ICC has expressed concern that the Organization for Economic Co-operation and Development (OECD) Action Plan on combating Base Erosion and Profit Shifting (“BEPS”), mandated by the G20, may inadvertently incur severe collateral damage on compliant taxpaying companies of all sizes as a result of well-meaning measures undertaken unilaterally by states to mitigate double-non-taxation.
While ICC fully supports the BEPS Action Plan and actively engages with the OECD and the UN on the issues at hand, concern was raised during back-to-back meetings with the United Nations (UN) Committee on International Cooperation in Tax Matters at UN Headquarters in Geneva last week.
During the meetings members of the ICC Commission on Taxation said that the BEPS project may unintentionally increase the complexity of the international tax system and risk double taxation, seriously hampering international trade and economic growth.
Under the BEPS Action Plan, the OECD has set out 15 areas of work to be undertaken, within an ambitious time schedule, across a range of tax issues including transfer pricing, income taxation, transparency and predictability of taxation.
The G20 recently endorsed the outcomes of phase one on seven areas of the BEPS project for a coordinated international approach, with phase two scheduled to be concluded by the end of 2015. Taking stock of the process so far, the ICC Commission on Taxation notes that some governments consider the discussion on BEPS not only to be about countering artificial or abusive transactions of companies but also about splitting the international ‘tax cake’ between countries in a new way – most notably between so-called source and residence countries.
Stressing that taxation systems should be sound and stable – to encourage transparency, efficiency and predictability and to incentivize long-term investment, job creation and economic growth – ICC advises governments and policymakers to take the following into due consideration:
1) ICC strongly believes that several of the 15 BEPS Action Points are interdependent and recommends an overall perspective and coordination of the various recommendations – including the 2014 deliverables of Phase 1 in Phase 2 of the project.
2) ICC calls for a coordinated implementation of the combined deliverables of the G20/BEPS project on a multilateral basis with a consensus approach in order for the solutions to be consistent and uniformly applied on an international level. ICC therefore cautions against implementation of domestic tax legislation through unilateral and divergent actions which risk leading to disparate rules, increased complexity and double taxation.
3) ICC urges mitigating the increased unavoidable and foreseeable risk of double taxation via a solid dispute resolution mechanism, with mandatory agreements forcing competent authorities to agree on how to tax certain transactions, or simplified, how to split the ‘tax cake’.
ICC strongly opposes tax fraud and tax evasion but warns that it is crucial to distinguish these illegal activities from the use of lawful methods of tax planning and tax management, provided they are aligned with commercial and economic activities.
Because taxes can only be levied on the basis of laws and because countries design their own tax regimes in pursuit of differing macro-economic policy objectives, ICC underscores that companies are often encouraged to use the tax planning measures made available to them by individual governments and should not be condemned for choosing the least costly route.
ICC calls for more coordination between governments to avoid inconsistencies between national tax systems, warning that uncoordinated actions by individual countries will lead to increased risks of double taxation, more unfair competition and increased uncertainty over the tax consequences of cross-border transactions and in that way impede and distort international trade and investment. Consequently, ICC fully supports the G20/OECD BEPS project and will explore further cooperation with intergovernmental organizations and other stakeholders for improving bi- and multilateral tax dispute resolution.
The ICC Commission on Taxation comprises more than 150 taxation experts from all sectors of business and private practice and represents the world’s major companies and tax consultancy firms. Its mandate is to promote transparent and non-discriminatory treatment of foreign investment and earnings that eliminates tax obstacles to cross-border trade and investment. The commission analyses developments in international fiscal policy and legislation and puts forward business views on government and intergovernmental projects affecting taxation.