The BEPS Project

Abstract

This chapter reveals the US government's struggles in assuming its usual leadership position in the Organisation for Economic Co-operation and Development (OECD) initiatives. This happened for entirely domestic reasons: the Obama administration's inability to implement its preferred solution to BEPS (base erosion and profit shifting)—a tightening of controlled foreign company (CFC) rules—in the face of opposition by US multinationals, paired with the administration's strong political commitment to tax fairness, which prevented the administration from abandoning the initiative altogether. The administration's lack of purpose initially opened agenda space for other governments. Between the release of a first set of discussion drafts and the final BEPS reports, however, the United States fought a successful rearguard battle, retrenching attempts at expanding the taxing rights of source countries and essentially preserving the status quo. This success occurred despite the inclusion of the Group of 20 (G20) emerging economies, which could be expected to shift the power balance away from the United States, and in accordance with the preferences of US multinationals. The diffusion of unilateral initiatives by source countries, which are still subject to political conflict, confirms their frustration with the outcome of the BEPS project.