Our overall evaluation is that while significant progress has been made, there have been some unhappy compromises, some obstacles encountered, and much remains to be done. Also, fundamental problems still remain. The OECD alone is not the appropriate body to revise global rules, and its approach has been to patch up the existing rules. Effective reforms will not be possible without reconsidering some of the foundations of the system designed 80 years ago. Today’s globalized economy requires a more global approach to apportionment of the tax base of multinationals. Changes in the rules should be geared towards treating multinationals as unitary enterprises which would reflect their economic reality.I agree with Sol that the OECD is not the appropriate body to revise global rules, and this is because revising the global rules really requires revisiting the basic framework. If the framework is fundamentally flawed, which I believe it is, then going back to the same architect again and again for yet another renovation project appears to be folly. But the OECD has worked hard to make itself into a tax policy monopoly, so this is a predictable result. On this point, Sol says:
A project led by the OECD even with participation of other G20 countries is still an unsatisfactory way to agree global tax rules, and the underlying problem still remains that the Action Plan aims to patch up existing rules rather than re-examine their foundation.
The views of states not directly involved in the process, especially the poorer developing countries which are more dependent on corporate tax revenues, need to be taken into account much more directly, and we will carefully scrutinize the OECD proposals to address this which are promised.He observes that so far, the OECD appears unwilling to consider any revisit of the underlying international tax principles, namely, the residence-source split, even though we can clearly see that this split isn't doing the work it needs to do to allocate the global tax base (especially when it comes to the corporate income tax).
My view is that everyone who will be affected by the global tax consensus has a right to be involved in the conversation, while the OECD's basic exclusionary nature ensures that only those who happen to live in rich countries will have any representation. The UN Tax Committee is an obvious alternative policy space. Sol says: "Instead of trying to usurp the UN, the OECD should support an
upgrading of the UN Tax Committee. All states should have full rights of participation in the negotiation of the proposed multilateral convention, which should not be limited to rubber-stamping the outputs of the OECD BEPS project." That sounds right to me.
But it's hard, messy, probably dreary and frustrating work that will involve a lot of time and effort, and in the meantime...what? As I said in my talk last week, we all know that in international tax, as in most other regulatory areas, powerful states don't have to wait, they can simply do what they want. But can is not ought. I think the OECD should keep working on BEPS but everyone ought to be working equally diligently toward comprehensive multilateralism even as the OECD puts together this latest patch, so that the next step in international tax relations is not another recall of the same architect, with the same blueprint.
Sol's report has a clear mission: get the OECD to take formulary apportionment seriously, as the "clear lodestar" to all the BEPS efforts. Maybe so; the naysayers have their points. But for me the strongest part of this scorecard is its observation that the process matters, that we need to keep talking about participation in governance and thinking about who is making the decisions about which voices will be heard.