An interview with Pascal Saint-Amans

13 Pages·2014·0.55 MB·English

www.pwc.com/beps
An interview with
Pascal Saint‑Amans
A transcript of PwC’s
Richard Collier
interviewing Pascal Saint-
Amans, of the OECD, on
base erosion and profit
shifting (BEPS).
February 2014
An interview with
Pascal Saint‑Amans “We’ve moved from a G8 dominated environment to a G20 dominated environment, and clearly, source taxation is
more on the table than it used to be in the past.”
Hello. I’m Richard Collier from PwC Now, one of the themes at the beginning
London. Today, I’m going to be talking of the BEPS project was that the project
to Pascal Saint-Amans, the Director shouldn’t just be about base erosion
of the OECD Centre for Tax Policy and and profit-shifting, but should address
Administration. We’re going to be talking the question of balance of taxing rights
about the OECD’s [Organisation of between source and residence countries.
Economic Co-operation and Development] Is that a theme that’s arising as the
Pascal Saint‑Amans base erosion and profit shifting, BEPS, discussion goes on on BEPS, and do you
Director of the OECD Centre for programme. Pascal, it’s a pleasure to think that has any impact for the ultimate
Tax Policy and Administration
see you. Can I start by asking you about consensus on the BEPS programme?
whether the BEPS project is on track with
the timescale projected? That’s a very good question, because on the
one hand, you have BEPS, which is basically
Hi, Richard. Yes, indeed it’s on track. We about double non-taxation. You have profits
have a very ambitious time schedule. It’s very which are located in a non-taxed jurisdiction
ambitious because we need to fix the system and both the source and the residence
as quickly as possible, otherwise countries countries are frustrated by not taxing this
Richard Collier might walk away from the consensus. profit. BEPS is focusing on this issue, but
Partner, PwC UK So there is urgency and there is political clearly, when you focus on this issue, you can
agreement on the sense of direction, so we see the other issue of, how do you share that
do have a road map, which is the action plan. restored profit or that relocated profit. How
We have 15 actions. We have deadlines, do you share it between the source and the
mainly September 14, September 15 plus a residence? That’s a more classical approach.
couple of actions in December 15, and we are
on track. All the working groups have met, There is nothing really new except that the
all the papers are ready, most of the papers world is changing. We’ve moved from a G8
have already been circulated for public dominated environment to a G20 dominated
comments, and there will be agreement, we environment, and clearly, source taxation
do hope, by the deadlines, which have been is more on the table than it used to be in the
fixed by the G20. past. But for the time being, the BEPS project
is mainly about how to address the issue of
double non-taxation.
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An interview with
Pascal Saint‑Amans “What we are trying to do in the BEPS project is fixing the deficiencies of the current system and making the current
system, once fixed, more acceptable to all the countries across the world.”
We hear the word fairness a lot in the We’ve heard a great deal about BEPS Now, I do see, in terms of the ongoing work
current debate. Can I ask what that word following the G20 meeting last July, and on BEPS, a real effort to engage not just
means to you? the focus is often on corporate or direct the direct country participants in BEPS
income tax, but could you explain why but countries right across the world. So
As a tax person, as a tax official, fairness indirect tax is very much part of the work I wondered if you could comment on the
is a bit tricky. What I think it has meant in on the BEPS programme? goals of what I take to be a wider outreach
the political debate, and that has created a on BEPS and the level of receptivity you’re
lot of misunderstanding, the politicians or Actually, the BEPS project focuses on seeing to BEPS outside its home base
the people or the NGOs [non-governmental direct tax, corporate income tax and the in Europe?
organisation] have said, that’s unfair; tax international aspects of corporate income
planning is unfair. I think what they mean tax. But once you’ve said that, and in It’s beyond Europe. It’s the OECD. The OECD
is the current tax system has been designed, particular, in the area of the digital economy, includes the US, Canada, Mexico, Chile,
at least for its international part, has been you can realise that you have another but also Korea, Japan, Australia and New
designed to eliminate double taxation. It has dimension, and that relates also to your Zealand, so it’s not a European concentrated
facilitated double non-taxation. The result of question on source/residence, when some or focused issue. It’s global. But in this global
this implicit policy, which was not to update countries are frustrated with not tax some environment, the businesses look at where
the international standard, has been unfair. elements of income because you have no the markets are. Where are the markets,
It’s unfair that a multinational doesn’t pay permanent establishment or, if you have the growing markets? Still in the emerging
much tax while a purely domestic company a permanent establishment, you may not economies, although they have some
pays more, because the system was not be able to attract a lot of profit there, and problems currently. It’s a global issue which
designed for that. that isn’t particularly true in the digital requires global solutions.
economy sector.
So, the outcome isn’t fair. It’s not the The worst-case scenario would be to end
behaviour of the companies which isn’t fair. Then, you have the question of how do you up with double standards, a few countries,
Too often, there has been this confusion. tax this from an indirect tax perspective? emerging economies or developing
So, fairness is about achieving the goals of VAT [value-added tax] mainly, in most of countries having their own standards, and
tax policies and each country has to decide the countries, although some countries, the developed countries having their own
on its own tax policy. Clearly, what isn’t you have sales taxes. This dimension has standards, and then the businesses would
fair is when you’re doing the same, one been recognised and has been included, face double standards. So what we are
pays, the other doesn’t pay, and that is not and namely, indirect taxes are referred to in trying to do in the BEPS project is fixing
correct, except when the people, through Action 1 of the action plan, and the Action 1 the deficiencies of the current system and
their representatives in the parliament have is about how to address the challenges of the making the current system, once fixed, more
decided so. But they have not decided so digital economy. acceptable to all the countries across the
when not updating the transfer pricing rules world. That’s why we’ve brought in all the
or when facilitating treaty abuse. G20 countries.
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An interview with
Pascal Saint‑Amans “We’ve put in place a global forum. We have more than 120 countries in this global forum.”
There are eight non-OECD G20 countries
on an equal footing to the BEPS project, as
well as some accession countries, namely
Colombia and Latvia. But we are also
working very closely with the developing
countries, so that they can express their
concerns, they can express their views, and
this will be taken into account. It makes
it more complicated, but it makes it more
relevant because we need a global standard.
That’s, by the way, what we are doing also on
the indirect front, because we are developing
guidelines on VAT, B2B [business-to-
business], and there, we are not looking just
at the OECD.
We’ve put in place a global forum. We have
more than 120 countries in this global
forum, which will be meeting in April in
Japan, and the rules elaborated within the
OECD will be proposed to that global forum
for endorsement. So, instead of having an
OECD standard implemented for only 34
countries, we’ll have something for 120,
actually more, countries.
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An interview with
Pascal Saint‑Amans “So it will be all about the balance between having something consistent, coherent across the board.”
Can I turn to the country-by-country and Now, as regards formulary apportionment Under the country-by-country reporting
TP [transfer pricing] documentation or unitary taxation, we’re not moving there, standard, we have a single format
issues? One of the concerns that’s been or we will be moving there if we’re not proposal at the moment. It may be that
expressed is that the focus of the country- able to fix the deficiencies of the current different industries find it difficult to use
by-country reporting of information system. What is wrong with the arm’s length a single format, so for example, revenues
on employees, revenues and tangible principle is that this system was designed for financial services companies may not
assets might well lead to approaches to allocate the profit to where it accrues, to be a method that makes a lot of sense.
by tax authorities that have more in the countries where it accrues. As a result of How wedded is the OECD to a single
common with formulary apportionment too legalistic an approach, we have come to country-by-country reporting format for
approaches. Is that a concern that you a system where you can easily divorce the all companies?
think is a real one? location of the profit, the location of the real
activity, and that was not the purpose of the That’s a very good question, to determine
I understand that’s a real concern. Now, is it arm’s length principle. whether we need one template or several
based? I mean is it reasonable to have that templates. I do think that we need
concern? I don’t know. I think there are a lot We need to fix this, and if we fix this, there is something which is, if not unique, at least
of fantasies about formulary apportionment, no risk of unitary taxation. If we don’t fix it, one template-based. That said, we may
arm’s length principle, and you have gangs of if the tax community’s too conservative - and need some adaptation for it to be relevant.
believers here and there. Being an agnostic I fear that sometimes, it’s too conservative - So it will be all about the balance between
there, I don’t really care. What I do care then we’ll not fix it and some countries will having something consistent, coherent
about is that we are able to provide tax move to unitary taxation. That will probably across the board, while relevant across
administrations with documentation, which be a wrong move for both business, for cross- the different sectors of activity. So that’s a
is not too burdensome for companies but border investment opportunities, and also challenge, and you know what? You will
which is meaningful for tax administration, for securing tax revenues for all countries. help us design properly, because the country-
providing the overall picture so that we don’t by-country reporting template is now for
end up with schemes where all the profit is public consultation.
located in a zero tax jurisdiction where you
could see the activities are here and there. We’ll be waiting for comments. We’ll look
at that. There is a short period of time to
comment, because there are short periods of
time to develop all that, but we all work very
hard. I’m pretty sure that, by being not too
conservative but constructive, the business
community will help us a lot to design
something which is not too cumbersome,
which is meaningful, and which actually
will be helpful for both tax administrations
5 and taxpayers.
An interview with
Pascal Saint‑Amans “We will address the challenges of the digital economy.”
Can I turn to TP documentation? One of In that tension area, I think that we are We don’t write things in stone, and of course,
the really strong themes that have come making significant progress to harder all this is to be adapted. We need to get the
out of the OECD over recent months has approaches than to soft approaches. In the architecture right, and that’s what we are
been the need for improved uniformity area of documentation, I think that the doing. So, the BEPS project is about fixing
and simplicity in TP documentation. That governments are aware, and the tax people the deficiencies of the system urgently, and
comes out loud and clear in the proposals and the governments are aware that some framing the architecture and framing the
for the master file, certainly in terms of the form of uniformity is actually helpful for building blocks for the next decades. I hope
uniformity. Now, given the huge variety in companies, but also for themselves. But we’ll it will last long. Of course, you will then have
individual country requirements we see, get that only if the trade-off is, I change my to adapt and the adaptation will depend on
can I ask you if the OECD still sees it as a own legislation but I really get what I want, the behaviour of companies, on what the
priority to push for a level of uniformity and not a ton of documentation which will be challenges for governments are, on the way
in the individual country documentation on the shelf, but not that useful. the business models will evolve. So, we need
that’s prepared for transfer pricing? to ally the acting quickly on what needs to be
On the TP proposals themselves, my fixed, and then being flexible in the way this
The challenge is, that the OECD secretariat own fear is that the master file and TP will be implemented, so that it is relevant.
faces all the time, is about reaching documentation proposals generally are
consensus. Now, you can reach a very soft being very significantly overshadowed Can I ask you, is the intention that the
consensus where all the countries say, yes, by the country-by-country proposals. I country-by-country and the master file
yes, and they agree on something which see a lot of focus on country-by-country, requirements are activated as soon as
is not that meaningful because it doesn’t and I wonder whether people will fully possible, or is it the case that that would be
cost them anything, as they will not change realise the practical implications, and a deferred future date, for example in 2015
their domestic legislation. Then you can be therefore, their feedback on the master file or whatever? Or is a decision not made on
happy, because you have something that’s proposals within the accelerated period for that point?
consensual but it’s not that helpful. The other consultation might be limited. Can I ask
approach is to be a bit more pushy, but then you, will there be an opportunity for issues I’m not sure the decision will be made on that
the risk is that the countries will say, come emerging later to be taken account of, or is point, as again, we are in soft legislation.
on, I will not change my own legislation just that simply not going to be accommodated It’s for the countries to decide how they
to agree on the international consensus. So, within the time plan? implement, and we are not the European
that’s the tension. Union Commission, when the directive has
been adopted, you have deadlines and you
need to do the stuff. But again, the influence
we want to have on all the countries is
key, and we hope that there will be quick
implementation, but there will be no
deadline fixed.
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An interview with
Pascal Saint‑Amans “The ultimate goal of the OECD is to put in place a system which will safely ensure companies that there is
no double taxation.”
Can I turn to digital and related matters? So, we’re doing a diagnosis, and the Do you think that the VAT/GST [goods and
It’s been reported in the press that the diagnosis so far is more about, we face a service tax] might be better adapted to
OECD is not able to come up with a new phenomenon which is the digitalisation taxing the digital economy in a number of
response to address these issues. I don’t of the economy with some new business important respects than corporation tax
think for a moment that’s how you see the models emerging and spilling over the whole or direct tax?
current position, is it? economy, and that will require to be very
careful in the way we’ll address this question That’s probably what a large number of
I was surprised by the way the Financial by providing overall responses, and in countries think, and I would not disagree
Times, namely, has reported some of my addition to that, we can see that in the digital with them, because indirect tax has features
discussion, but actually, it’s complex. sector, BEPS is exacerbated by the lack of that allow taxation, even when you do not
What I meant and what I mean is that we physical presence, by the fact that by most have a presence, because it’s based on the
will address the challenges of the digital of these companies being recent have been sales, basically. That may be easier or more
economy, otherwise just get rid of corporate more aggressive in their tax planning. We appropriate, in a number of cases. But there,
income tax and move it all to indirect do think that most of the other actions in the we have many challenges because we need
taxation but I am not sure that’s going to be action plan will be quite key in addressing to decide international tax rules so that it’s
the solution. the challenges of the digital economy. So, consistent across the countries, which is not
you see, it’s not a one-way street there. yet the case.
So, we will be addressing this, and one of
the questions we’re struggling with is, are That’s the case within the European Union,
we in a position to design a specific solution which is a regional grouping, but that’s not the
for a specific sector, which would be a digital case across the world. That may also facilitate
permanent establishment for online sales or the acceptance by a number of countries of the
online services? Or is, actually, the question challenges, because at least they will get some
more about the digitalisation of the whole share of the tax through indirect taxation. But
economy, and what is at stake there for the that clearly doesn’t do the whole trick, and we
architecture of the international tax system? will also have to do the direct tax adaptations.
We’re struggling with this because it’s not
easy, and that’s why, by the way, we are not
expected to deliver actions, solutions, but
rather a menu of possible solutions that we
will have to work out.
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An interview with
Pascal Saint‑Amans “Governments want to move fast. They want to move fast to address BEPS.”
Can I turn to unilateral actions? It seems They are all very much involved, and they If we want to do that, we need to put an end
to me surprising that we’re seeing so many are not involved because they think they are to double non-taxation, and while moving to
unilateral actions when the work is going done. We’ve done our domestic legislation. the system where there is no double non-
on in relation to BEPS with a broad scope No, they’re involved because even though taxation, we need to ensure that there is no
on accelerated timelines. Why do you they may have passed domestic legislation, double taxation, and we are aware of the fact
think we’re seeing unilateral action still they want to adapt. They want to coordinate that dispute resolution mechanisms are not
being taken? once we’ve achieved the BEPS project. working very well, and that the governments
have not been as good as they should be in
Oh, because the system is broken, and that’s As you can well understand, there is providing that service to companies, and
why countries are taking unilateral actions. concern that some of these unilateral that’s why we have Action 14. I do hope
Imagine what would have taken place if we actions are going to lead to greater that we will be making significant progress
didn’t launch the BEPS project. Very often, disputes and double taxation. Do you think towards arbitration.
I’ve been, if not attacked, but criticised for, Action point 14 on dispute resolution is
“oh, BEPS, you haven’t demonstrated the going to lead to improvements in relation Now, it’s also a trade-off. When companies
relevance of BEPS, you don’t have figures to resolving disputes, and particularly, say, we want arbitration but don’t do BEPS,
and that’s not correct, to focus on that”. do you think it’s going to lead to a everything is perfect, we have this separate
You are introducing some instability in the better focus, a more common focus on legal entity approach, and if all the profit is,
system, uncertainty, and that’s not the OECD arbitration, whether generally or US say, in a tax haven but in the separate legal
at its best. My response to that is, look what baseball-style arbitration provisions? entity, because it has the ownership and it
is happening even though we do have the does the funding, and we have a cost-sharing
BEPS project. Imagine if we didn’t launch the The answer is yes, and that’s why we have agreement and everything is fine - let’s be
BEPS project. What would have happened? Action 14. Action 14 is not really about BEPS, serious. We know that there is a problem.
Unilateral actions everywhere, and more but action 14 is the recognition that in a BEPS Let’s fix that. Then, the governments will be
importantly, countries walking away from environment, in fighting BEPS, we also need to much more eager to fix double taxation when
the consensus forever. Once you’ve lost it, be very serious in eliminating double taxation. it arises.
it’s over. The ultimate goal of the OECD is to put in place
a system which will safely ensure companies
So we have the BEPS project at least, we have that there is no double taxation. So, that’s
a sense of direction. Some of the unilateral the goal.
actions are actually within the sense of
direction. Some countries have said, we’re
doing this because this is already agreed
that we’re moving there, and I’m pretty sure
that they will adapt. They will follow what’s
going on, and they are all contributing.
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An interview with
Pascal Saint‑Amans “Now, how do you draw the line?”
There are two particular difficulties in Now, why is it important? Governments Of course, if you do this on the BEPS
BEPS I wanted to pick up with you, if I want to move fast. They want to move measures, which will be consensual, maybe
may, and the first one is the multilateral fast to address BEPS. We’re moving fast. you are opening a door for a more efficient
instrument. Now, I know that there is a bit We’re providing OECD recommendations. international tax system, where instead of
of scepticism about what can be achieved Among the recommendations, we’ll have a having hundreds of teams of negotiators -
with a multilateral instrument, but I number of changes to the OECD Model Tax and it’s fun, I’ve been a tax treaty negotiator.
also know that you see this work as being Convention. So we can get all the countries It’s really fun. It’s enjoyable. But maybe you
of enormous strategic significance and agreeing on, this is how we should design an can be a bit more efficient there, and that
importance to the BEPS project. Could you LoB [limitation of benefit] clause or an anti- is what is at stake. I’m not saying it’s easy,
comment on why you see this work as so abuse clause, or this is how we should design because most of the provisions in tax treaties
important and give an indication of what this paragraph, or Article 5 on permanent are purely bilateral, and it would not be
you think will actually be the output of establishment, or this is how we should agree appropriate to have a multilateral approach.
this work stream? on an arbitration provision to be included But at least, for the BEPS measures, we can
in treaties. do it.
The first output of this work stream is to
provide a report. We have two reports and So, we can do an update of the Model Tax We can do it quickly. It’s legally possible, and
many actions – 13 actions, two reports. The Convention, and then the countries will go it will be for the ministers and the leaders of
two reports are about the digital economy, back to their tax treaty teams and instruct the G20 and the OECD to decide on whether
extremely difficult, the multilateral them to renegotiate 100 treaties here, 70 they want to move into that direction or not.
convention. Pretty difficult from a political treaties there, and we will take a good I guess that they should, that they might
perspective, a technical perspective. Here, decade to have this implemented. Or you be willing to do so, but we have to provide
we provide a report to indicate whether tell the countries, you agree on this, there them with the right analysis, that we are
it’s possible to do a multilateral convention is consensus, there is no reservation. Why currently performing.
technically. Legally, what are the legal don’t you put that in the hard law text, which
challenges there to amend bilateral treaties? is a multilateral convention, or a protocol to
The report will also provide for a menu whatsoever, and then it will be implemented
of options. in a couple of years? That’s what is at stake.
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An interview with
Pascal Saint‑Amans “We have a global forum with 120 countries on an equal footing. It’s global.”
The second issue I had in mind is harmful Then, I think there was something like lack The third layer will be, how do we
tax. We know from the past that this is of political support to the project in the implement this tougher approach to
not an easy issue, but I’d like to ask you, late 2000s, and that’s where a number of harmful tax practices? But, basically, tax
do you think it’s going to be achievable to regimes have been put in place without being competition is something that the OECD has
set out the bounds of what is a harmful reviewed. The financial crisis, the budget nothing against. We are in favour of lower
tax practice currently? Do you think, crisis, fiscal crisis, the wake-up call of BEPS tax rates on corporate income tax, as long
perhaps more importantly, states will be have resulted in having the countries looking as you have broad bases, and the fact that
able to temper their wish to compete on at this again. So, the first step on harmful tax countries want to compete on this is not
tax by complying with the harmful tax practices is to look at the regimes which have a problem, as long as they don’t do it in a
practices agenda? not really been looked at carefully because harmful manner, meaning ring-fenced or too
of lack of political support. There is the aggressive on some sectors where it’s highly
Tax competition is different from harmful political support to review all these, and it’s mobile, otherwise it’s a race to the bottom,
tax competition. I think tax competition being done. which is hard to accept for a large number
is a matter of fact. It’s around, and it will of countries. But having low rates when you
not go away. Harmful tax competition, The second layer there is to check out have the real activity, where you attract
unfortunately, is also around, and I hope the relevance of the criteria, and also the the real people, where you attract the real
it will go away. Now, how do you draw the geographical spread of the work, because activity, is not a problem.
line? In the ‘90s, we do have the report on again, we’re in a globalised environment
harmful tax practice is a growing issue or a where this needs to be global, starting with
global issue which dates back to 1998. Then, the G20 countries which have joined the
we had the forum on harmful tax practices, BEPS project on an equal footing. They all
which did a good job. A large number of agree, starting with Brazil, China and some
regimes were dismantled. others, to say, let’s look at our own regimes,
and then maybe some other countries which
are parts of the OECD processes through the
global forum and so, will join.
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