Though some of the issues raised by the OECD's base erosion and profit-shifting project lend themselves to multilateral solutions, Robert Stack, U.S. Treasury deputy assistant secretary (international tax affairs), said that others may be best left unresolved.
Speaking at an International Fiscal Association U.S. Branch D.C. Region meeting in Washington June 17, Stack said that BEPS makes sense for addressing arbitrage opportunities such as hybrid mismatches, interest expenses, treaty abuse, and intangibles. He noted that one area the U.S. considered ripe for BEPS action is improvements to controlled foreign corporation rules to prevent earnings stripping.
"What we are thinking about more day-to-day is that there are other areas where the multinational aspect of the agreement seems less obvious, and those are areas where it doesn't appear that everyone in the room has some skin in the game or something to give and to trade," Stack said.
On issues such as the digital economy, Stack said he is questioning whether there is a multilateral agreement that can be made. He said that the concept of virtual permanent establishment creates "winners and losers," with the United States often coming up as a loser in terms of its tax base.
According to Stack, there is a theory among BEPS project participants that 2015 will be a year in which the OECD will engage in "horse-trading" on the issues that have been deferred from the 2014 deliverables. "It's not clear to me how that would play out," Stack said.
Stack added that he is unsure that negotiation is the likely or appropriate outcome because it could result in vague language.
Stack expressed skepticism at the view that the failure of BEPS would necessarily lead to international tax chaos. He noted that he was speaking the same week that the Indian government released a report by the Tax Administration Reform Commission that warned about the effect of unresolved tax cases on foreign direct investment. Stack said that a world in which tax administrators seek bilateral solutions to tax issues would be preferable to one in which the BEPS project produces vague principles.
"At the end of the day the question of whether no deal is better than a deal that isn't ideal really comes down to weighing this risk that there will be chaos or that there really will be bad results," Stack said. "I'm not 100 percent sure that that tail should wag the dog in a way that causes us to reach unprincipled decisions. Particularly, unprincipled decisions that could be used in unprincipled ways."
Stack said there is some discussion at the G-20 about an ongoing monitoring process for BEPS beyond the 2015 deliverables dates.
"We are, at the moment, not willing to commit to that," Stack said. He explained that the U.S. is waiting to see how the BEPS process concludes before determining whether it should continue.
Stack also said that in the near-term the U.S. is not prepared to commit resources toward the multilateral instrument proposed in action 15, which he characterized as an idea for which the process and the substance are "not well-defined."
"I have been dubious all along about whether or not a multilateral BEPS treaty is doable," Stack said.
He noted that the U.S. often spends two years negotiating a bilateral treaty for which it already has a model.
Asked about the EU investigation into state aid by Ireland, Luxembourg, and the Netherlands, Stack said that the investigation is a legitimate inquiry. He contrasted the EU investigation with the efforts of some countries in audits that target U.S. companies and seek global data.