In July OECD released its BEPS Report outlining broad principles of change in taxation policies to fight base erosion and profit shifting. Last month at the IFA Congress, Pascal Saint-Amans, Director - Centre for Tax Policy and Administration, OECD spoke to Arun Giri, Editor, taxsutra.com and Mukesh Butani, Managing Partner, BMR Legal & Permanent Scientific Member, IFA on the road ahead for anti-BEPS measures. Here is the transcript of that interview.
Arun Giri: BEPS is all over the Finance world, tax world and the IFA Copenhagen Congress. Our first question to you, Mr Amans is that you have a mandate this time and its a political mandate to get technical solutions to complex international tax issues.
Pascal Saint-Amans: Absolutely. It is clear that Base Erosion and Profit Shifting (BEPS ) has become a political issue and we have a political mandate from the G20, Finance Ministers, they met in July in Moscow, they told us you need to implement this action plan you need to deliver in the next 18 months to 2 years, and next week there will be a summit in St. Petersburg and it’s likely that the leaders of G20 will re-enforce that mandate, asking the OECD which is working with G20 non-OECD countries, to implement the action plan.
Mukesh Butani: Pascal, you made an important statement yesterday that the concern of 8 non-OECD countries (who were in the G20 BEPS initiative) is also arising from economic double non-taxation. But you also said that you would avoid economic double taxation. Many multi-nationals find themselves under aggressive audits, virtually subjecting them to economic double taxation due to efficacy of the Mutual Agreement Procedure (MAP) for resolving disputes. You see BEPS now casting an additional obligation on multi-nationals or are you still going to pursue with the agenda for avoiding economic double non-taxation by strengthening the MAP process?
Pascal Saint-Amans: Absolutely, What is clear is that our mandate is, at the OECD, and broadly in this context, is about eliminating double taxation. So what we start with is we make sure that cross-border investments do not pay taxes in two places. They should pay taxes only in one place. If they pay in two places, their country of residence should credit the taxes levied at source. So that's the first principle. But, given that, we have developed instruments which now result in double non-taxation. Meaning that you can shift the profits in jurisdictions where it's not taxed and you strip the profit out of the source country and you don't pay anything at the residence country. A country like India, obviously, is very much willing to put an end to double non-taxation because it's the source country and you need the income for the development of the country. It is true that India is often perceived as being aggressive and as resulting in double taxation. However, and that’s the work we will be doing, we need to find a balance putting an end to sources of double non-taxation to be better able to have consensus on the rules, the principles, which will ensure the elimination of double taxation. So we cannot afford having double non-taxation. Otherwise you'll have countries walking away. You have India saying that these principles are not good because I (India ) cannot collect anything and nobody taxes it.
Mukesh Butani: India's concern on double non-taxation really arises from specified treaties. The larger concern of multi-nationals (in India) is timely resolution of disputes. Secondly, due to tax activism that we are recently seeing select countries, tax administrators have the tendency to paint everyone with the same brush and everyone is considered as indulging in double non-taxation. Tax rates in India are comparable (with tax rates of treaty partners) so there is little incentive for anyone to shift profits or make use of any tax arbitrage. How do you think India will benefit from BEPS participation?
Pascal Saint-Amans: And on that front, we are fully aware of some of the problems that the businesses in many countries (face), not just in India, but also in OECD countries. And that’s why one of the actions is about mutual agreement procedure. How can we improve mutual agreement procedure? If we come to the point where we eliminate double taxation, we ensure that there is no double non-taxation.. then we need to have a good efficient mechanism to solve disputes when they occur, and arbitration might be a solution for that, and then the governments will feel more confident that the profit doesn’t shift. India should feel so as well and maybe they will be more confident and therefore, more able to implement more efficiently the mutual agreement procedures. So that’s what we are doing with all OECD countries, with all non-OECD G20 countries. We have India, China, Argentina, Brazil, South Africa, Saudi Arabia has joined, Russia is joining, and we are waiting for Indonesia to join.
Mukesh Butani: You are making an interesting point on arbitration. I don’t know many non-OECD countries who are in the G20 combination who they have mandatory arbitration in their tax treaties. But India does not. India’s treaty policy is clear. India does not want to embrace mandatory arbitration because it feels it will otherwise be abdicating its judicial authority to an arbitrator. What’s your view on that?
Pascal Saint-Amans: Well that’s, not specific to India, many countries are like that. In Europe you have a convention on arbitration which is poorly implemented. The US has started with Canada, and i think, now its into force. But you can see that all countries, because they are sovereigns from a tax perspective, are more than reluctant to get engaged in mandatory arbitration. That’s why, if we want them to get there, and I think that is the right direction, we need to give them comfort that the current system is not a one way street where businesses enjoy double non-taxation and that’s it. So if we restore the balance, may be the points of view of different countries will change.
Arun Giri: On some specific issues, like permanent establishment, digital economy, some panelists felt that the OECD should probably take the path of examining whether tweaking the existing rules are enough instead of coming out with wholesale new instruments. Whereas, you are taking a radical approach. So would you agree to tweaking some of the rules relating to PE or digital economy.
Pascal Saint-Amans: In the BEPS action plan, we have an action on digital economy to understand what’s at stake, how it works, and what are the new issues which will be challenges for tax administrations and tax payers for next 20 years. So we’ll be working on that. We also know that we have a number of deficiencies on transfer pricing, on Permanent establishment, and also new areas where we need to bridge the gaps between tax sovereignties – interest deductibility, CFC legislations and arbitrage that needs to be addressed. So all this is the framework of the action plan and within the action plan we will be dealing with the elimination of double non-taxation, when deficiencies result in taxation nowhere. In addition to that, at some point, there will be another debate..I am not sure that there will be any kind of consensus, which is the balance between the source and residence on the permanent establishment, on transfer pricing and other provisions in tax treaties. I think OECD will be the place where the debate will take place because that’s now the place which tends to be global, that’s what we want to do, because we need to have all the countries’ views reflected in the discussion and i am very much pushing for that, as you know, we have created the Global Transparency Forum and Exchange of Information to have 120 countries on an equal footing. Now with the BEPS project we have 40 countries on an equal footing. So we’ll have that debate. But, there are two debates. One is - double non-taxation is not acceptable by anyone and we need to solve it and we’ll do that in the next two years. And then you have another question which is - what’s the balance between source and residence, which ultimately is to be solved bilaterally by the countries. But, we can, clearly help this debate, frame this debate and see where the world is moving in the next years.
Arun Giri: On transfer pricing, you heard industry seeking simpler rules. How are you going to make How are you planning to make TP documentation rules simpler? One of your ambitious action plan is to have a common TP documentation across jurisdictions.
Pascal Saint-Amans: The answer is simple - Country by Country reporting. This is what this is about. Give the broad picture instead of tons of documents which are costly for both the business and the governments and not that helpful. Where is your profit? Where is your tax? And then the tax administrators will be able to do the risk assessment. So, this is what we will be doing. There’s an action on that.
Mukesh Butani: I have a questions on borderless digital transactions’ taxability. We heard the US views on source and residence. India wants to follow strict source based taxation. My fear is that, this fight between residence and source based taxation which will again resurface in the BEPS discussion and could result in economic double taxation
Pascal Saint-Amans: The answer is yes, you have risks when countries are on the table to come to terms. And that’s why we are here to say why they are not able to come to terms. And some countries, the source countries, who are currently saying that the rules don’t work, so we walk away from the rules. That’s why we are doing the BEPS project so that they don’t walk away from the consensus. So that they agree that there are common principles that you need to respect. If a country doesn’t respect the common principles, it does harm to itself in mid or long term. And this is in all countries, including in India. If you don’t behave according to the rules which are commonly agreed then you face the risk that the investors will walk away in spite of all the interest of being in the growing economy when growth is there. Getting the consensus is difficult, because the interests are not aligned but that’s the hard job that we are trying to do.
Mukesh Butani: 15 action points on BEPS agenda. Many people feel that you are trying to bite more than you can chew. Is there an element of prioritization as to what you’ll be focusing on? Or do you think, in a defined time frame, you’ll be able to come out with clarity on all 15 items?
Pascal Saint-Amans: We have 15 actions, which are all priorities. It’s not a random list. It’s a consistent action plan. Its a comprehensive action plan. We need to achieve them all.. otherwise we have not addressed the problem. And I insist on this comprehensiveness of the action plan. Now, we have different deadlines, one year, 18 months, 2 years. So, these are the priorities if you want. But, actually its not really based on priority but on our ability to deliver. We have a political mandate, now it’s time to implement. The technicians know where they must be. So, they shouldn’t be stopped by technical hurdles. And we’ll do it.
Mukesh Butani: I mean lot of burden on your shoulders, wish you luck and are able to achieve all action points and no one walks away from the negotiation table.
Arun Giri: Multilateral instrument, Philip Baker (renowned tax expert & Queen’s Counsel), expressed skepticism.. How are you going to implement BEPS action plan if we have to amend 3000 treaties ? Is multilateral agreement between all countries possible?
Pascal Saint-Amans: It’s one of the actions. It’s not the only answer. The very fact that we have this report, that we have a sense of direction, I think is having an impact on businesses and also on governments. Making some more comfortable on the sense of direction, making some others aware that they need to change. So we already have an impact. And the multilateral convention, will definitely, or should definitely, be an instrument to have a fast implementation of the instruments that we’ll come up with… Changes in the model convention, changes in the commentary. It’s awfully difficult, but if you don’t try, you’ll never get it.
Arun Giri: Is the United States on board? There are press reports that US is not happy with some action points.
Pascal Saint-Amans: That’s just wrong. All the actions, I mean this action plan is consensus document. Meaning that all the countries, including the G20 non-OECD countries, have agreed to it. So, they agree in what is in the action plan. So don’t listen to people who just don’t understand what consensus means. Nobody has objected this. It’s agreed by everybody. Would it be easy to move there? No. Are there technical questions? Yes. Are there possible differences? Yes. But again, the sense of direction is agreed. And next week it will be agreed by the presidents and Prime ministers of all these 40 plus countries. So everybody agrees on that and there is a mandate.
Arun Giri: When do we see you in India?
Pascal Saint-Amans: I’m coming in October.
Courtesy: taxsutra.com 
