BEPS and beyond: examining the contribution by Pascal Saint Amans
Pascal Saint-Amans retired as OECD tax director as the end of October 2022. During the ten years he was in office, Saint-Amans was a formidable driving force in reforming international tax policy and administration to tackle base erosion and profit shifting (BEPS) by multinationals. The completion of the BEPS Action Plan in October 2015 marked a turning point in international tax. This was followed by the delivery of the multilateral instrument (MLI) for the implementation of the treaty-related BEPS items, arguably the key achievement of the BEPS project, and a further project, yet to be finalised, on the taxation of digital services. In addition, Saint-Amans has tackled bank secrecy, the development of the Global Forum and tax inspectors without borders programme as well as,more recently, launching initiatives on decarbonising the economy.
Pascal Saint-Amans’ retirement from the OECD at the end of October 2022 will truly mark the end of an era in international tax. He joined the OECD in 2007, and for the last ten years he has been the director of the Centre for Tax Policy and Administration (CTP). The OECD’s press release announcing his retirement paid tribute to ‘the enormous, historically significant contribution he has made to international tax policy reform and administration through his work at the OECD.’
How far we’ve come
Shortly after Pascal joined the CTP in 2012, the base erosion and profit shifting (BEPS) project was launched, setting out a15-point action plan to tackle tax avoidance. Writing in this journal ten years ago (‘The OECD’s work on base erosion and profit shifting’ (Pascal Saint-Amans), Tax Journal,15 November 2012), he said that the OECD was carrying out an in-depth analysis of BEPS issues, which would allow the issues to be addressed in a ‘holistic and comprehensive’ manner. Presciently, he also said that it appeared that ‘corporate tax policy, and in particular its international aspects, may need a new approach. ’It is fascinating to look back at that article and to remember the political environment at that time. There was increased media attention on the tax affairs of large corporates, with stories such as Bloomberg’s ‘The great number of countries, which threatened to undermine the basic principles of PE and transfer pricing, and arguably came close to breaching existing treaty obligations (the UK’s digital services tax, for example, is said not to be ‘identical or substantially similar’ to a tax on income, and so is not within the scope of double tax treaties). A major stumbling block up to the end of 2020 related to the US, but the US Administration’s removal of the safe harbour proposal in early 2021 unlocked negotiations, and since then progress has again been swift.
The two pillars
So we now have Pillar One and Pillar Two, which aim to address the underlying issues caused by digital businesses in two ways. Pillar One allows for a limited reattribution of profits to the ‘market’ jurisdiction, using an element of formulary apportionment, while Pillar Two will arguably have more widespread impact by providing for a global minimum tax rate of 15%. Compared to the rapid pace of the first phase of BEPS, these latest stages have been more tortuous, and full implementation is now scheduled for 2023– although the US, in particular, still faces some hurdles in passing conforming legislation. The detailed negotiations around the two pillar solution have highlighted just how complex the new rules will be, particularly for the relatively small number of major companies affected by Pillar One. There also remains a lot of work to be done on issues such as the commentary to the model rules, but as Pascal put it in his ‘One minute with…’ interview earlier this year (Tax Journal, 20 January 2022): ‘We have turned a corner, and we are finally bringing the international tax system into the 21st century’.
Once Pillar One and Pillar Two are finally implemented, it is likely that dispute resolution will come to the fore. Although Action 14 of the original BEPS plan does set out a minimum standard to improve the resolution of tax-related disputes between jurisdictions, it is likely that this will come into sharper focus as a number of the largest businesses face competing demands for profit allocation from different countries, and practical measures – including, perhaps, globally agreed timetables for resolving disputes – will need to be implemented.
Throughout the BEPS process, Pascal Saint-Amans has been a formidable driving force ensuring that progress continues to be made. For this achievement alone, he would be noted as a towering figure in international taxation. But somehow he has found time to take on other projects as well – including tackling bank secrecy, the development of the Global Forum and Tax Inspectors without Borders (TIWB) as well as, more recently, launching initiatives on decarbonising the economy.
Bank secrecy and the implementation of the Common Reporting Standard (CRS) was an early focus of Pascal’s work at the OECD. As with BEPS, a key facet of his achievement was in getting automatic exchange of information approved and adopted across a wide range of countries. Over time, this has led to an environment where it is increasingly difficult for money to be hidden out of reach of the tax authorities – which, in turn, helps reduce the amounts lost to tax evasion.
The Global Forum was established as a way to enable non-OECD member countries to participate in the BEPS project. Over time, it has led to a more inclusive approach to international tax matters, although there are those corporate tax dodge’ and The Times’ ‘Secrets of tax avoiders’. This led to political support for action, with the G20 leaders– and particularly the UK chancellor, George Osborne, and Germany’s finance minister, Schäuble – welcoming the work on BEPS and asking the OECD to report by February 2013. The work on the initial BEPS action plan proceeded rapidly, assisted by having separate working parties for each of the 15 actions – although, perhaps, this did lead to some additional complexity and overlap (for example, the antihybrid rules could arguably have been less onerous, given the restrictions on interest deductibility which were introduced).The timetable was relentless, with 14 public consultations being held in just over two years, and approximately 11,000 pages of comments submitted. Well before the widespread use of remote working that Covid accelerated, the CTP is to be congratulated for hosting a series of well-run livestreamed events, enabling significant participation by the professional and business community in the BEPS process. Pascal, together with Raffaele Russo (head of the BEPS project and a member of the CTP senior management team) provided an update in this journal in October 2015 (‘The view from the OECD’, Tax Journal, 29 October 2015) which noted the success of the work so far, culminating in the completion of the BEPS Action Plan and the consolidation of the work into a ‘comprehensive’ BEPS package. The expectation was that once the new measures became applicable, ‘profits will be reported where the economic activities that generate them are carried out and where value is created’.
The multilateral instrument was, in my view, one of the crowning achievements of the BEPS project
But, of course, that was not the end of the story – and indeed the article’s headline noted that ‘BEPS marks a turning point in international tax, but the work is not over yet’. The key next step was to move towards implementation of the various measures, and here the multilateral instrument (MLI) for the implementation of the treaty-related BEPS items was, in my view, one of the crowning achievements of the BEPS project. While the network of some 3,000 bilateral double tax agreements around the world is an important tool for governments and businesses alike, updating each agreement can take up to ten years – and so the use of the MLI represented a highly significant acceleration of developments in the global treaty network. It also holds out the promise of similar multilateral agreements being possible in the future, perhaps particularly to rebalance a number of the older colonial-style treaties with less developed countries.
The issue which has occupied a huge amount of time and effort in the seven years since 2015 is the taxation of digital services. The original report on Action 1 was, perhaps, weaker than some of the other parts of the BEPS action plan, with a focus on using other tools – such as VAT or possibly even a destination-based corporate tax (DBCT) – rather than disturbing the current foundations of the concept of a permanent establishment (PE) or the arm’s length rule in transfer pricing. But with the growth of online behemoths such as Amazon and Google, it became clear that something more had to be done. Pressure also grew from the proliferation of ‘digital services taxes’ in a who argue that developing countries are still precluded –partly by lack of resources – from having a real voice in the development of policy, and that a UN tax policy body would be a more appropriate forum. Nevertheless, Pascal’s leadership has clearly raised the status of developing countries within the BEPS process, and within OECD tax matters more generally.
A complementary initiative has been TIWB, which is a capacity building initiative run jointly by the OECD and the UN development programme. As the OECD’s summary says, ‘TIWB provides practical, hands-on assistance to developing countries in order to build capacity in the areas of international tax audit, criminal tax investigations and effective use of automatically exchanged information.’ In its first six years, TIWB has helped collect £1.4bn additional tax revenue for developing countries, and $3.9bn in tax assessed (Tax inspectors without borders: Annual report 2021).In a global economy, it surely makes sense for practical knowledge to be shared among tax authorities – and indeed, many multinational companies also welcome this initiative, as it means that similar standards are likely to be applied to issues such as transfer pricing across the globe. Throughout the BEPS process, Saint-Amans has been a formidable driving force ensuring that progress continues to be made. But somehow he has found time to take on other projects as well
I’d also like to thank Pascal from a personal perspective for encouraging the participation of women in tax. He has, whenever possible, taken care to avoid the dreaded ‘manel’(all male panel) and has visibly promoted women within the OECD. I’m particularly pleased to see that Grace Perez Navarro will be his interim successor at the CTP. Pascal’s recent focus has turned to climate change, and the impact of carbon taxes/carbon pricing. As he puts it,the OECD is working on an inclusive framework on carbon pricing. The aim, using similar techniques to those in the BEPS process, will be to bring countries round the table to agree on the most effective policies to move towards decarbonisation of the economy. The work is at an early stage, but it is clear that at least some of the lessons learned in tackling international tax avoidance can be applied to the most important global issue today, addressing climate change. The Inclusive Framework on carbon mitigation approaches was launched at the 2022 OECD ministerial council meeting. This brief summary has, I hope, highlighted the breadth and depth of Pascal’s contribution to international taxes over the last ten years. I am sure I speak for the international tax community in wishing him well in his future role, where he will be joining the Brunswick Group to advise clients worldwide on policy and regulatory matters, including tax related issues.