BEPS - Will the Multilateral Approach Survive?

Abstract

The Organisation for Economic Co-operation and Development ("OECD") base erosion and profit shifting ("BEPS") project is the most significant multilateral effort to date to change the taxation of corporate cross-border income. The initiative comes after the most significant financial market turmoil since the Great Depression and high levels of unemployment and government deficits in Western Europe. As countries look to balance their budgets, multinational corporations ("MNCs") have come under scrutiny on their tax affairs not only from tax authorities, but also from government and non-governmental bodies and the media. Th ere is also an acknowledgement that corporate taxation has not kept pace with the changes in the global economy, particularly the growth in e-commerce, the growth of outsourcing and contract manufacturing, and the changes to global supply chains.But there is a growing suspicion that the BEPS project is also about increasing taxes on MNCs, whatever the policy considerations at stake. Th e US is home to the largest number of global MNCs and therefore has the most to lose under a foreign tax credit system where foreign taxes reduce taxes paid ultimately in the US. Several large US digital retailers and technology companies have been attacked by name by European politicians and parliamentary committees for tax planning, often under vague notions of "tax fairness," and this has clearly had an influence on the EU and OECD stakeholders. When the BEPS project kicked off in early 2013, the US Treasury was an enthusiastic supporter, though concerns were raised by US officials about the possible reach and scope of the project. As the BEPS project has developed and draft proposals have been released, concerns raised by US practitioners and business interests over the expanded scope of the project have been joined by Treasury, with specific attention focused on the possible departure from well established US principles in transfer pricing, permanent establishments and treaty policy.This article discusses the BEPS Action Items and the Discussion Drafts issued under them. It reflects on where US tax policy is aligned with BEPS action items and where the US may support suggested changes. It also discusses where US interests may collide with the OECD proposals and whether the US is likely to support multilateral action on key action items.

Keywords: BEPS, Tax, Tax Treaty, Tax Policy, EU, USA, Developing Countries Taxation