Why it is crucial the OECD’s work on dispute resolution succeeds in the eyes of business
The chairman of BIAC’s tax committee, Will Morris, made an address to the OECD’s consultation on dispute resolution last week and said success on the dispute resolution action item is crucial to the overall success of the BEPS project as a whole.
His comments to the OECD are as follows:
The concerns that we have raised before about the risks of double taxation, discouraging cross-border trade and investment remain crucial and, it should be said, these are equally important for countries themselves, which are anxious for foreign investment and the on-going success of their businesses.
But I think there is also a different, and perhaps a more basic reason, why this action item must succeed in the eyes of business.
The BEPS outcomes will likely raise taxes on many businesses, and impose significant new reporting and compliance burdens on most. That is understood.
However, if the process also gives rise to a significant increase in cases of double taxation, the BEPS plan may fail for the simple reason that, if businesses do not feel they are being treated fairly, they will seek new ways to mitigate that double taxation.
Put slightly differently; however many “hard law” aspects of BEPS are enacted, if the trust between businesses and governments (which is at the heart of “cooperative compliance”) breaks down, then we could find ourselves back in the adversarial situation that cooperative compliance sought to end. And, I hope we all agree, that would be to the substantial disadvantage of both sets of parties.
Businesses will only be able to fully agree with the project’s conclusions if they feel the new rules – which aim to significantly increase the burden on taxpayers – are balanced with an effective guarantee that their profits will not be caught up in costly, lengthy, and potentially unresolvable disputes between states.
Moving to specific issues, our comments were relatively brief – although we do support the more detailed comments that many of our members have sent in, as well as ICC’s ongoing work in the arbitration area.
I did, nevertheless, want to pick out one or two particularly important points from our comments:
As this is primarily an issue of tax administration, and because tax authorities have the greater interest in maintaining cooperative compliance models, we believe that the FTA and, in particular, the MAP Forum, should be central, rather than parallel to this process. The FTA can make a real difference here.
A “political commitment” is not enough. There have to be robust mechanisms and processes actually brought into effect as a direct outcome of the BEPS process.
Binding arbitration is a critical part of any solution. We understand some countries have genuine concerns, but that is not a reason for binding arbitration not to be the general standard for countries that are fully committed to avoiding double taxation.
The MAP process must be properly resourced and suitably positioned in the structure of a tax authority.
We have also surveyed our members on their actual experiences with MAP in their countries and the practical issues which arise, and the survey results are attached to our comments.
Before closing, I would like to say two things to my business colleagues:
First, thanks so much to all of you for all of the hard and good work you have put into drafting the comments on numerous papers. Many of you really have put heart and soul into this.
Second, let me also say that however strongly you feel about this topic – and I know many of you, rightly, feel very strongly – please let’s keep the tone constructive and respectful.
We can and should be robust, but we should never forget that the government representatives are themselves under enormous pressure in the BEPS project, and that we all have a common, ultimate aim – government, business, and civil society – namely, a better, more effective, more stable international tax system that encourages growth in cross-border trade and investment for the common good.
