13/05/2015

The TUAC meeting on aggressive tax planning, held on 20 March 2015 at the OECD conference centre, aimed at a stock taking on the implementation of the OECD/ G20 Action Plan on Base Erosion and Profit Shifting (BEPS) and, beyond, what would remain to achieve to effectively curb cross-border tax avoidance by companies. In addition to a presentation by the OECD Secretariat during the morning session, the meeting included a number of country-specific presentations by trade union and NGO representatives. A full report of the meeting is attached as well as powerpoint presentations.

Video recordings

• Video playlist of the meeting
• Presentation by Christian Chavagneux (Alternatives Economiques)
• Comments by Sol Picciotto (BEPS Monitoring Group) 
• Presentation by Susana Ruiz (Oxfam) 
• Comments by Veronica Nilsson (ETUC) 
• Q & A session 

Key findings

• The two-year timetable of the BEPS Action Plan, to be completed by end-2015, is very ambitious, but the work remains on track and compares favourably with other G20 initiatives and its financial reform track in particular. Maintaining political momentum for tax reform is crucial. There are however a number of concerns with the design and implementation of the Action Plan.
• The lack of inclusiveness of the Action Plan is manifested by the limited voice of both non-OECD developing countries and of civil society. This stands in contrast with tax advisers and accounting firms who have been dominating the public consultation rounds. It is only half way in the implementation of the Action Plan that the OECD took the initiative to broaden the participation and to include a selected number of developing countries at the heart of the BEPS process.
• There is a serious risk that the outcome of the process will lead to more mess in the revised OECD Transfer Pricing Guidelines than there is today. The integrated business model of MNEs has become a major challenge for the OECD arm’s length principle upon which are founded the Transfer Pricing Guidelines. While a shift to a full formulary apportionment system is not feasible in the short term, on the longer term it would be a far more superior method in meeting the BEPS mandate to tax MNEs “where economic activities take place”. The OECD continues to oppose any move in that direction. However, the apportionment approach is making some inroads in the BEPS Plan (OECD draft proposals on debt interest payments and on central management services). The case for unitary taxation could also benefit from a renewed discussion at EU-level on a mandatory Common Consolidated Corporate Tax Base.
• The agreement on a country-by-country reporting framework is a major step forward. It will be a helpful tool for tax administrations. However the filing system does not provide sufficient guarantees of access for developing countries. More fundamentally, the fact that the agreement leaves no option for public disclosure to protect “business confidentiality” is a serious disappointment. There is nothing in the reporting template that can be considered as commercially sensitive.
• The Action Plan is concerned with tax rules and regulations that prevent abusive practices. It is not concerned with institutional aspects and the broader political economy tax planning, including the role of legal professionals in promoting tax avoidance and evasion under the veil of “tax compliance”. The Luxleaks scandal exposed not only the opacity of the system of rulings, but also the pivotal role of global accounting firms in setting up aggressive tax planning schemes. For the ETUC, the “big four” audit firms should be split up and steps should be taken to separate key functions such as auditing, taxation and consulting to avoid conflicts of interest.
• OECD governments’ commitment to curb aggressive tax planning contrasts with post-crisis budget austerity cuts that have hit tax administrations severely. In Belgium in the finance ministry, including tax administrations, job cuts reached -21% for 2006-2014 and are expected to amount to -15% for the next 4 years. Yet the “return on investment” of a Belgian tax administration employee is estimated at €2m per year. For the ETUC, member States should pool their financial means, personnel and competencies of their tax investigation departments. For EPSU, European government must stop job cuts and reinvest in tax administrations if any of the above is to be implemented effectively. At the meeting, it was proposed that governments establish ambitious yet realistic targets for reducing revenue losses due to tax planning and that a monitoring system, through reporting to parliaments, be created to ensure public accountability and to maintain the political momentum for reform.

Several trade union initiatives related to BEPS and tax evasion were reported at the meeting.

• In Australia, United Voice conducted research in partnership with the Tax Justice Network on the tax practices of the top 200 listed companies over the past ten years exposing the very low effective tax rate of companies. The report was made public end-2014 and triggered a public debate which led to the creation of a formal parliamentary enquiry into corporate tax planning, with public hearings in April 2015.
• In Europe, in the context of high profile tax scandals, the ETUC adopted a resolution in March 2015 among others calling for public country-by-country reporting requirements for all sectors - current EU regulation covers the banking sector and extracting industry. It also calls for limitation of provisions regarding trade secrets, full transparency over beneficial ownership of assets and funds and aligning transparency and reporting requirements of private funds and trusts with those of medium and large companies.
• Weeks before the meeting, the EPSU released a report jointly prepared with other trade union centres, exposing the tax evasion schemes set up for McDonald’s European operations. In 2008 the MNE transferred all its European licenses and intellectual property rights to a Luxembourg entity to benefit from a low tax “IP box” regime (5.8% reduced tax rate on royalties). With only 13 employees between 2009 and 2013, the entity made €3.7bn in revenues and paid €13m in taxes. According to the report, the schemes allowed McDonald’s to save over €1bn in tax in other European countries where it has significant economic presence.
• In the US, the AFL-CIO is campaigning to prevent corporate “inversions” overseas of US companies - US corporations re-incorporating abroad through a “merger” in order to effectively eliminate US taxation of overseas profits. Last year over 15% of all US M&As involved some form of corporate inversions. The AFL-CIO has in particular engaged with pension funds on the risks of inversions and of aggressive tax planning in general. The role of pension funds in holding companies to account for their tax practices was raised by other participants, including representatives from United Voice (Australia) and the Local Authority Pension Fund Forum (UK). It was noted that there still is a lot of caution and “conservatism” among institutional investors in getting involved in any tax considerations.