Tax avoidance via the legal use of international tax loopholes has eroded government revenue and undermined the fairness and integrity of national tax systems. To help countries re-establish their tax sovereignty, the OECD has been working with the G20 and dozens of developing countries to revise international tax rules and close the gaps that allow multinationals to artificially shift profits to low-or-no-tax jurisdictions, away from the location of the underlying economic activity. The OECD has also developed a new standard to improve tax transparency across the globe. This supports countries cracking down on tax evasion by establishing a single framework for global automatic exchange of financial account information. Increased tax transparency and reduced profit-shifting will particularly benefit developing countries, which rely heavily on corporate income taxes for government revenues and are subject to high levels of tax evasion.
The OECD works with over 100 developing countries in numerous areas to promote economic and social goals worldwide. Today we have 127 members, of which more than 50% are developing countries, working together on an equal footing to lead the work ensuring that a global standard on tax transparency is maintained, through the Global Forum on Transparency and Exchange of Information for Tax Purposes. Already an extra 37 billion euros in revenue has been identified by governments through compliance initiatives, as the date draws closer when automatic exchange of financial account information will take effect.
In 2013, the G20 asked the OECD to also develop measures to shut down the loopholes which allow corporate tax avoidance through Base Erosion and Profit Shifting (BEPS). More than 60 countries are directly involved in the development of the measures under the BEPS Project and leading regional tax organisations such as the African Tax Administration Forum and Inter-American Center of Tax Administrations participate along with the IMF, World Bank and UN. Over 120 jurisdictions have participated through five regional networks to provide specific input on the development of the measure. One of the key practical measures – the development of a multilateral instrument that will allow countries to quickly and cost-effectively align their bilateral tax treaties with powerful anti-BEPS measures – is open to negotiation by all countries, and 88 countries are already participating.
These major projects are just two examples demonstrating the OECD’s ability to develop flexible, efficient and inclusive processes to work hand in hand with countries and other stakeholders and deliver effective solutions to significant challenges on the international tax agenda.
Tackling base erosion and profit shifting by multinationals and improving global tax transparency are for the benefit of all – not a dividing line between developed and developing economies.
The first set of OECD/G20 BEPS measures were released in September 2014. The final package will be presented to G20 leaders in November 2015, providing countries with the tools to ensure profits are taxed where they are generated. A country-by-country reporting template will require multinationals to provide annual information on the geographic breakdown of income earned and taxes paid in each jurisdiction where they operate. All interested countries will be able to obtain the information either through exchange of information or local filing in cases where information exchange is not effective.
The next phase will establish a globally inclusive framework that can bring all interested countries and jurisdictions together on an equal footing to monitor the impact of BEPS and support the implementation of the Project’s measures.
The OECD is working on many fronts to boost tax revenues in developing countries, which average just 17% of GDP compared with 34% in advanced economies. In addition to their participation in the BEPS Project, the OECD is leading efforts with the other international organisations to address the BEPS-related issues which developing countries have identified as their highest priority, such as tax incentives and indirect transfer of assets. This includes developing practical tools that will make complex rules in areas such has transfer pricing, more effective, taking into account the capacity constraints developing countries face. The OECD has seconded a tax expert to the African Tax Administration Forum, at their request, to support their international tax work, and also joined forces with the United Nations Development Programme on the Tax initiative, to strengthen tax audit capacity in poor countries.
The OECD has begun work to establish an inclusive mechanism by early 2016 for monitoring the BEPS outcomes that will put all interested countries - developed, emerging and developing - on an equal footing. Low-income countries must have their voices heard and their specificities recognised, and this new framework will represent the latest phase of the increasing involvement on the international tax agenda in the last five years. Regional tax organisations, as well as other international organisations will also have an important role to play – establishing the strong regional knowledge networks and capacity building support which these countries need.
Beyond the BEPS Project and the Global Forum, the OECD engages in wide-ranging outreach with developing countries to support their development goals and domestic resource mobilisation efforts. This includes its Global Revenue Statistics programme, new Guidelines for Better Cross-Border Application of Value-Added Tax and boosting the fight against tax crimes and other serious financial crimes through the work of the OECD International Academy for Tax Crime Investigation.