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Will the BEPS initiative really work?

20 January 2020: the Organisation for Economic Co-operation and Development (OECD) has announced plans to shake up a century of international tax law. However, 12 EU states voted against rules to force big tech companies to reveal profits and tax payments in each member state. Are the Base Erosion and Profit Sharing (BEPS) proposals really the best chance of a successful global response to tax avoidance?

When announcing in October last year its plans to stop multinational firms dodging tax by “exploit[ing] gaps and mismatches in tax rules”, the OECD made two key proposals.

The first would overturn rules dating back to the 1920s, stating that countries can only levy taxes on firms with a physical presence in that jurisdiction, and instead could raise taxes based on in-country activity, such as Italy taxing Google’s sales of digital ad space to Italian advertisers.

The second – which would make a bigger difference to firms’ tax bills – would see a global minimum tax level imposed on multinationals by their home countries. For example, the UK could tax GSK’s global profits if its overall tax bill was too low. This, the OECD says, would benefit rich and poor countries alike.

However, it didn’t take long for the good will to go missing. By December last year, President Trump – hitherto a BEPS supporter – threatened to impose tariffs on France and other countries for pushing ahead with interim tax plans similar to the BEPS proposals. That, and the recent vote by 12 of the EU’s 28 countries, suggests a multilateral solution will likely be bogged down in realpolitik for years yet.

Frank Haskew, Head of the ICAEW Tax Faculty, says that although the ICAEW has “always supported this kind of international cooperation”, political consensus is rare. “The OECD has been doing great and valiant work,” he says, but “there is a lot of concern about where it is going to lead. Especially if the solution is going to be delivered on time [this year]; the outline approach will need to be agreed very soon.”

Haskew believes that, given that so many countries will benefit, they will “continue to ratchet up the pressure on multinationals”. The momentum to bring in new tax avoidance rules is “almost unstoppable” but a single, global approach is a long way off. 

“Moving towards some consensus on what the taxable base should be would be a start, but politics will get in the way. It’s difficult to see how, in the short term, those countries benefiting from the current regime will give something up,” he concludes.