I have just emerged from a fascinating two-day conference in rain-soaked Lisbon. Despite the headline title, the real theme was inevitably the prospects for the Base Erosion and Profit Shifting project of the OECD, the rump of which is due to be approved by the G20 shortly.

The public proclamations on BEPS have displayed populist triumphalism while, in the course of the two days – to anybody who had any doubts before – it became clear that the actual prospects are far more modest.

Firstly, by not allowing the Americans to think this was an extension of their work on FATCA, the OECD didn’t manage to bring them to the party. The Americans never join anything anybody else comes up with first – take the Second World War, for example, where the fun only started after Pearl Harbor.

Secondly, by making the Digital Economy the flagship topic, even if the Yanks had been convinced it was all their idea, they were not going to Kamikaze pilot themselves into their own ship – all Digital Economy reforms are, by definition, anti-American.

Thirdly, as two former senior politicians, gentlemen who almost gave me back the naive faith in politicians of my youth, made blatantly clear – no nation, be it America or the other God-knows-how-many countries currently on Earth, was going to give up on any serious opportunity to tax.

Then there was Pascal Saint-Amans, the Frenchman behind the BEPS project, who  explained how he had charismatically convinced everybody to accept his proposals. It was a case of working towards ‘consensus’ rather than ‘unanimity’. And that says it all. Never trust a Frenchman with your wife or long English words. Consensus is a synonym for unanimity. He was trying his luck on us, a group of grey accountants, for whom words are things to be kept under the bed (where the Frenchman may also be hiding). Obfuscation (go on Pascal, look that up in your Collins English-French Dictionary) seems to have been the name of the game. Sell the OECD a pile of words and confuse everyone into thinking something is happening. People may think Saint Amans has worked miracles (if the Pope canonises him will he be Saint Saint-Amans?), but the real deliverable looks a lot more down to earth.

That is not to say that BEPS is a failure (you may be wondering, after all I said above, how I am going to climb out of that one). Transparency – Country-by-Country reporting, international exchange of rulings, examination of holding and conduit companies, and dispute resolution will all become reality, alongside the unrelated Automatic Exchange of Information.

But, sorry Pascal, you don’t get all the credit for that.

BEPS was trumpeted as the first major breakthrough in international taxation in a hundred years. In reality, there has been some breeching of the fortifications, but no breakthrough.  Thanks to populist ‘uprisings’ following the 2008 Financial Crisis, taxation has been under the spotlight. Transparency is the minimum required to appease the masses, and even that would probably  have fallen  apart had it not been for the American obsession with FATCA. Many mistake the noise made by the British and French legislatures over the lack of tax being paid by American multi-nationals as part of the equation. Wrong. These are unilateral acts by Governments looking after themselves – the diametric opposite of the BEPS philosophy.

The end result looks remarkably like the Allied approach to the Second World War. Frenchman Pascal Saint-Amans, like General De Gaulle,  made a lot of noise, was overrun, but declared victory. The British plodded on alone trying to break the multi-national enemy. And then the Americans came in and did whatever they wanted. I am not sure where the Russians fit in – but let’s wait and see what surprises Putin has up his sleeve if he is invited to the G20 summit (which, otherwise, will not be the G20). Interesting tax times.


2 thoughts on “Let slip the dogs of war

  1. Thanks for this. Couple of (hopelessly naive) questions from the uninitiated:

    1. Why are Digital Economy reforms anti-American by definition? Wikipedia couldn’t give a ready answer.

    2. On Mr. Hague and the other fellow’s observation: Isn’t the point of BEPS to allow OECD governments better opportunities to tax corporations?

    The Lisbon Arch was built to commemorate the city’s recovery from the Great Lisbon Earthquake. That much I know about.
    The only other Portuguese victories I can painfully recall are back-to-back penalty wins over England in 2004 and 2006.

  2. Nice questions.

    1. The lion’s share of hi-tech comes out of the United States, so they will always stand to lose by reforms that inevitably shift profits to other locations.

    2. That is partially true, ie there will be less opportunity going forward to leave profits in unsavoury tax havens (not just the 34 OECD countries. 129 have so far signed up). The problem is that mature economies are also competing in the low tax field – BEPS is supposed to be about cooperation, and that is really iffy.

    I also debated including the Transfer Pricing changes as a success – but Transfer Pricing is an evolutionary process that was well in process when BEPS started. There was a working party on Intangibles which had been around for years, who were incorporated into the BEPS project. I cannot bring myself to give credit to the Frenchman for that. Also, most of the changes in Transfer Pricing are so vague that they will probably be steamrollered by the competing countries.

    At the end of the day, it is Transparency, Transparency, Transparency. And THAT is a massive step forward in the international tax sphere which cannot be overestimated. But, that came from the populist movement and the Americans, not the Frenchman. He does, however, deserve great credit for his political acumen – even the transparency stuff might have fallen apart if not for his expertise in getting everyone to agree. I have attended a number of his talks over the years and he is a very impressive guy.

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