Hundreds of policymakers, business executives, OECD officials and tax professionals gathered at the Four Seasons Hotel in Washington, D.C. on June 6 and 7 for USCIB’s flagship OECD International Tax Conference. Every year the conference draws global companies and those involved in crafting international tax policies, with this year’s discussion focusing on the global effort to implement the OECD’s controversial Base Erosion and Profit Shifting (BEPS) project. After three years of negotiations, BEPS concluded last year with governments developing a framework for modernizing international tax rules. Countries will now turn toward the challenging task of implementing the BEPS recommendations.
Organized by USCIB, the OECD and the Business and Industry Advisory Committee (BIAC) to the OECD, the annual tax conference gives members of the tax community a timely opportunity to discuss the OECD’s international tax initiatives and their impact on global trade and investment. Keynote remarks were delivered by U.S. Internal Revenue Service Commissioner John Koskinen, who provided the U.S. perspective on global tax cooperation.
The conference kicked off with opening remarks by Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, who told the audience we are living in an inclusive “post-BEPS world” in which all countries are invited to participate on equal footing in implementing the new tax rules. He explained that the world needs tax policies that lead to inclusive growth, which will in turn create tax certainty.
“Ahead of us we have a more relaxed debate,” Saint-Amans said. “BEPS is going to be implemented, but we can do it in a balanced manner with a forward-looking agenda geared toward inclusive growth.”
US perspective on global tax cooperation
During the keynote address, Koskinen attributed the breakneck changes that have occurred in global tax policy to the “willingness of governments everywhere to come together and work collaboratively on common goals.” He supported the goal of the BEPS project to eliminate incidences of tax avoidance, and also reiterated that actions taken to improve tax compliance must not impede global commerce. As such, he said clear and consistent tax laws and regulations are necessary.
From the perspective of a tax administration, Koskinen explained that addressing base erosion requires an efficient and secure automatic exchange of information as well as effective measures to resolve disputes related to tax treaties in a timely manner. He noted that the OECD’s common reporting standard is based on the U.S. Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. He said America’s experience with FATCA can help inform the OECD’s common reporting standard, and that the challenge for tax administrations is to obtain and exchange tax information in a secure manner and to only use that data for tax purposes.
There is much the United States can contribute to the common reporting standard (CSR), but Congress has yet to pass legislation allowing the U.S. to sign on to the CRS. He called on Congress to act.
“U.S. participation in this standard is critical to ensuring that reporting is as straightforward and as seamless as possible for financial institutions and companies in the U.S.,” He said. “Therefore, I will continue to urge Congress to enact this legislation as quickly as possible.”
On country-by-country reporting, Koskinen said that the United States has been receptive to the business community’s concerns. The country-by-country reporting system went into effect on January 1, 2016, but the U.S. regulations designed to comply with this system will only apply to tax years beginning on or after July1, 2016, meaning that under the OECD’s requirements the first reports will be due several months before they will be due under U.S. regulations.
“I want to assure everyone that we understand the concerns expressed by the business community about the difficulties that this gap period poses for U.S.-based companies,” he said. “We are considering alternative methods for receiving submissions for the gap period, which could include some system of voluntary reporting. We are coordinating with other countries to try and make sure that voluntary filing will work.”
He concluded that although there is much work left to be done, the high level of political support for addressing BEPS is heartening.
“Given the spirit of cooperation and collaboration that exists among governments in this effort, I remain confident that we will achieve our goals,” he said.
How can global tax policy spur international investment and trade?
Dealing with tax uncertainty was a recurring theme throughout the conference. The goal of the BEPS project is to coordinate national tax rules to avoid harmful tax practices, thereby removing uncertainty and spurring international investment and trade, which lies at the core of the OECD’s tax work.
Panelists discussed which policies countries should adopt to help reduce tax uncertainty. Will Morris, chairman of the BIAC Committee on Taxation and Fiscal Affairs, shared the findings of a survey aimed at defining tax uncertainty. The survey revealed that the top five tax uncertainty factors for businesses are unpredictable or inconsistent treatment by a tax authority, retroactive changes to legislation, frequent changes to the statutory tax system, complexity of the tax code and a poor understanding of the tax code by tax authority. Morris explained that these factors have a serious negative impact on a business’s decision to invest. Faster audits and the timely resolution of cross-border disputes were suggested as ways to increase certainty.
To deal with tax uncertainty, speakers agreed that businesses need to make the case for the importance of foreign direct investment (FDI) and its connection to broader tax issues, so that governments understand they must do more to attract FDI.
“Business doesn’t exist for the purpose of paying taxes,” said Pam Olson, U.S. Deputy Tax Leader & Washington National Tax Services Leader at PricewaterhouseCoopers. In the long term, tax policies that encourage businesses to invest rather than simply seize revenue will be better for inclusive growth.
Panelists also highlighted the importance of building trust. Olson noted that there needs to be more dialogue between businesses and governments on taxation, which would go a long way towards increasing tax certainty. Robert Stack, deputy assistant secretary for International Tax Affairs at the U.S. Treasury, agreed and said that “trust among governments is critical” as well. There is a danger that some countries will take the OECD’s BEPS recommendations as a baseline for their tax laws and then go above and beyond the recommendations. Stack said that such behavior would undermine global trust in the BEPS project.
Over the course of the BEPS project, the OECD has been incrementally increasing input from developing countries. BEPS implementation provides an opportunity to secure political support in developing countries to increase their tax administration resources. To help developing countries take a more active role in BEPS work, the OECD has developed toolkits and an initiative with the United Nations called Tax Inspectors Without Borders.
James Karanja, head of the Tax Inspectors Without Borders initiative, explained the goals of his project: transfer tax audit knowledge and skills to tax administrations through a “learning by doing” approach; deploy experts to work directly with local tax officials in current audits; ensure greater consistency in application of rules creating greater certainty for taxpayers; and increase revenues.
Stack noted that policymakers need to think outside the box when applying the BEPS action plan to developing countries, and all speakers agreed that everybody benefits when developing countries enjoy a sustainable tax base, effective tax administrations and rule of law.
During the second day of the conference, participants explored in detail several outstanding items and unfinished initiatives that need to be addressed in order for BEPS implementation to proceed, including permanent establishments, transfer pricing, interest deductibility and the OECD’s effort to create a multilateral instrument to enable countries to swiftly amend their bilateral tax treaties to implement treaty-related BEPS recommendations.