Closing the tax gap

 

Remarks by Angel Gurría, Secretary-General of the OECD, G20/OECD Action Plan on Base Erosion and Profit Shifting (BEPS)

Moscow, 20 July 2013, 12h15

(As prepared for delivery)

 

Minister Siluanov, Chancellor Osborne, Minister Moscovici and Minister Schäuble, ladies and gentleman:

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.

Tax 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.  

In February this year we presented to G20 Finance Ministers the OECD report Addressing Base Erosion and Profit Shifting, which identifies the root causes of BEPS. Ministers expressed strong willingness to act, calling for the development of a comprehensive action plan to address BEPS and I thank the Ministers present today in this room for their decisive leadership to that end.

In May 2013, OECD Ministers and partners from Argentina, Brazil, Indonesia, South Africa, and Russia reinforced this call and committed themselves to tackle the issue jointly.

I am pleased to present this G20/OECD Action Plan to you today. This plan sets forth 15 ambitious actions that will result in the most fundamental change to the international tax rules since the 1920s!

The Plan will be rolled out over the coming two year and it will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent BEPS. International tax rules ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to produce double non-taxation. We aim to address this, so that multinationals pay their fair share of taxes. The plan highlights the following actions:

• 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 to tax havens (through strengthening the so called “CFC” rules – Controlled Foreign Companies) and limit interest deductibility.

 

• Second, 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 aims to prevent “treaty-shopping” and to revise the definition of the 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.

 

• Third, 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 tax rulings and other tax benefits to their partners. Going forward we will carry out a comprehensive analysis of the economic impact on BEPS, including the effects on taxpayers' behaviour and on public finances, and we will look at their macroeconomic implications including international spill-overs.
  
  

To ensure that the Actions can be implemented faster, a multilateral instrument will be developed for countries which may want to amend the totality of their existing network of bilateral treaties at once, rather than proceed treaty by treaty.

These changes will require decisive leadership by Governments but they can be achieved. The OECD stands ready to work with its Member and partner countries towards modern and efficient taxation systems in which everybody pays its fair share! We aim to help countries develop, promote and implement better tax policies for better lives.

 

Thank you