Five Ideas to Help Close International Tax Loopholes

Base Erosion and Profit Shifting (BEPS) is a global problem which requires global solutions. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in significant savings in corporate taxes. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
 
On October 10^th 2014, nearly 60 top ministry of finance and tax administration officials from all over the world gathered in Santiago de Compostela, Spain, for a workshop on tax base erosion and profit shifting and Automatic Exchange of Information (AEOI).  The workshop was co-organized by CIAT, GIZ, OECD and the World Bank Group.

The following key messages emerged from the deliberations:

• The BEPS action plan initiated by the OECD is seen as a positive step in furthering the Domestic Resource Mobilization agenda, but it will not be a panacea for all the issues in this area. Country ownership has to be ensured. The issues affecting developing countries are often different and more acute than the ones touching developed economies. Hence, a tailored approach suiting developing countries needs has to be developed. One size doesn’t fit all.
   
• A key concern of developing countries is they need to be assisted in developing capacity in tax administration before they are ready to implement the BEPS and/or AEOI agendas.
   
• Transfer pricing and documentation are ‘hot topics’. It was agreed that better coordination, which doesn’t necessarily mean harmonization, needs to be put in place.
   
• Automatic Exchange of Information is also considered a great step forward in terms of transparency. Most tax administrations are already seeing their benefits. However, the capacity to be able to effectively use the information received by tax administrations is critical. Without efficient and knowledgeable use of this data, AEOI is useless. The World Bank was also asked by some countries (for example, Albania, El Salvador) to provide technical assistance in helping the tax administration to structure its functions so that AEOI is implemented as a useful tool. This is an important opportunity for the WBG to continue its work on the tax agenda.
   
• The practical implementation of the BEPS/AEOI will be much more difficult than the theoretical discussion itself, and the role of the WBG in supporting developing countries in this agenda is critical.

The participants were engaged and the discussion was very lively. This reflected the importance of the BEPS and AEOI topics in the international tax agenda , especially for developing countries.