BEPS and the Politics of Tax Power

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– Guest post by Erika Dayle Siu

As the G20 Leaders meet this weekend in Brisbane, Australia, the OECD is set to deliver the first part of the BEPS Action Plan, already endorsed by the G20 Finance Ministers in September. BEPS — short for ‘base erosion and profit shifting’ — is the negative effect of tax avoidance by multinational corporations on a country’s ability to fund education, healthcare and other public goods. The problem is especially acute in low-income countries that depend largely on tax revenues from multinationals doing business within their borders. However, because the international tax rules have been fashioned by the home countries of the biggest multinationals, the deck is stacked against developing countries and the profits shift out through loopholes in the tax system.

But as many have observed, BEPS was never really about securing more development revenues for the “little guys.” BEPS began as an argument between Europe and the US over the lack of tax revenues from Apple, Google, Starbucks and the like and the OECD stepped in to forge a compromise. There’s a bit of a wrinkle, though—four big wrinkles in fact: Brazil, China, India and South Africa. Thus far, the UN Tax Committee has been the tolerated platform for the BRICS to campaign for a bigger slice of the tax pie, but since the G20 is involved in BEPS, the traditional OECD fixes have been called into question. For years, the OECD countries have opposed the G77 and China’s demands to upgrade the UN Tax Committee from a group of experts serving in their personal capacity to governmental representatives. But now as the G20/OECD BEPS forges ahead, calls for upgrading the UN Committee have only strengthened.

In September, the G20 Finance Ministers acknowledged another wrinkle—the non-G20, non-OECD countries that actually have the most skin in the game. At the recent October meetings of the IMF and the World Bank, Finance Ministers from some low-income African countries lamented their lack of decision-making power in global tax discussions and demanded their fair share of tax revenues. As a result, after the BEPS ship had set its course with sails aloft, the G20 Finance Ministers called for more inclusion through “a new structured dialogue process, with clear avenues for developing countries to work together and directly input into the process.”

The OECD has now invited a dozen low-income countries to participate in the BEPS process, though not with full legal authority, because that would involve a legal process too lengthy for the expedited journey ahead. Donor appeals have been made to finance their participation and bring them up to speed on each of the pre-determined BEPS Action Points. In this setting, we are assured that their voice will be heard and that the BEPS solutions will incorporate developing country input.

Yet another wrinkly question looms large: “Whose problems and solutions are they?” Are not the BEPS Action points pre-existing OECD work plans? Shouldn’t more fundamental issues—like a more equitable source-residence tax split and a unitary entity principle that merges all the affiliates of a corporate group—be discussed before prescribing ‘capacity building’ remedies to symptoms of a fatal deficiency? The little wrinkles, added together, are a big gaping hole that can only be filled by a globally representative institution. Capacity building alone cannot patch it up. The G20 alone cannot patch it up. Only full representation in the political process can create a tax system that works for the global economy.

Although the BEPS process began with a “big boy” squabble, it has opened up a much greater fissure, at a critical time when global leaders are also negotiating financing for the post-2015 development agenda. After the failure to achieve the Millennium Development Goals, largely through the inability to pay the tab, the consensus is growing that protecting a country’s power to tax profits earned within its borders is essential in funding sustainable development—and this cannot be achieved merely through capacity building to reinforce the OECD tax playbook. The rules and the institutions need to change and the biggest pressure for reform is coming from the margins.

Women are familiar with the margins. As professionals, women understand that merging family and work commitments in a system designed by men means we incur the associated opportunity costs. As the leading purchasers of household consumer goods, women know that we bear a disproportionate tax burden in regressive tax systems. As the predominant providers of unpaid care, women also understand what it’s like for our work to go unaccounted for in the tax system.

To pay in, but not to get anything back.

And we know what it’s like to hear, generation after generation, that there just aren’t accepted principles to account for our experience or ideas.

And we know what it’s like to hear that we should restrain our objections because dissension might prevent incremental reforms from taking place.

And we certainly know what it’s like to have our demands sidelined and tabled for future processes.

However, we also know when to say, Enough is enough.

We need institutions that represent us all on equal footing in all matters. But most importantly in tax matters. Taxes fund institutions that level the playing field—in health, education, the environment, housing and infrastructure, and so many other facets of life. But we need proper rules to collect taxes equitably and not rules that reinforce inequality. Such rules can only emerge from fully representative institutions.

Copyright Erika Dayle Siu

Erika Dayle Siu is a Tax and Development Consultant, specializing in international tax and its impact on sustainable development. Erika has worked with the United Nations Development Programme, the International Centre for Taxation and Development, New Rules for Global Finance and other civil society organizations working for tax justice.