Political leaders from the G7 nations reconfirmed their commitment to the multilateral exchange of tax information, as well as their support for the OECD action plan to prevent the erosion of tax revenues through the organization’s Base Erosion and Profit Shifting (BEPS) initiative.
In a common declaration summarizing the results of the G7 summit in Germany earlier this month, the leaders of the seven largest industrial nations committed to finalizing concrete and feasible recommendations for the G20/OECD BEPS Action Plan by the end of this year. The communiqué endorsed the establishment of a targeted monitoring system by the G20 and the OECD to ensure the effective implementation of the plan.
Government leaders added that they “commit to strongly promoting” the automatic exchange of tax information. “We look forward to the rapid implementation of the new single global standard for automatic exchange of information by the end of 2017 or 2018, including by all financial centers subject to completing necessary legislative procedures,” the common statement said.
The declaration noted that G7 governments recognize the importance of beneficial ownership transparency for combating tax evasion, corruption and financial crime but only committed to providing updates on the already existing national action plans.
In a move that irked activist groups, G7 governments said they will further improve international tax cooperation through the establishment of a binding mandatory arbitration to ensure that the risk of double taxation does not act as a barrier to cross-border trade and investment.
“We support work done on binding arbitration as part of the BEPS project and we encourage others to join us in this important endeavor,” they stated.
In reaction, the Christian Aid organization commented that the G7’s backing of a compulsory binding arbitration in tax disputes involving multinational companies is “deeply troubling.”
“Not content with failing adequately to engage developing countries in the process of international reform of the rules on taxing multinational companies, it now seems that the G7 is keen to tell developing countries that they should also forfeit all power over how the new rules should be applied,” said Joseph Stead, Christian Aid’s senior adviser on Economic Justice.
“Unless any new system of mandatory, binding arbitration is designed carefully, with the full participation of poor countries, this could be yet another way in which developed countries use their economic and political power against the developing world.”
Any arbitration process would need to be simple, transparent and affordable to work for poor countries, he added.
Christian Aid maintains that the BEPS project will not address the fundamental problems with international taxation and urged G7 leaders to instead follow the advice of the Independent Commission for the Reform of International Corporate Taxation, which was initiated by a coalition of civil society and labor organizations.
The OECD, meanwhile, released model domestic legislation and competent authority agreements for the implementation of transfer pricing country-by-country reporting rules.
The rules are part of action 13 of the BEPS Action Plan, which calls for a review of the existing transfer pricing documentation rules and the development of a template for country-by-country reporting of income, taxes and economic activity for tax administrations.
OECD and G20 countries agreed in February to a country-by-country reporting framework that would be used from 2016, and a related government-to-government exchange mechanism that would start in 2017.
Under the model legislation, country-by-country reports must be filed annually by the ultimate parent of a multinational company group.
The now released model competent authority agreements facilitate the automatic exchange of the country-by-country reports among tax administrations through tax treaties, tax information exchange agreements or through a multilateral agreement, such as the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.