Remarks by Angel Gurría, Secretary-General of the OECD, Moscow, 20 July 2013
G20 Finance Ministers and Central Bank Governors
Ministers, Governors, Colleagues
It is a pleasure to deliver on what you asked the OECD to do, which is to prepare an Action Plan to counter Base Erosion and Profit Shifting, and to advance in the establishment of Automatic Exchange of Tax Information as a higher, more ambitious standard.
The joint challenges of tax evasion and tax base erosion lie at the heart of the social contract. Our citizens are demanding that we tackle offshore tax evasion by wealthy individuals and re-vamp the international tax system to prevent multinational enterprises from artificially shifting profits,resulting in very low taxes or even double non-taxation and thereby eroding our tax base.
Let me first focus on Base Erosion and Profit Shifting: BEPS can undermine the fairness and integrity of our tax systems. BEPS practices fundamentally distort competition, because businesses that engage in cross-border strategies gain a competitive advantage compared with enterprises that operate mostly at the domestic level. This, in turn, leads to an inefficient allocation of resources by distorting investment decisions towards activities that have lower pre-tax rates of return, but higher after-tax rates of return.
In February this year you discussed the OECD report Addressing Base Erosion and Profit Shifting, which identifies the root causes of BEPS. You expressed strong willingness to act, calling for the development of a comprehensive action plan to address BEPS. I am presenting that plan to you today.
I am proud to report that the BEPS action plan was developed jointly with you all. Indeed, all G20 countries have played an active role in this on an equal footing, and we are now “institutionalizing” this cooperation with the G20-OECD-BEPs Project to continue working together.
On substance, the BEPS action plan sets forth 15 actions that will result in the most fundamental change to the international tax rules since the 1920s!
So what is this about?
- First, international tax rules will be developed to address the gaps between different countries’ tax systems, while still respecting the sovereignty of each country to design its own rules. Actions will be taken to neutralise hybrid mismatches and arbitrage, reinforce domestic legislation to protect the tax base of countries against shifting of profits in tax havens (through strengthening the so- called “CFC” rules – Controlled Foreign Companies) and limit interest deductibility
- The existing rules on tax treaties and transfer pricing will be revisited to fix their deficiencies and to align them with substance and value creation. The action plan is designed to avoid treaty-shopping provisions and revise the definition of permanent establishment to prevent BEPS. Three actions are identified in the area of transfer pricing to put an end to the divorce between the location of profits and the location of real activities. Importantly, there is recognition that if the arm’s length principle is not fit to address these issues properly, measures that go beyond it will be introduced.
- More transparency will be established, including through a “country by country” reporting by companies to tax administrations on their worldwide allocation of profits. It also requires more transparency between governments, with the need for countries to disclose rulings and other tax benefits to their partners. The Action Plan also provides mechanisms to collect better data so as to be able to measure BEPS and carry out the relevant economic analyses.
Progress will be made quickly: All the actions are expected to be delivered in the coming 18 to 24 months. To ensure that the actions can be implemented quickly, a multilateral instrument will also be developed for interested countries to amend their existing network of bilateral treaties. Going forward we will to carry out comprehensive analysis of the economic impact on BEPS, including the effects on taxpayers' behaviour and the public finances, and we will look at their macroeconomic implications including international spill-overs.
Successfully delivering the 15 actions requires your political endorsement, your financial support and your decisive leadership.
The second big effort is our joint fight against offshore taxation: There is momentum to produce a step change in international transparency by establishing automatic exchange as the new international standard. Since June 2012, I reported to the G20 Leaders on our work on tax transparency and since then you stated that you expected automatic exchange of informationto become the new standardand asked us to report back on the development of such a higher, more ambitious standard.
The OECD, working with G20 countries, has developed a three-tiered multilateral standard on automatic exchange of information: it requires (i) to clearly define the content of the information exchange, (ii) to develop model due diligence and reporting rules, and a technical platform to efficiently operate automatic exchange of information, and (iii) to use a network of bilateral and multilateral instruments as the legal platform to exchange the information automatically.
Establishing the new standard will also require your endorsement: To be effective, however, the G20 should call on all countries to commit to such a single standard and avoid dispersion and dilution. Making the standard effective will also require monitoring, and last April, you called on the Global Forum on Tax Transparency and Exchange of Information for Tax Purposes to do so.
Our Global Forum can monitor the commitment by countries to the standard, and can put in place a process to ensure that the standard is implemented effectively. We will also work to ensure that all countries can benefit from this new, transparent environment. This includes, for instance, helping developing countries identify needs for technical assistance and capacity building and ensuring that countries have the adequate framework both in law and in practice to ensure the confidentiality of the information received.
The OECD stands ready to work closely with all of you to achieve modern and efficient taxation systems in which everybody pays their fair share!