TUAC releases trade union assessment and guidance papers on the OECD “BEPS” package to counter corporate tax avoidance practices

With the release of the final set of measures and recommendations on tackling aggressive corporate tax planning by the OECD in October 2015 as part of the first phase of the 15-point Action Plan on Base Erosion and Profit Shifting (BEPS) adopted by the G20 in 2013, it is now up to governments to implement the package of measures.

To help trade unions monitor the implementation of the package and the implications of corporate tax planning more broadly, the TUAC is releasing a full assessment of the 15 action points of the BEPS Action Plan as well as a background paper looking specifically at the new country-by-country reporting framework (BEPS measure n°13). In addition, the TUAC list of “tax jurisdiction at risk” has been updated.

For each of the 15 deliverables of the BEPS package, the TUAC assessment paper offers a brief description of each deliverable, including its nature (analytical report, non-binding recommendation, or binding minimum standard), the “pros and cons” and an evaluation of how relevant the deliverable is for trade union priorities.

The assessment looks as to whether the final deliverables met the initial expectations and ambition set out in 2013 by G20 governments. Compared to the status quo ante, the BEPS package brings significant improvements to the system of tax rules, and can rightly be considered a historic achievement from an international regulatory perspective. However, the standards for such praise are set rather low, given that international tax rules have been left essentially unchanged for almost a century. It remains to be seen whether and to what degree the final outcome will lead to effective outcomes towards preventing corporate tax avoidance.

The TUAC assessment identifies four shortcomings:

• Failure to account for the unitary dimension of global businesses in dealing with intra-group transactions (transfer pricing);
• Tax competition between countries is still seen as a virtue;
• Increased complexity of tax rules is not taken into account sufficiently; and
• Overly strict adherence to business confidentiality.

The TUAC assessment also highlights the BEPS deliverables that are particularly relevant to trade union action:

• The Revision of the binding OECD Transfer Pricing Guidelines (BEPS Actions 8-10): intra-group transfer mispricing is the form of aggressive tax planning practice that trade unions should be most concerned about. It affects the distribution of profits within a multinational enterprise (MNE) and therefore has an impact on worker remuneration and on the collective bargaining process.
• The new country-by-country reporting framework (BEPS Action 13): the information contained in country-by-country reports and associated transfer pricing documentations will help tax authorities to obtain a full and comprehensive picture of where the sources of profits and assets are located within MNEs. Under the agreed terms of the BEPS package, the reporting framework remains confidential. Trade unions should therefore strive to obtain access to these reports at national, international and at company-levels.

Trade union relevance does not end with transfer pricing and reporting issues. The TUAC Assessment identifies additional BEPS deliverables relevant to trade unions, including:

• Recommendations on the tax treatment of debt interest deductibility (Action 4): excessive deduction of interest from the corporate income tax base is another classic tax planning business practice that affects the distribution of profits within an MNE group;
• New binding rules to prevent “harmful tax practices” (Action 5) whereby governments offeropaque preferential tax regimes (such as “patent boxes”) to attract foreign investors’ intangibles assets as exposed by the Luxleaks scandal;
• The conclusions of the report on the tax challenges of the digital economy (action 1); and
• the 6 indicators for measuring and monitoring the cost of BEPS practices (Action 11).

In addition to the assessment of the BEPS package, the TUAC is also releasing a specific paper arguing for public country-by-country reporting, and weighing the BEPS action 13 deliverable against existing country-by-country reporting requirements.

Finally, the “trade union package” offers an updated version of the TUAC list of tax jurisdictions at risk, drawn from three rating systems: the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes, the Tax Justice Network (TJN) “Financial Secrecy Index” and the EU lists of tax havens.