OECD press conference – fighting tax avoidance
OECD’s Head of Centre for Tax Policy, Pascal Saint-Amans, press conference, provided an update on the progress to boost international tax transparency, G20 International Media Centre, 14 November 2014.
Pascal Saint-Amans, Head of the Centre for Tax Policy, Organisation for Economic Co-operation and Development: To brief you on where we are on the tax front, as you know this will be an item actually pretty high on the agenda of the leader’s meeting tomorrow, and on Sunday. So I just wanted to give you some background on what has been done, where we are, what it means, what the challenges are. I’m happy to answer any question you may have. So, you will remember that last year in St Petersburg, the leaders agreed a couple of things on tax. One of them was to develop a standard for automatic exchange of information. And second, they endorsed a BEPS action plan which was presented to them by the OECD BEPS – meaning base erosion and profit shifting – which is the issue of tax avoidance by multinationals, and the loopholes in the international tax framework which facilitates the shifting of profits to no tax jurisdiction where no activities are carried out. Where do we stand after one year?
On both fronts we’ve made very good progress, and we have delivered. And that’s what is being reported to the G20 leaders, and we hope that this will be recognised in the communique, because if progress has been made, it’s because we have this very strong dug down political support. When you have leaders talking about international tax, it doesn’t happen that often in history, it does have an impact. So I try to drive you to both issues, and show you the impact. On exchange of information – before the G20 mandated us to develop the common reporting standard – I call it the CRS, that’s the standard for the automatic exchange of information – you will remember at the first summit, November 15, 2008, the leaders included in one of the 45 or 47 points, one was on putting an end to bank secrecy.
In London, on April 2, 2009, the OECD was called on producing a list of the jurisdictions which had not committed, and had not yet started implementing the standard which at that time was exchange of information on request. And you will remember that we had a list – black, grey, white – even though we didn’t call it a list, but a progress report. Most of the commentators said, “It’s not that serious, because if you have 12 agreements to the standards, you move to the white list, and that’s not good.” So that’s why we immediately established a global forum on transparency and exchange of information for tax purposes. To monitor, not the commitment, but the effective implementation of the standard with two phase reviews. The phase one, on the legal framework; the phase two, on the practical implementation, with ratings at the end of phase two. And in 2013, you will remember that we had the first layer of offshore leaks. You might remember this came in February, March, and there was a lot of – I mean countries moved by that, and they thought that it was time to move a step forward. And this step forward was automatic exchange of information.
We managed, in 2012, to get a mandate from the G20 to start reflecting on automatic exchange of information, and reported that automatic exchange of information is more effective than exchange of information request, and should complement that. That’s why, in St Petersburg, we had this mandate to develop automatic exchange of information. Based on that, we have developed a common reporting standard. And this common reporting standard has been adopted in July by the OECD, presented to the finance ministers in Cannes, and will be endorsed by the leaders in the coming two days. This standard provides for the exchange of all bank information on the residence of countries holding a bank account in another country. Whether directly or indirectly. The idea is to put an end to bank secrecy. The idea is to put an end to the fact that you can hide your money in an offshore jurisdiction, and not reporting that money. So the standard says that the banks in a jurisdiction will have to report to their government all the banking information, meaning the bank account balance, the interest, the dividends, and any other form of financial income, plus all the transactions, so that you can calculate the potential capital gains.
This information will be forwarded to the government of the bank, which will be forwarded automatically, and annually, to the government of the country of residence of the taxpayer. It is quite proof, to the extent that the agreement was made on making it as effective and efficient as possible with no loophole. You know, sometimes to reach an agreement, you have to organise some lee ways. That’s not the case here. The agreement is based on making it very strong. So if you don’t hold the account directly, which is very often the case of high end wealth individuals, but through a company which is held offshore, through a trust which is held offshore, this information still will have to be sent to the country of residence, or the beneficial owner – the ultimate owner of the bank account. So the veil of secrecy of trusts or companies should not be opposed in the case of the common reporting standard. What is very interesting is that beyond agreeing the standard, we agreed the practical implementation of the standard which is included in the book that we will be presenting to the leaders, and which is agreed. In particular, the IT. It may sound trivial, but it’s absolutely key that the banks have a uniform item mechanism, and that the countries exchanging the information among themselves, do have the same mechanism, because it’s cost effective, it avoids the bank to duplicate – especially as currently we have one system in Europe, and we have one system in the US, which is well-known, which is the FATCA system – Foreign Account Tax Compliance Act – which is fully compatible. Our standard is fully compatible and aligned with FATCA. It’s a sort of multilateralisation of FATCA. So we provide it with a standard, and with the way to practically exchange the information.
But we deliver more to the G20. We deliver the commitment of all the financial centres in the world, except four. We have asked all the OECD countries, all the G20 countries, and all the financial centres, and all of them are members of the Global Form of Transparency and Exchange Information, which includes 122 countries on an equal footing, including a large number of developing countries – an increasing number of developing countries. We’ve asked all the OECD, G20, and financial centres to commit. The chair of the global firm, who’s South African, sent a letter in August, and said, “OK, please commit to implementing the standard on a reciprocal basis with all interested countries by 2017 or 2018.” And we received commitment from all these countries and jurisdictions – except for Panama, Cook Islands, Vanuatu, and Bahrain. These are the only four which did not commit. Among them, Panama, is the most significant financial centre. So we will be reporting to the G20 leaders the state of play. We have a standard. It’s been endorsed by the finance ministers. We have a time schedule, 2017 to 2018. We have the tools to implement it, and we have the commitment. And beyond the commitments, a number of countries have already started implementing their commitment by signing an agreement. This was in Berlin three weeks ago – 51 jurisdictions signed a multilateral Competent Authority Agreement to implement their commitment – to start the legal mechanism to exchange information automatically.
If you step back three or four years ago, or even five years ago, before the G20 took over that project, bank secrecy was the rule in a large number of countries, and almost all financial centres. In 2017, 2018, the information, all the information, all the bank information, will flow to tax administrations. Of course, we’re not completely naive. We know that the proof of the cake will be in the eating – will be in the ability of making this happen on the ground. You can have commitments – then you need to change your legislation, you need to sign agreements, and beyond that, you need the banks to implement, and the financial institutions, and the trustees, and all the financial industry. That’s why the global forum has been mandated to check the implementation, and we are designing a quite stringent peer review mechanism to make sure that these commitments are translated into facts. This is going to be reported to the G20, and I think here we’re having an impact. You may have seen that in July we published a figure which shows that we’re already having an impact, even though automatic exchange of information is not yet implemented, because it will be in 2017, 2018. We have reported that across 20 countries, OECD and G20 countries, which have published data, or have informed us of data. These countries have come up with what we call voluntary disclosure initiatives. These voluntary disclosure initiatives are about telling the taxpayers, “Listen, guys, in a couple of years we will know that you were hiding. So, better to come up now. No amnesty. You pay all the taxes, you pay the interest, you pay the penalties, but we don’t prosecute you. So, you come clean, we collect the taxes, and we don’t prosecute you.”
The countries having put in place such initiatives, they have collected 37 billion euro over the past five years. We reported a figure in Cannes – the G20 Summit in Cannes, this was November, 2011 – at that time it was 14 billion euro. It means that between 2011 and today there has been a very significant increase.
And what we can see is that it’s skyrocketing. Why? Because it’s becoming real. And the taxpayers have anticipated it. So pretty good success, especially when you see that all the jurisdictions have committed, except Panama. Not sure I would run to Panama to put my money there. So that’s one aspect. Very important but, again, a lot of work to come in terms of implementation, in terms of monitoring, but still the political impact, I think, is here. Now the second aspect of the work is on base erosion and profit shifting – BAPS. There you will remember that most of you, actually, when we said in 2009 were coming to an end of bank secrecy, that will affect tax havens – we’re all saying all the profit of companies are in tax havens and taxed. We said, “Well, that’s not the issue. Here we’re talking about transparency. Companies are not in tax haven for lack of transparency. They’re there because there is no taxation, and you have arrangements which allow you to put your profits in a no tax jurisdiction. Not necessarily hiding through the veil of secrecy.” We have worked extremely hard and fast to deliver in 2013 a plan to address base erosion and profit shifting. A comprehensive plan of 15 measures in three pillars. One, to breach the gaps between sovereignties – which can be used by companies to plan aggressively. For instance, the use of hybrid mismatches, or the use of some harmful tax practices. Second, to revise, to review, the rules which were initially designed to eliminate double taxation – and which have been used to facilitate double non-taxation.
Can give you a couple of examples. Transfer pricing rules which will allow you to put all your intangible property in a no-tax jurisdiction, because you shift the property through a contract, and then you put money in this entity – which has no staff – which has no real activity, but has $1 billion or 1 billion euro which funds the development of the IP in another country. But then, because of the transfer pricing rules, as they are currently, will be allowed to get all the excess returned from all the other countries, because it’s the owner, and it has funded the property. This is wrong. We want to fix it. That’s the second pillar of the action plan. The third pillar is about transparency. By increased transparency we have a mean to put pressure on companies so that they stop being involved in aggressive planning. I should add that this action plan had two horizontal actions. One, about the digital economy. And another one on the feasibility of a multilateral convention to streamline the implementation of this BAPS action plan. If we come up with solution and then countries say, “Well, OK, we’ll have to renegotiate the 3,000 bilateral treaties, and in 20 years’ time we’ll have completed that.” Maybe it’s not fully efficient. We said, “Why don’t we streamline this for a multilateral convention?” This BAPS action plan was endorsed, and we had some pressure, as we promised to deliver the first seven measures by September 2014, and the other eight by September 2015. So we will be reporting – and we have reported this already to the finance ministers in Cannes – the first seven deliverables. Three reports, four actions, four measures. The reports are, one on the digital economy, second, on the feasibility of a multilateral convention, and third, on harmful tax practices – I’ll come back to this one. And four instruments. One to neutralise hybrid mismatches. The fact that you can play within a group of company financial instruments which will be an interest here, meaning tax deductible, but designed to be a dividend there, meaning a tax exempt income. So within a group you can create artificial tax credits which will reduce your tax burden artificially.
So we have provided a model tax legislation, and model treaty provisions to neutralise that. We have another measure on treaty shopping. You know what treaty shopping is? Countries have tax treaties, bilateral treaties, but you may have better routes than the bilateral one. If you want to invest in India, and you don’t feel like paying capital gains, taxes on capital gains in India, just go through Mauritius, and that’s why 27 per cent of direct investment in India is channelled through Mauritius. If you’re a German investor you will invest in Mauritius, and then you will direct your investment in India. When you sell your share in your business in India, you will not be taxable in India, because it’s exclusively taxable in Mauritius, because of the treaty between India and Mauritius. And between Mauritius and Germany, it will be exclusively taxable in Mauritius. Guess what? It’s not taxed in Mauritius. Bonanza. We’re just saying treaty shopping must come to an end. And we have provided for a minimum standard which will neutralise treaty shopping. The third instrument is about transfer pricing. It’s not yet completed, but well advanced. Not yet completed, because there are two other measures on transfer pricing in 2015. We didn’t want to complete one because it may be impacted by those we will be developing in 2015. However, in the explanatory report that you have, and I suggest you look at it, and we can make it available to you – it was presented to the finance ministers in Cannes anyway.
There’s a very strong statement by all countries, saying that we will kill the cash boxes, the cash boxes are what I’ve described. You put all your intangible property here, you put funding here, and you have all the return – but it’s in a tax haven. So we’ll neutralise that. The fourth measure is extremely sensitive and important. It’s the country by country reporting. Asking for all multinationals to provide tax administrations with six elements of information. The sales, the profits, the accrued taxes, the paid taxes, the employees, and the assets on a country by country basis. All the countries where these companies operate should get the overall picture of where the sales are made, where the profits are realised, on a country by country basis. There is agreement on this template. There is agreement that this should start quite quickly. There is agreement that these should go to tax administrations, and not be public, contrary to what a large number of people in the media, and the NGOs would like to see. But the governments say, “We want this to happen, and for this to happen, to get the consensus, we need to keep this information confidential to the tax administrations.” That’s the agreement which has been reached. So the seven measures have been adopted. When I say they’ve been adopted, it means that all the OECD countries, and the G20 countries – there are eight non-OECD G20 countries, for those of you who don’t have that in mind. Argentina, Brazil, South Africa, Saudi Arabia, Russia, India, Indonesia, and China are not members of the OECD, but they are members of this project on an equal footing with the OECD member countries. So all the 44 countries – because Colombia and Latvia have also joined that project, as they are in the process of accession to the OECD. All these 44 countries by consensus – meaning nobody objected anything – agreed these seven measures.
Well, actually, there was something missing. And the news which came out a couple of days ago, and which I think will be taken into consideration by the leaders, is that there was no agreement on the front of harmful tax practices. Action five. Action five is about neutralising what we call harmful tax practices. When you have a regime which is ring fenced or which is designed just to attract mobile capital – which will be detrimental to the tax base of the other countries without creating value, without having physical effective presence in the country – these regimes can be considered as harmful. And there were two aspects of the work on this action five. One, you will be interested to see that, I think, in seeing that, which is on rulings. You’ve heard about rulings, at least last week, because of the leaks. We anticipated that, and we said – and there’s agreement, including by Luxembourg – that when a country delivers a ruling, which is the tax administration taking a position on the tax scheme, to provide certainty to the taxpayer, which is good per se – good to provide certainty – but where the rulings might have an impact on the tax base of another country, then this ruling must be notified automatically to the other country. And that kills the potentially harmful features of the ruling. Because if you tell the other country, “Well, actually, the company is locating 1,000 in my jurisdiction, but I’m going to tax only 10 or 100 or whatsoever.” The difference is of interest to the other country. And if there is such a difference, maybe the rulings will not be delivered in the same manner. So there is agreement on criteria for transparency – which are basically what I’ve described to you – and these will be implemented as soon as in 2015. Meaning that the potentially harmful rulings should be killed with that. So we didn’t wait for offshore leaks to come up with this, to find solutions.
The other aspect of action five reports is about patent boxes. So I don’t know how many of you know about patent boxes. Patent box is a preferential tax regime for the taxation of intellectual property. If you locate intellectual property in a company which is eligible to this regime, whatever country having this regime, then you will have a reduction either in the tax base or the tax rate so that intellectual property will be taxed at a lesser level than the other type of income. And so be it. If you want to favour innovation, it’s not bad, probably not the most efficient way to promote innovation, but not bad per se. The problem is that when the benefit is granted to income, which has not been generated by local activities – because there you can see that high tax countries will face the deduction of the expenses to develop the intellectual property. And then the ownership of the intellectual property will shift to a patent box, where it will be undertaxed in a country which has not faced a deduction of the expenses. So we had discussed that. And we couldn’t reach an agreement. There was a very large majority of countries – 40 out of 44 – which agreed on a nexus approach. Nexus approach saying, “Well, we’ll assess patent boxes, and we’ll consider that those which do not have a nexus are potentially harmful.” In other words, if you grant the tax benefit to income which has not been generated by real activities in that country, there is a risk that this is harmful. 40 out of 44 countries in agreement, four countries in disagreement, no outcome.
Germany and the UK have kept the discussion on, in particular in the run-up to this G20 Summit. And you will have seen on Monday or Tuesday – I’m a bit lost in jetlag – but on Monday or Tuesday, Germany and the UK came up with an agreement which is small amendments – made of small amendments to the nexus approach. By allowing some more expenses, and I can get into the details for those of you who are interested, but it’s pretty trivial. So there is a small increase of the allegeable expenses, and there is a grandfathering clause which has been agreed between Germany and the UK, and I suppose that the G20 will welcome this agreement, and will ask us to implement it. So that this missing part of the BEPS action plan is no more missing, and that we’ll be able to assess all the patent boxes very quickly based on this revised nexus approach. In a very efficient manner. Now, all that said, because we have delivered, and we’re having an impact. I was just reading on my way here an article of the FT dated on November, 3, which was reflecting the fact that investors now are looking at how aggressive the tax planning is, but not as a good thing, because there is a reputation risk, because this is behind the political debate. It is having an impact. Companies will have, and have started, to revise their tax planning. You will have seen that what we call the double Irish has been dismantled unilaterally by Ireland. The minimum standard on treaty shopping will have an impact – a major impact. And as a result, we think that we will see a serious decline in the aggressiveness of the tax planning. There are eight further measures to come. And the implementation of the first package. So we’re halfway. We cannot claim victory.
It’s extremely difficult to reach agreement, because if there is agreement that double non-taxation is wrong, how to put an end to it is extremely complex, extremely technical, but thanks to the top down political support we’re having from the G20, we’re making major progress. I will stop with one further piece of information. A number of NGOs, development agencies, and governments have expressed the view that it’s extremely important that the views of developing countries be reflected in the standard setting exercise. And beyond the standard setting, in the implementation of the action plan, in the implementation of this new international tax regimes. We have issued yesterday a press release which disclosed what the Secretary-General of the OECD will explain to the leaders on Sunday, which is to say that a number of developing countries, 10 to 12, will be invited to the older working groups and the decision-making bodies of the OECD, to participate to that work, so that their views be reflected. We have invited ATAF – African Tax Administration Forum – CIAT – which is regional tax administration forum of Latin America – to join the OECD committee on fiscal affairs, and all the working parties, for their views to be reflected. And we’ll organise regional meetings with all these countries, and all of those which cannot participate because they do not have the resource to participate.
We are putting in place a team to assist these countries so that they don’t come to listen to, but to be active in the negotiation of the instruments. So that’s something quite important that the G20 finance ministers in Cannes asked us for, and here also, we are delivering, because by the end of December we will have these 10 to 12 developing countries joining in. We have eight which have already confirmed their participation. The regional tax organisation, plus of course, the IMF, the World Bank, and the UN, with which we work extensively, and with which we will work on the other mandates from the G20 on comparables for transfer pricing on tool kits for tax incentives and tool kits for the rest of the action plan. So, sorry for it having been a bit longish, but I thought you needed the background. You know as much as I do know, but I’m happy to answer any question. You have a mic over there.
Andrew White: The Australian: Hello. Andrew White from The Australian. One of the issues that has been raised by businessmen in Australia here about some of these reforms, is the question about where a tax is actually derived, and the structures that might be built up around that. Have you got any work on that? Is there anything in progress that would clarify that, and perhaps ease some of the apprehension in the business community about that issue?
Pascal Saint-Amans: Shall we take a couple? One by one? OK. I know the debate is going on in Australia, and it’s quite lively. BEPS is about putting an end to double non-taxation. So for decades, since 1928, where the first Model Tax Convention was established by the League of Nations, countries have fought to get their share of the pie. And it’s a debate between source taxation, and residence taxation – for those of you who are fluent in international tax. And this debate is going on, will be going on, and at the end of the day it’s a bilateral debate when you negotiate your bilateral treaty. What is interesting is that they were fighting to check whether it would be taxed at source or at residence, and they didn’t see that the size of the pie was shrinking, because actually, the money was going to Bermuda.
You have currently $2 trillion US of accumulated profit of American companies stashed in Bermuda, and taxed. And taxed at source, and taxed at residence. But the countries were fighting, “Well, we want to share the pie.” Except that there was nothing left to it. We’re putting an end to that. That doesn’t change the ongoing debate on source residence. It’s complex. There may be some interactions. But we’re not saying that BEPS will change the dynamics there. And the dynamic is complex. You have capital exporters, like the US, who favour residence taxation. You have capital importers like China, which will favour source taxation. You have countries like Australia, which are both, and therefore a bit schizophrenic, like the French, like many other countries which would like source taxation when it’s about American companies investing in their place, and would like to be residence taxation when it’s about the mining industry mining somewhere else. So, this is an ongoing debate which is not the one of BEPS. It doesn’t mean that we’re not having that debate. I think that developing countries joining in the OECD will have an influence on that debate, and at the end of the day, this will be about bilateral negotiations.
Journalist: You talked about the double Irish arrangement. Now, there’s been counter-measures put forward. Do you generally believe that these countermeasures would be sufficient, and what are these countermeasures?
Pascal Saint-Amans: Well, there is no count measure for the time being. What is interesting is that the double Irish has been dismantled by the Irish Government spontaneously. However, what the BEPS action plan is about, is precisely to put an end to double non-taxation, which was facilitated through the hybrid mismatch. Because – I don’t know whether you really want to get into the details at that time of the day, into the double Irish technique – but the technique basically is to have two companies, one of them being hybrid, it’s incorporated in Ireland, but actually, it’s a tax resident of Bermuda. And therefore all the profits you book look like they’re booked in Ireland, but actually they are not taxable in Ireland. They are taxable in Bermuda. Guess what? Bermuda doesn’t tax. So the BEPS action plan is about neutralising all this, through different aspects. The hybrid mismatches, and some others. Ireland didn’t wait for these schemes to be neutralised by older measures, which we are developing. And just said, “We will grandfather this, five or six years – I don’t remember.”
It’s not that important. A number of observers looked at the grandfathering to say companies have another six years. No, because they have to anticipate the new environment anyway, and the new environment will be fully known by the end of 2015. So we have here a good illustration of the impact of the world, which has spill overs including on measures which were not spotted. You need Ireland to put an end to the double Irish, but rather any way when we have completed the BEPS action plan, the use of the double Irish will be neutralised because of all the measures – transfer pricing, tax treaties, and all the others. They preferred to dismantle unilaterally, which is very brave, and we have said repeatedly Noonan’s budget – the finance minister of Ireland – was pretty good, and was a good foresight of what’s going to happen next.
Journalist: I have a question regarding the tax rulings. Jean-Claude Juncker has proposed, or he wants to promote here at the G20, a global standard for automatic information exchange about tax rulings between tax offices. Is that something really new, or is it already covered by the BEPS action plan?
Pascal Saint-Amans: It’s covered by the BEPS action plan – action five. And I think it’s the second part of action five which I’ve described. So this is our recommendation, and we’re extremely happy that this would be implemented in the EU through directives.
Charis Palmer: The Conversation: Hello. Charis Palmer, from The Conversation. You talked about the top down political support that you’re seeing that are obviously are having a big impact on the work that you’re doing. In terms of the legislative changes that will be required in some countries to bring effect to that, what are your feelings on that, and is there any momentum there? Because obviously the political will and the political discussion might be there, but the action is a very different thing?
Pascal Saint-Amans: Paradoxically, I’d say there is too much momentum, and we’re telling our member countries, “Please hold on.” The reason why we’re doing BEPS – and I haven’t mentioned it, but I think it’s extremely important – We need to be balanced. It’s easy to bash multinationals – and it’s wrong. If they have planned aggressively, it’s because the international tax framework was deficient. If it was deficient, it’s because member countries, countries in general, didn’t update it properly. So what we are saying is that the companies did plan very aggressively, but based on loopholes. Now, because of the crisis, the government had to respond to the outrage of the public. Why do we face increases in personal income tax, in VAT, where multinationals don’t pay their share? I wouldn’t say a fair share. Their share – because they reduce their effective tax burden by far from the nominal tax rates. Why? Not because the parliament has decided so. Not because the people decided so. They could have decided for supporting their champions to reduce the rights, not the case. Because you have loopholes, and because an obscure group of people in Paris at the OECD have not updated the standards properly. So the countries had to react, and that’s why we have this political support. But they are eager on acting as quickly as possible. And we’re telling them, “Listen, the reason why we launched this BEPS project is to fix the international system, because if we don’t fix it, all the countries will take unilateral measures which will be detrimental to cross-border investments.” Because then you have chaos. You move from double non-taxation to double taxation. Not good. Not better.
So we say we need to have agreed rules through which you will eliminate double non-taxation. You will maintain the ability of eliminating double taxation. We have an action, 2014 to be delivered in 2015, which is about effective dispute resolution mechanisms. It’s true tax administrations are more aggressive. And we need to make sure that where there are disputes, these disputes be solved without double taxation remaining. So to respond to your question, we’re trying to tell the countries, “Please don’t rush taking unilateral measures, because precisely this project is about having all the countries agreeing common rules which will have to be implemented by domestic legislation, but these domestic legislation should be compatible, should be coordinated, so that you don’t do deteriorate the environment of investment.”
Jamie Smith: Financial Times: Hi, Jamie Smith from the Financial Times. Just wondering, how important was the European Commission in terms of driving forward the BEPS process when you think of the legal actions they took against countries like Ireland, for example? And then there has been some questions raised in the European press recently about the new president because of Lux leaks. Do you have confidence that the new commission will be as aggressive in pursuing the BEPS process? Thanks.
Pascal Saint-Amans: We have worked extensively with the European Commission over the past year. When we launched the BEPS project, our colleagues within the commission, the European Commission, you have two directorates which are likely to work on tax. One which is in charge of preparing the directives dealing with tax and they have worked very closely with us. Because some of our solutions to be implemented in the EU require some changes in the EU legislation, directive to implement hybrid mismatch solutions, for instance. The EU Commission has worked in the very close cooperation with us and very effectively. The parent subsidiary has been amended. There is another directorate in the EU which is in charge of competition which launched some initiatives, in particular rulings in Ireland, the Netherlands and Luxembourg, if I’m not mistaken. They work on their own and don’t really consult, from what I understand. But they’ve been very active and I think this has contributed to raising the profile of the issue. Now, the new commission, of course, will work, as the previous one, very actively, and some of you have already mentioned they will neutralise the potential harmful features of rulings. So we have no doubt, no hesitation there.
Journalist: You were saying that the common reporting standards are due to be endorsed this weekend. When are you expecting those to come into effect? How simple will it be for Country A to contact Country B and say, “Give it to me?” What’s the process?
Pascal Saint-Amans: Very simply and directly, effective implementation in 2017, or 2018. That’s what all the countries have committed to. And not only have they committed but most of them have started working hard on that. 51 of them have signed, as I mentioned, in Berlin three weeks ago an international agreement to implement that. Actually, once you’ve committed to the standard you need to do three things. One, having the international agreements which will allow you to do that. Not too difficult because we have a multilateral convention which is the legal basis. We just need to have complete authority agreement that’s easy to sign. Second, you need to change your domestic legislation. A number of countries have already changed their legislation or are changing their legislations, including Switzerland which has a very detailed plan to do this quickly. The third thing, which is probably the one which takes the longest time, is to put in place the information systems, to collect the information. And here we have worked with the banks and the governments to have a uniformed IT mechanism, and this will take 12 to 18 months for it to be operational which is why the first flows of information will be, I think, in July 2017 for the early adopters and will be the end of 2018 for the others, which is tomorrow. Something I didn’t mention relating to developing countries. Because I told you we’ve asked developed countries, OECD, G20 and financial centres. We didn’t ask developing countries not because they should be excluded, not at all, but because most of them do not have the capacities and we didn’t want to report to the G20, “Oh, this country might be bad because they didn’t commit,” where actually they have not committed because they don’t have the capacities. Instead, what we’ve done in the global forum with the support of many G20 countries and the support of development agencies, is to provide pilots for developing countries to be able to benefit from automatic exchange of information at their own pace with a lot of support. So we have a number of pilots, Colombia for instance has committed to that.
The Philippines, where we’ll see what the challenges of developing countries in particular are, in terms of, I mean, just having the IT ready, having the competent authority, being able to match the information. Let’s not forget that we’ll have millions of data flowing. We don’t want a giant Big Brother, bureaucratic thing. We just want something operational, useful. Useful for developing countries. A number of developing countries cannot currently collect the information automatically from their own taxpayers. So how could they get it from other countries? We need to help them. It’s a priority because a lot of money is held offshore from developing countries. They need to know about that. They need to be assisted in protection of the confidentiality of the information. Last piece of response to your question. You won’t have to ask anything. It’s automatic. So the information will flow. On an annual basis with all the jurisdictions which we’ll have in agreement with you.
Journalist: Thank you. My question is how is your organisation addressing the issue of contradictory bilateral agreements between developing countries and developed countries on tax, to avoid double taxation?
Pascal Saint-Amans: You have different aspects in that. One is the standards, the standards will say what kind of model tax convention you should sign and here you have two model tax conventions. You have one from the OECD, which is among developed countries and one from the UN which is between developing countries and developed countries. What we certainly can do is reflect better in the OECD model tax convention, the views of developing countries and the issues there. You have another aspect which is transfer pricing which so far has been agreed by all the countries, except a few rare countries like Brazil which has its own approach but when you talk to the tax specialists in Brazil they say, “well, actually, we think this Arm’s Length principle is included in article 9 of the UN model tax convention and the OECD model tax convention. And here we have a common interpretation which now we’ll take into account the need to put an end to double non-taxation.
The reason why we want to be inclusive is the big challenge now is no more eliminating double taxation but eliminating double non-taxation which is a common issue for developing and developed economies. That’s why we’ve brought all the G20 countries on an equal footing and now we have this dozen of developing countries which will be joining all the technical groups with support, so that again their participation is active. At the end of the day, however, it’s about bilateral negotiations because it’s about hard law. It’s about the tax treaties which will be concluded. We have advertised already in action 6 on treaty shopping that developing countries, as well as developed countries and that’s what developing countries told us for a very extensive consultation process we held last year, that you should be very careful before entering in a tax treaty. Don’t enter in a tax treaty with a country or jurisdiction that has no tax because you don’t eliminate double taxation but you facilitate double non-taxation. There are already elements which are common to all these countries.
Journalist: My question is regarding digital currency, especially the cryptocurrency, bitcoin, in particular. That cannot leave a blueprint so far. Do you have a global regulation in place, or are you looking into it so it can be taxed?
Pascal Saint-Amans: That’s a good question. The answer is no. Not to my knowledge. This issue is being tackled for the time being by the FATF which is the Financial Action Task Force. Because it’s more about money laundering. The first concern is about money laundering. You can have currencies flowing without any form of control. So before taxation this issue is being addressed by the FATF. And I think we’re waiting for clarity there to see what are the tax consequences. No more questions? So we’ll stop here. Last question. You have a microphone coming to you.
Journalist: Thank you. Do you feel there will be countries, countries will be, will lower their tax rates as a result of this sort of changes coming in?
Pascal Saint-Amans: It’s hard to predict. My personal feeling is that yes probably. Today you have countries with very high tax rates and actually very little income taxed from corporations. A good example is the US. In the US you have a 35 per cent tax rate, federal. You can add the state level. So the average is around 40 per cent. But when you look at the effective tax rate of a number of US multinationals it’s closer to 5 per cent rather than 40 per cent. Why, because you have double non-taxation which has not been fixed. If you fix double non-taxation, it’s going to be a real pressure on multinationals. At the OECD we consider that corporate income tax is not the most growth friendly type of tax. So having very high taxes on corporate income might not be the smartest thing to do. If you eliminate double non-taxation, there is a chance or a risk, depending on your perspective, that the tax burden will be lowered, which is good news for those who currently couldn’t avoid the taxes because they pay for those who can avoid the taxes, and that’s why levelling the playing field at a lower level in terms of taxation is a win-win for the governments and for all the companies.
Stephen Di Biasio: I thank you all very much for coming along. We’ll have to close the press conference there. Just to remind you, don’t hesitate to look on the OECD website where there’s a lot of additional information on both the BEPS and automatic exchange of information. Thank you very much.
Pascal Saint-Amans: Thank you very much.