Original Post by National Director, Dee
AX ANNEX TO THE SAINT PETERSBURG G20 LEADERS DECLARATION
1. The G20 has been at the forefront of efforts to establish a more effective, efficient and fair international tax system since they declared the era of bank secrecy over at the G20 London Summit in April 2009. In an increasingly borderless world, strengthening international cooperation in tax matters is essential to ensuring the integrity of national tax systems and maintaining trust in governments.
2. The Global Forum on Transparency and Exchange of Information for Tax Purposes has
played a critical role in ensuring that the international standard of exchange of information
on request endorsed by the G20 is implemented effectively around the world. Since the
Global Forum responded in 2009 to the G20’s call to ensure rapid implementation of its
standards of transparency and exchange of information, the Global Forum has completed 113peer review reports and has issued over 600 recommendations for improvement, with more than 300 of those recommendations having been acted upon to date. The number of
jurisdictions that have committed to implement the standards and have joined the Global
Forum has increased to 120. All but 14 of the jurisdictions reviewed have advanced to Phase 2 reviews, thus demonstrating the effectiveness of the peer review process in achieving the
implementation of the standards. Those 14 jurisdictions are urged to implement the Global
Forum’s recommendations without further delay. In July 2013, G20 Finance Ministers and
Central Bank Governors asked the Global Forum to give overall ratings of exchange of
information on request at its meeting in November 2013. The Global forum will draw on the
work of FATF on beneficial ownership and ensure that all countries have information regarding the beneficial ownership of entities operating in their jurisdictions.
3. The G20 has now endorsed the development of a new global tax standard: to
automatic exchange of information. At the Cannes Summit in 2011,the G20 agreed to consider exchanging information automatically for tax purposes on a voluntary basis. In 2012, the Los Cabos Summit welcomed the OECD report on automatic exchange and encouraged all countries to join this practice. Given the developments in the Global Forum and other recent advances, it is now time to migrate to a more ambitious, more efficient and higher standard, which is automatic exchange of information. Recent developments involving undisclosed foreign bank accounts have also highlighted the urgent need to move to this new standard which the Global Forum will monitor to ensure its effective implementation. In July 2013, G20 Finance Ministers and Central Bank Governors fully endorsed the ambitious OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information for tax purposes and declared their commitment to automatic exchange of information as the new global standard. The OECD has initiated work with G20 countries to develop the new single global standard for automatic exchange of information. G20 Finance Ministers and Central Bank Governors have mandated the OECD to provide a progress report at the October Finance Ministers’ meeting, including a timeline for completing this work in 2014. The new standard (included in a Model Competent Authority Agreement) will be presented at G20 Finance Ministers and Central Bank Governors’ meeting in February 2014.There is a clear need for the practical and full implementation of this new tax standard on a global scale. The Global Forum will establish a mechanism to monitor and review the implementation of the new standard on automatic exchange of information and will be working with the OECD Task Force on Tax and Development, the World Bank Group and others to help developing countries identify their need for technical assistance and capacity building.
4. The next challenge regarding automatic exchange of information is now to get all
jurisdictions to commit to this standard and put it into practice. Calling on all other
jurisdictions to join us by the earliest possible date, we are committed to automatic exchange of information as the new global standard, which must ensure confidentiality and the proper use of information exchanged, and we fully support the OECD work with G20 countries aimed at presenting such a new single global standard for automatic exchange of information by February 2014 and to finalizing technical modalities of effective automatic exchange by mid-2014. In parallel, we expect to begin to exchange information automatically on tax matters among G20 members by the end of 2015. The multilateral Convention is key to ensuring rapid implementation of the new standard and to enabling developing countries to benefit from the new more transparent environment. In 2009 the OECD and the Council of Europe swiftly responded to the G20’s call for a multilateral instrument by amending the Convention on Mutual Administrative Assistance in Tax Matters in 2010 to meet international standards and to allow all countries with domestic laws that are sufficient to uphold the confidentiality of tax information to join. All G20 countries have led by example in signing this Convention and to date more than 70 countries and jurisdictions are covered or are likely to be covered by the Convention, including significant financial centres. The Convention is a powerful tool in the fight against tax evasion and allows for all forms of cooperation in tax matters, including automatic exchange of information. We expect all jurisdictions to join the Convention without further
5. International collective efforts must also address the tax base erosion resulting from
international tax planning. Base erosion and profit shifting (BEPS) relates chiefly to instances
where the interaction of different tax rules result in tax planning that may be used by
multinational enterprises (MNEs) to artificially shift profits out of the countries where they are earned, resulting in very low taxes or even double non-taxation. These practices, if left
unchecked, undermine the fairness and integrity of our tax systems. They fundamentally
distort competition, because businesses that engage in cross-border BEPS strategies gain a
competitive advantage compared with enterprises that operate mostly at the domestic level.
Fair, transparent and efficient tax systems are not only key pillars for sound public finances,
they also provide a sustainable framework for dynamic economies. For these reasons, G20
Leaders identified the need to address BEPS as a priority in their tax agenda at the Los Cabos
Summit in June 2012. Additionally, we must achieve better international coordination on taxes. In this regard, we must move forward in fighting BEPS practices so that we ensure a fair contribution of all productive sectors to the financing of public spending in our countries.
6. International tax rules, which date back to the 1920’s, have not kept pace with the
changing business environment, including the growing importance of intangibles and the
digital economy. In response to a G20 mandate, the OECD Secretary-General provided a report in February 2013 outlining the issues related to BEPS, and has now presented an ambitious and comprehensive Action Plan developed with G20 members aimed at addressing BEPS, with a mechanism to enrich the Plan as appropriate. Countries will need to examine how their domestic tax laws contribute to BEPS and to ensure that international and domestic tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions. A G20/OECD BEPS Project has been established through which all non OECD G20 countries will participate on an equal footing to develop proposals and recommendations to tackle the 15 issues identified in the Action Plan. G20 Leaders commit 3 themselves to a swift implementation and they also have a vital role to play in urging other countries to join with us and to take the necessary individual and collective actions to implement these proposals and recommendations in a timely manner. G20 Leaders appreciate the swift and effective response by the OECD in advancing the BEPS agenda and urge the OECD to work closely with G20 countries for the proper implementation of this Project.
7. The Action Plan aimed at addressing BEPS sets forth an ambitious agenda to examine the
following fundamental aspects of the international tax rules:
Ø First, changes to international tax rules must be designed to address the gaps between
different countries’ tax systems, while still respecting the sovereignty of each country
to design its own rules. Instruments will be developed to neutralise hybrid mismatches
and arbitrage; recommendations will be developed regarding best practices in the
design of domestic legislation to protect the tax base of countries against shifting of
profits to no or low taxation jurisdiction (through strengthening or introducing so called
“CFC” rules – Controlled Foreign Companies); and recommendations will be developed
regarding rules to prevent base erosion through interest deduction.
Ø Second, the existing international tax rules on tax treaties, permanent establishment,
and transfer pricing will be examined to ensure that profits are taxed where economic
activities occur and value is created. The action plan is designed to establish anti-treaty
shopping provisions and develop changes to the definition of the permanent
establishment (that is, whether there is sufficient nexus to allow a charge to tax) to
prevent BEPS. Three actions are identified in the area of transfer pricing to put an end to
the divorce between the location of profits and the location of real activities.
Importantly, there is recognition that although the existing transfer pricing rules
appropriately allocate income in many instances, special measures, either within or
beyond the arm’s length principle, may be required to address certain specific
difficulties arising in the current system.
Ø Third, more transparency will be established, including through a common template
for companies to report to tax administrations on their worldwide allocation of profits
and tax. It also requires more transparency between governments, with the need for
countries to disclose rulings and other tax benefits to their partners, and disclosure by
taxpayers of aggressive tax planning arrangements. The Action Plan also provides
mechanisms to collect better data so as to be able to measure BEPS and carry out the
relevant economic analyses.
Ø Fourth, all the actions are expected to be delivered in the coming 18 to 24 months. To
ensure that the recommendations may be implemented quickly, the OECD will be
developing a multilateral instrument for interested countries to amend their existing
network of bilateral treaties.
8. Developing countries must reap the benefits of the G20 tax agenda. The G20-led
efforts can advance efforts to improve domestic resource mobilisation. The Global Forum on
Transparency and Exchange of Information, the OECD Task Force on Tax and Development, the World Bank Group and other international organizations are key partners who can assist
developing countries identify their needs for technical assistance and capacity building in
implementing of the transparency and exchange of information standards, including through
the multilateral Convention and automatic exchange of information. These efforts will help
developing countries secure the corporate tax revenue they need to foster long-term
development. The OECD’s Tax Inspectors Without Borders initiative to assist tax
administrations of developing countries plays a useful role in this regard. Finally, we are
committed to continue to assist developing countries, including through the IOs, in identifying individual country needs and building capacity in the area of tax administration (in addition to automatic exchange of information) and encourage such support to be developing country led.
9. International taxation issues do not stop at addressing double non-taxation. We encourage continued discussion on other tax matters among tax administrators.
ANNEX - The 15 Actions to Address BEPS ACTION 1 – Address the Tax Challenges of the Digital Economy. Identify the main difficulties that the digital economy poses for the application of existing international tax rules and develop detailed options to address these difficulties, taking a holistic approach and considering both direct and indirect taxation. Issues to be examined include, but are not limited to, the ability of a company to have a significant digital presence in the economy of another country without being liable to taxation due to the lack of nexus under current international rules, the attribution of value created from the generation of marketable location-relevant data through the use of digital products and services, the characterisation of income derived from new business models, the application of related source rules, and how to ensure the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services. Such work will require a thorough analysis of the various business models in this sector.
ACTION 2 – Neutralise the Effects of Hybrid Mismatch Arrangements. Develop model treaty
provisions and recommendations regarding the design of domestic rules to neutralise the effect (e.g., double non-taxation, double deduction, long-term deferral) of hybrid instruments and entities. This may include: (i) changes to the OECD Model Tax Convention to ensure that hybrid instruments and entities (as well as dual resident entities) are not used to obtain the benefits of treaties unduly; (ii) domestic law provisions that prevent exemption or nonrecognition for payments that are deductible by the payor; (iii) domestic law provisions that deny a deduction for a payment that is not includible in income by the recipient (and is not subject to taxation under controlled foreign company (CFC) or similar rules); (iv) domestic law provisions that deny a deduction for a payment that is also deductible in another jurisdiction; and (v) where necessary, guidance on co-ordination or tie-breaker rules if more than one country seeks to apply such rules to a transaction or structure. Special attention should be given to the interaction between possible changes to domestic law and the provisions of the OECD Model Tax Convention. This work will be co-ordinated with the work on interest expense deduction limitations, the work on CFC rules, and the work on treaty shopping.
ACTION 3 – Strengthen CFC Rules. Develop recommendations regarding the design of
controlled foreign corporation rules. This work will be co-ordinated with other work as