This document originally appeared in the June 4, 2013 edition of Tax Notes Today.
by Kristen A. Parillo
The days of double nontaxation for multinational companies are over, according to Robert Stack, Treasury deputy assistant secretary (international tax affairs).
Speaking June 3 at the 2013 OECD International Tax Conference in Washington, Stack offered a rebuttal to impressions recently conveyed to him from an "unnamed tax reporter" that the Treasury Department does not appear to be taking the OECD base erosion and profit shifting (BEPS) project seriously and will defend the status quo.
Stack said the conversation "disheartened" him because both he and Treasury support the BEPS project. "This person suggested that what I really ought to tell multinationals is that the days in which they pay tax neither in the source country nor in the residence country are coming to an end, and the days in which they park profits in some haven somewhere along with that are coming to an end," Stack continued. "Let's consider that point made. And that is what we've said when people come to see us at Treasury because I really believe that's true."
Stack said that addressing the BEPS problem will be especially difficult because there are two challenges involved: tackling the technical nature of the six pressure points identified as the sources of BEPS as well as the political overtones that multinational taxation has attracted. "The political overlay makes it particularly challenging, especially when a lot of well-known U.S. companies become the global poster child" of BEPS, he said.
Stack said he has high hopes that the OECD's efforts on BEPS will continue the organization's long-standing history of producing high-quality work on technically difficult issues. "We need to maintain the integrity of that work as we work together over the next couple of years and, frankly, avoid the pressure to have less-than-solid policy outcomes dictated by the momentary buzz of the day or the latest press story," he said.
It's critical that policymakers involved in the BEPS project "engage in this debate thinking technically and don't recklessly throw around words like 'the transfer pricing rules are broken,'" Stack said. Ignoring the technical issues at stake will result in an international tax system in which there is no clarity or predictability for companies and tax authorities, he said.
Stack said that from the U.S. standpoint, the BEPS project is about addressing the stripping of income from higher-tax jurisdictions into low- or no-tax jurisdictions. "That's a really important point because it's not a project that is about a fundamental reexamination of residence and source country taxation," he said. "That debate can happen at another place and another time."
"We're asking ourselves, 'What are the remedies to situations in which income is stripped from a high-tax to a low- or no-tax jurisdiction,'" Stack said. "We have to keep going back to that particular notion because it's going to reverberate through virtually all of the issues that are going to be discussed in the BEPS project."
Another point that policymakers must keep in mind, Stack said, is that the BEPS project is not just about the actions of multinational companies but also the actions of governments -- that is, how their own tax rules, some of which have been developed to increase competitiveness and attract investment, have contributed to the very issues that are being addressed in the BEPS project.
"That's another political overlay to the process, but it does suggest, 'Let's go through BEPS and fix the rules that companies live by so that they're administrable and understandable, and we can have audits based on real rules and competent authority based on rules that people understand,'" Stack explained. "But it also says, 'Let us countries that are in this process step back and look in the mirror ourselves.' From the U.S. point of view, you don't need to be a rocket scientist to acknowledge that our check-the-box rules have at a minimum weakened the effect of our [controlled foreign corporation] rules."
Through the BEPS project, Stack said, governments will "need to look in the mirror and ask themselves, 'Gee, how do our rules permit stripping out of developing countries and into tax havens and the like,' and then I think we're on at least an equal moral footing with companies looking at their behavior and countries looking at their own behavior."
Speaking on the same panel, Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, gave an update on the status of the BEPS action plan that the OECD is developing. The Committee on Fiscal Affairs is reviewing a draft plan for a second round of comments and will put it to a vote at its meeting at the end of June.
The OECD will release the approved action plan sometime in July before the G-20 finance ministers hold their July 19-20 meeting in Moscow. The Russians, who currently hold presidency of the G-20, expect to put the action plan on the agenda at the G-20 heads of state summit on September 5 and 6 in St. Petersburg.
Saint-Amans said he wanted to assure the business community that once the action plan is adopted, the OECD will seek its input on implementation of the plan. The OECD will hold a meeting with the business community at the end of September to engage in a policy discussion on the plan's direction and how to prepare for the next 18 months to two years of the plan's implementation.