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10 Erasmus L. Rev. 29 (2017)
Corporate Taxation and BEPS: A Fair Slice for Developing Countries

handle is hein.journals/erasmus10 and id is 31 raw text is: Corporate Taxation and BEPS: A Fair Slice for Developing Countries? Irene Burgers & Irma Mosquera* Abstract The aim of this article is to examine the differences in per- ception of 'fairness' between developing and developed countries, which influence developing countries' willingness to embrace the Base Erosion and Profit Shifting (BEPS) pro- posals and to recommend as to how to overcome these dif- ferences. The article provides an introduction to the back- ground of the OECD's BEPS initiatives (Action Plan, Low Income Countries Report, Multilateral Framework, Inclusive Framework) and the concerns of developing countries about their ability to implement BEPS (Section 1); a non-exhaus- tive overview of the shortcomings of the BEPS Project and its Action Plan in respect of developing countries (Section 2); arguments on why developing countries might perceive fairness in relation to corporate income taxes differently from developed countries (Section 3); and recommendations for international organisations, governments and academic researchers on where fairness in respect of developing coun- tries should be more properly addressed (Section 4). Keywords: Fairness, international tax, legitimacy, BEPS, developing countries 1 Introduction 1.1 OECD's BEPS Action Plan, Low Income Country Report, Multilateral Instrument and Inclusive Framework 1.1.1 BEPS Action Plan In 2013 the G20 meeting in St. Petersburg endorsed the Base Erosion and Profit Shifting (BEPS) Action Plan. In its Action Plan, the OECD calls for 'fundamen- tal changes to the current mechanisms and the adoption of new consensus-based approaches, including anti- abuse provisions, designed to prevent and counter base erosion and profit shifting'. According to the OECD, aggressive tax planning 'undermines the fairness and * Irene Burgers is Professor of International and European Tax Law, Facul- ty of Law, and Professor of Economics of Taxation, Faculty of Business and Economics, University of Groningen. Irma Mosquera, Ph.D. is Senior Research Associate at the International Bureau of Fiscal Docu- mentation IBFD and Tax Adviser Hamelink & Van den Tooren. 1. G20 Leaders Declaration meeting in St. Petersburg including the Tax Annex to G20 leaders declaration; see <https://www.oecd.org/g20/ summits/saint-petersburg/Tax-Annex-St-Petersburg-G20-Leaders- Declaration.pdf> (last visited 22 March 2017). integrity of tax systems because businesses that operate across borders can use BEPS to gain a competitive advantage over enterprises that operate at a domestic level. Moreover, when taxpayers see multinational cor- porations legally avoiding income tax, it undermines voluntary compliance by all taxpayers.'2 Aggressive tax planning has 'led to a tense situation in which citizens have become more sensitive to tax fairness issues'. The OECD does not provide for a definition of aggres- sive tax planning, but it does provide a definition of Base Erosion Profit Shifting: 'Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps in the architecture of the international tax system to artificially shift profits to places where there is little or no economic activity or taxation.' This defini- tion is more or less similar to what European Commis- sion perceives as aggressive tax planning. According to the European Commission, aggressive tax planning 'exploits the differences in tax systems by taking advant- age of the technicalities of a tax system or of mismatches 29 between two or more tax systems for the purpose of reducing tax liability'.4 Therefore, presumably the OECD refers to the type of tax planning that results in BEPS. The OECD stated that all parties, governments and individual taxpayers are harmed including also business since 'fair competition is harmed by the distortions induced by BEPS'.5 Therefore, the OECD developed fifteen Actions including among others, actions dealing with hybrid mismatches, limitation of interest deduc- tions, actions recommending the introduction of CFC rules, rules to prevent the artificial avoidance of PE sta- tus, eliminating harmful tax regimes, dealing with tax treaty abuse and with transfer pricing, the disclosure of aggressive tax planning arrangements, and improvement 2. See 'About BEPS and the inclusive framework', <www.oecd.org/tax/ beps-about.htm> (last visited 22 March 2017). Fairness is one of the tax principles the OECD formulated in its Ottawa Tax Framework, as revised in 2005 by the OECD Technical Advisory Committee (TAC). As to the OECD, 'this principle implies that the potential for tax evasion and avoidance should be minimised while keeping counteracting meas- ures proportionate to the risks involved'. OECD, Addressing the Tax Challenges of the Digital Economy, Action 1 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project (2015), at 17; see <http://dx.doi.org/10.1787/9789264241046-en> (last visited 22 March 2017). 3. OECD, Action Plan on Base Erosion and Profit Shifting (2013), at 8; see<http://dx.doi.org/10.1787/9789264202719-en> (last visited 22 March 2017). 4. The European Commission Recommendation of 6 December 2012 on Aggressive Tax Planning C (2012)8806 Final, at 2. 5. OECD, above n. 3, at 8. doi: 10.5553/ELR.000077 - ELR August 2017 1 No. 1 Irene Burgers & Irma Mosquera

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