Democratic Legitimacy of BEPS in Countries in South America and the Sub-Saharan African Region

Abstract

The main question addressed in this paper is how do the OECD multilateral instruments to enhance the standard of transparency and the BEPS multilateral instrument relate to the conditions for input and output legitimacy? For this purpose the definition of Scharpf, including the distinction between input legitimacy i.e. government by the people and output legitimacy i.e. government for the people, will be addressed.The OECD multilateral instruments to enhance transparency and exchange of information and the BEPS Project have been widespread to OECD countries and non-OECD countries. In principle, the OECD develops instruments that are not binding by nature. However, by means of political decision based on the membership to the OECD, it can be argued that these instruments have been accepted and the OECD member countries will most likely adopt them. The non-OECD countries have not participated in the decision making process of these instruments. However, since these countries also need to tackle tax fraud, tax evasion, and to tackle base erosion and profit shifting, these countries are open to the OECD multilateral instruments to exchange information and to the BEPS Project. This situation creates a shift in legitimacy and the question is under what conditions will then this shift need to take place? The aim of this paper is to analyze the current OECD multilateral instruments and the BEPS Project in light of the principle of legitimacy. The analysis of input legitimacy will address the transparency, participation and representation in the agenda setting. The analysis of output legitimacy will take into account the goals of citizens, governments, the OECD and the G20 to tackle tax fraud, tax evasion and base erosion profit shifting in order to obtain more revenue to provide public services. This paper argues that despite the efforts of the OECD for transparency and openness, the OECD in the BEPS should address the criteria of 'input legitimacy and output legitimacy'. This paper provides recommendations for the BEPS Project and its Multilateral Instrument to enhance transparency, participation, representation in the agenda setting, and to develop a coherent and comprehensive approach for countries in South America and Sub-Saharan Africa.