After the
subprime crisis (2008), the G-20 and the OECD prompted in 2013 an action plan
to address abusive tax planning practices which cause countries base erosion
and profit shifting (BEPS). They designed an international strategy against
both aggressive and abusive international tax planning -which in my opinion are
not the same- and decided to fight them with 15 actions.
Although these actions had obvious anti tax
avoidance foundations -sustained in International Tax Law principles and fiscal
international jurisprudence-, they clearly had also a moral and subjective
approach.
Many of
the tax planning strategies performed by multinational companies (MNCs) and
exposed in BEPS project were completely legal (in the strict sense of law
compliance or non violation of laws, of course) and even, in some cases,
demonstrate potentially and creditable economic substance (assuming that a
judicial process had begun) but still they were considered undesirable and
harmful. Worse still, they were considered as immoral -rather than illegal-
and, therefore, MNC´s become the enemies of the international tax system.
When this
"iusnaturalist" approach begun? When the legal foundations and, more
important, the constitutional basis of the contemporary Tax Law were changed?
When the tax legality principle[1]
was forgotten? Well, clearly current international fiscal system is not more a
question of tax legality but of tax morality. In that sense, BEPS plan will
have a direct impact on taxpayer’s freedom to plan their taxes and procure tax
savings with basis on tax law (Even with economic substance?).
Therefore,
BEPS plan transcends the legal scope and impels the debate on tax morality. I
believe that there cannot be tax justice or tax fairness, without legal and
constitutional security of the tax system, which means a minimum of guarantees
for taxpayers and it seems that BEPS plan lacks of such quality.
Stop and think: This is the only problem of BEPS
plan? Honestly, no. BEPS has not only structural but functional defects.
Realize
that BEPS project is currently in an implementation stage, so it's kind of late
for attacking it´s conception. Let's talk about the application of BEPS
recommendations to tax and corporate reality.
Though it
could seem that we are against BEPS Actions, it is not. In fact, the purposes
or BEPS are really commendable. Remember that the scope of the OECD's BEPS
project is to address profit shifting and base erosion by recommending actions
which pursue three key objectives: (i) Giving coherence to the international
tax system; (ii) Linking substance and value creation with tax rules and fiscal
benefits, granting symmetry; and (iii) Strengthening transparency and exchange
of tax and non-tax relevant information. Undoubtedly, these are serious and
positive objectives, but they need more than BEPS for a complete compliance.
The main
problem is the approach, not the goals of BEPS project. Although it declare
objectives, it seems that tax symmetry and fairness where forgot (can it be
possible?), when realizing that there are two subjects in the tax relationship
(tax creditors and taxpayers), but actions were designed almost exclusively for
tax administrations and lawmakers, not for companies or individuals. Taxpayers,
even if they are MNC's, have a constitutional right to design and conduct their
business aiming a tax efficiency and savings horizon. Remember that tax morale,
if this is the new scenario of the discussion, is not a question of one, but
two parties, as Tipke said in his “State and taxpayer morality”.
Also note
that the 15 actions are "soft law" recommendations which may or not
be adopted by involved countries that are in fact sovereign states and because
of this they have a self-determining power to tax according to their particular
interests. Thus, is easy to identify a main defect in BEPS project: The success
of the OECD plan relies on international cooperation and the effective
participation and volition of all countries to adopt BEPS soft law actions.
Clearly, individual and uncoordinated measures (as the UK Diverted Profit Tax
or Google tax, for instance)[2]
will have a negative impact in the coherence of the international fiscal system
which is a fundamental objective of the BEPS approach.
Therefore, the BEPS plan has both structural and
functional issues that must be taken into account when measuring the success of
actions in curbing BEPS practices.
It seems
that the first part of the job must have been the signing of a multilateral
instrument which linked and obligates all OECD member countries (and also not
member states with deep interest in getting involved) to implement legislative
measures for adopting BEPS actions only after final reports were launched
(instead of enforcing uncoordinated tax reforms) and then, design their laws in
a harmonic and cooperative way. Ironically the only action with similar
design is the last of the project.
From one
side, the holistic approach in which BEPS plan was built up, impact against
political and legal logic of sovereign States. Moreover, the lack of objective
elements -completely cleared of unilateral moral arguments- weakens the BEPS
plan.
Certainly
it is necessary to provide justice and tax fairness to the "international
tax system", but it seems foolish to do so by a patch-up approach which
intended only to adapt a system -with nearly 100 years old- to a reality for
which it was not conceived.
Undoubtedly
the BEPS plan is the biggest international effort to combat abusive tax
planning without substance, but it is regrettable that the OECD have not
suggested other alternative measures (B plan), and we are not thinking
necessarily on theoretical approaches as the “unitary taxation model” or a
territorial system based on source taxation.
The
problem lacks in the variety of solution proposals: as a restaurant menu for countries,
all options available are suitable for any client and, as we know, some
countries will have more sophisticated, simply or rare elections than the
others. Fiscal and economic interests in the middle are so strong and important
for each State, that it´s difficult to think in international coherence and
harmonization with different tax lawmakers, constitutional rules, legal
procedures, economic scenarios and levels of institutionalization.
Clearly, the US will not need to implement the same
measures that Chile or Brazil, not even Germany or The Netherlands.
In this
regard, tax planning practices implemented by the MNCs -even harmful, abusive
or aggressive ones- will continue to be conducted because the BEPS plan has not
the foundations to prevent that an “ad hoc approach” may apply instead of a
“holistic approach”; this is, a complete and integrated review and
restructuring of the fiscal international system. While it does not happen,
there will always be disagreement between tax systems, lack of coherence and
potential opportunities for abusive tax planning structures, despite the
absolutely harmful and unwanted effects of BEPS for tax fairness, equality and
international economic growth.
The game
has begun for tax planners. The international tax rules have changed,
especially regarding fiscal transparency – Country By Country Report - CbCR,
for instance- but this is not the end of the tax planning era, but rather its
evolution towards more complex scenarios.
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