Remarks by Angel Gurría, OECD Secretary-General, delivered at the Launch of the Base Erosion and Profit Shifting 2014 Deliverables
Paris, 16 September 2014
(As prepared for delivery)
Ladies and Gentlemen,
I am delighted to be here this afternoon to launch the first batch of measures that will help put an end to Base Erosion and Profit Shifting – or ‘BEPS’, as everyone calls it now!
The OECD-G20 BEPS Project is a joint multilateral effort to tackle aggressive practices which erode the tax base of companies and artificially shift profits to low or no-tax jurisdictions. These practices erode the integrity of our tax systems, damage the capabilities of our governments, diminish the growth potential of our economies and corrode the trust of our citizens in the institutions that we created in the past 100 years.
So I am very pleased to present a first Package of seven measures to help countries address this global challenge. Our Director of the Centre for Tax Policy and Administration, Pascal Saint-Amans, will make a detailed presentation of this Package, but I would like to take this opportunity to introduce some of its key elements.
The 2014 BEPS Package: A Multidimensional Toolkit
The 2014 BEPS Package, which I will present to the G20 Finance Ministers at their meeting in Cairns this weekend, will help our governments combat base erosion and profit shifting practices from different angles.
First, it will provide concrete measures to reduce tax treaty abuse. We all know it makes no sense that an investor based in one country, sets up a shell company in another country, to channel an investment in a third country. But this is what happens, because in our efforts to ensure that business doesn’t bear the burden of double taxation, the system has left gaps allowing double non-taxation.
Now we are closing that loophole. All OECD and G20 countries have now agreed that there must be a minimum standard to prevent companies who engage in this “treaty shopping” from taking advantage of benefits that they weren’t intended to have. With this, as well as the measures relating to transfer pricing and other items in the BEPS package, we will finally neutralise cash boxes – which at the moment hold more than 2 trillion US dollars offshore. This will be a crucial step forward!
Second, the 2014 BEPS package will also help to better deal with the fiscal implications of the Internet Economy. As you know, we increasingly “live online”. We shop there, we work there, and many products and services cross borders and oceans without ever touching a physical building. This is the digital world, and we can’t ring-fence it. Not in reality, and as our work has found, not for tax purposes either.
So we’ve taken a big step forward towards a common stance on this issue: that it is not possible to craft special tax rules for the digital economy. This means that the BEPS issues which are exacerbated in the digital economy are going to be tackled within the other work areas of the BEPS Project. Mechanisms will be set up to ensure the collection of VAT where consumption takes place, and once that work is completed, the Task Force will be able to assess whether additional measures are required to tackle any remaining challenges raised by the digital economy.
Finally, the 2014 BEPS Package also includes our recommendations to neutralise hybrid mismatches, as well as outlining the work we still need to do to effectively address harmful tax practices. These are remarkable agreements, remarkable decisions, that represent a first concrete – and dare I say historic! – achievement on the long road to global tax justice; to a world where all corporations pay their fair share of tax as good global citizens.
How to make the most of this package?
Now the question is how can we make the most of this package? How can we broaden its impact? Here let me highlight two key challenges that we have to address effectively: the challenge of implementation and the challenge of inclusion of developing countries.
The challenge of implementation
You must be wondering: how is BEPS going to be implemented with more than 3000 tax agreements already in existence? We are very conscious of this challenge so, as part of this package, countries have agreed on the feasibility of a multilateral instrument to streamline implementation of anti-BEPS measures. In January next year, they will consider a draft mandate for an international conference so that a multilateral instrument could be negotiated. This is great news!
The challenge of inclusion of developing countries
The second key question is how to include developing countries into our BEPS efforts? And here I also have some good news to report. Even if the BEPS Project involves countries accounting for 90% of the world’s economy, it is constantly increasing its reach. In fact 24 low income countries, 65 lower and upper-middle income countries, more than 140 countries in total, have sent government tax officials to talk with us about their BEPS concerns. And we’ve heard them. This is an inclusive project.
To give an example, I want to point you to Action 13, which is dealing with “country by country reporting” by multi-national enterprises, standardising some of the financial and tax information they declare to tax authorities. This work is making it possible to address BEPS in developing countries and it was included in the Action Plan because developing countries stood up and said: “we need this”. The same can be said for the work we are doing on transfer pricing, where we are learning from several developing countries.
But we also know we can do more. We’ve reported to the G20 Development Working Group on how to better support the BEPS priorities that developing countries have identified, and I look forward to announcing in the coming months an enhanced engagement strategy that will institutionalise their involvement.
Ladies and Gentlemen,
Tax evasion and avoidance have been depriving our governments of precious resources for decades. In the past years, our governments have been struggling to find the resources to jumpstart growth, to exit the crisis and to promote more and better jobs, while base erosion and profit shifting practices weakened these efforts. I am delighted to announce the beginning of the end of these corrosive practices.
The OECD and the G20 have delivered a historic package to put an end to these practices. This is cause for celebration! Especially if you consider that so many countries have worked together and agreed by consensus on all of these measures. Strong political leadership and the remarkable dedication of many OECD and government officials have made this 2014 BEPS Package possible.
I am very proud to be presenting this Package to the G20 Finance Ministers next Saturday in Cairns, Australia. If they approve it, as we expect, it will become one of the most important “deliverables” of the 2014 G20 Leaders Summit, to be held in Brisbane, next November.
We count on you to broaden the impact and the significance of these measures. And I promise you that the OECD will keep working hard to help countries make the most of the 2014 BEPS Package and to advance to the next phase of the Project, for 2015.