS report and is a key area of reform. Transfer pricing relates in particular to the shifting of risks and intangibles, the artificial splitting of ownership of assets between legal entities within a group, and transactions between such entities that would rarely take place between independents.
Many corporate tax structures focus on allocating significant risks and hard-to-value intangibles to low-tax jurisdictions, where their returns may benefit from a favourable tax regime. Such arrangements may create or contribute to BEPS. The existing OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations are sometimes perceived as putting too much emphasis on legal structures, rather than on the underlying reality of the economically integrated group, which may contribute to BEPS.
Therefore, we are working on proposals to develop improvements or clarifications to transfer pricing rules. Relevant OECD work is ongoing concerning intangibles and the simplification of transfer pricing administration, both projects of paramount importance. I am sure that your deliberations at this Conference will help us to make the most of this important work.
These challenges require a global coordinated response.
Global coordination is precisely what we need to tackle BEPS. It is not a one country problem, BEPS is a global challenge affecting every country around the world. Therefore, coordinated action to address BEPS is the only viable way to achieve results. It will not limit but rather enhance and support governments’ domestic policy efforts to protect their tax base. Coordinated action will protect multinationals from uncertainty or double taxation, which would have a negative impact on investment, and thus on growth and employment globally. As the G20-Leaders emphasised last June, multilateralism remains our best asset to resolve the global economy's difficulties.
The OECD is committed to leading and supporting countries’ efforts to address BEPS in a coherent and balanced manner, taking into account the perspectives of industrialised as well as of emerging and developing economies.
As a follow-up on the BEPS report last February, we will develop a comprehensive action plan, with a timeline for implementation by June 2013. This report will address the identified key pressure areas, including transfer pricing. We will provide countries with domestic and international instruments aimed at better aligning taxation rights with modern business practices for the benefit of our economies and our people.
Base erosion is a serious threat to the viability of our countries. It constitutes a major risk to tax revenues, tax sovereignty and tax fairness. Tackling this problem through decisive measures, effective policies and multilateral cooperation is essential to help countries leave the crisis behind and build a stronger, cleaner and fairer global economy.
The crisis is giving us a unique opportunity to improve our tax policies and frameworks to build a level playing field. Let’s make the most of this opportunity. This Forum can make a big difference. I am sure that your discussions will enrich our work and contribute to the OECD’s evolving study of transfer pricing. Your inputs can strengthen and improve our analysis, identification of best practices, and increase our capacity to provide policy-makers with implementable policy recommendations and advice.
This is precisely what we need in order to provide countries with 21st century business practices and to create better tax policies for better lives. I wish you a successful Global Forum and fruitful discussions.