Tax Analysts Blog

Can the United States Kill BEPS?

Posted on Jun 15, 2015

The United States is through trying to needle the OECD's base erosion and profit-shifting project with pinpricks. Last week, Robert Stack, U.S. Treasury deputy assistant secretary (international tax affairs), abandoned the subtle digs Treasury had been using to attack BEPS and flat-out said the United States is extremely disappointed in the OECD's work. He went on to say that BEPS seemed to be motivated by politics and a drive for revenue, and not necessarily by a desire for a better international tax system.

So what does this mean? While it means the United States is horrified by possible changes to the definition of permanent establishment, it doesn't mean it is pulling out of BEPS participation. Just after Stack spoke, other Treasury officials talked about how the government could implement country-by-country reporting and other action items using regulatory authority (something Congress's top two taxwriters questioned. In fact, one Treasury representative said that the United States might actually require country-by-country reporting even earlier than required. These don't seem the actions of a nation that is planning to just take its ball and go home -- at least not yet, anyway.

But Stack's strong condemnation of the BEPS work, along with the diverted profits taxes in place or being planned in the United Kingdom and Australia, is a disturbing development for the OECD. For BEPS to succeed (or to have total success?), it must have buy-in from the United States. And that support can’t be lukewarm. It will take serious political muscle to get BEPS-related legislation through a hostile Republican Congress or to push administrative guidance in the face of opposition from the Senate Finance and House Ways and Means committees. Stack's extreme disappointment doesn't seem like the words of someone whose boss is ready to fight hard for the OECD's agenda.

Even if the United States decides BEPS is nothing more than a thinly veiled attack on its multinationals, it isn't all that clear there's much it can do. It's true that the United States has never reserved on a model treaty article, but would it matter all that much if it did? Would that really stop Europe from finding a way to prevent multinationals from shifting profits into low-tax jurisdictions? The diverted profits tax is just one example of a fed-up European government taking matters into its own hands to fight base erosion. Germany, France, and other source countries aren't likely to just drop this issue because the United States doesn't like the direction. They want the revenue, and their taxpayers are disgusted by the constant stories of multinational companies paying low (and even nonexistent) taxes.

Stack wondered aloud what would satisfy the countries pushing BEPS, listing higher effective rates, more revenues, or less political pressure as possible goals. The reality is that Europe wants all three, while the United States is fairly indifferent (and outright opposed to its companies paying higher taxes to foreign countries). The United States will probably never go along with BEPS the way the rest of the world has gone along with FATCA, but in the end that probably won't matter. The EU, India, and China will be perfectly happy to find a way to preserve their tax base without U.S. help.

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