| Abstract: |
The Base Erosion and Profit Shifting (BEPS) Project of the Organisation for
Economic Co-operation and Development (OECD) and the G20 aims to reduce
harmful tax avoidance and evasion by multinational enterprises (MNEs), which
creates large losses in governments' revenues. In times of multiple crises,
many governments urgently seek additional revenue sources to finance public
expenditures for sustainable development. In particular, many low- and
lower-middle-income countries have tax-to-GDP ratios of less than 15 per cent,
which is insufficient to provide basic public goods such as health, education
and infrastructure for their populations. This policy brief evaluates the
achievements and remaining challenges of the BEPS Project to mobilise more
domestic revenues, in particular in low- and middle-income countries (LMICs).
After the financial crisis of 2009, the G20 mandated the OECD with the design
and implementation of the BEPS Project. The goal was to identify and tackle
the most pressing issues that led to the erosion of corporate tax bases in
their member countries. A key issue is the phenomenon that MNEs avoid large
amounts of tax by shifting their profits from affiliates in high-tax countries
to affiliates in low-tax countries. In 2013, the OECD presented its 15-point
agenda to tackle BEPS in OECD member states. However, global tax avoidance and
profit shifting can only be effectively addressed if a large number of
countries is on board. Thus, in 2016, the Project opened for non-OECD/G20
countries to join the Inclusive Framework on BEPS and the implementation
process of the BEPS Action Plan. However, tax administrations of many LMICs
complain about the highly complex rules designed under the BEPS Action Plan
that are not adapted to their context-specific capacities and needs. Today,
the Inclusive Framework on BEPS has 145 member countries, and the
implementation of the BEPS Action Plan is almost finished. Preliminary
academic evidence shows that the overall impact of the BEPS Project in
reducing global tax avoidance and profit shifting is indeed limited. According
to recent estimates, tax revenue losses due to profit shifting even increased
from 9 to 10 per cent in the first years when anti-BEPS measures were
implemented (see Wier & Zucman, 2022). Since there is no counterfactual world
in which the BEPS Project did not take place, we can only assume that tax
avoidance would have increased even more in the absence of the Project.
However, the BEPS Project is still considered the biggest overhaul of global
tax rules since the last century. Positive achievements include increased
awareness of MNEs' profit shifting behaviour, as well as the agreement on a
global minimum tax. To tackle BEPS challenges more successfully - globally and
in particular in LMICs - international tax cooperation needs to become more
effective in three dimensions: Inclusive decision-making process: Countries
should show more political will to combat tax avoidance and stop blocking more
comprehensive international tax reforms. Truly inclusive cooperation between
OECD and non-OECD countries is needed. Mandatory implementation: Many BEPS
Actions were voluntary standards and, thus, not many countries introduced them
into their domestic tax laws. To fight BEPS effectively, more mandatory tax
rules need to be included in future reform packages. Simplified rules: Several
BEPS Actions were watered down and became highly complex because individual
countries bargained for carve-outs. Future international tax rules need to be
more ambitious and simplified in this regard. Bilateral and multilateral
development cooperation agencies should provide low-income countries with
capacity building and assistance in implementing tax rules. |