When Global Tax Reform Meets International Trade Rules: An Inquiry into the Intersection of the GATS and the BEPS Package

Abstract

A recently published World Trade Organization (WTO) Panel report on Argentina – Measures Relating to Trade in Goods and Services (“Argentina – Financial Services”) has drawn attention to the intersection of rules governing trade and direct taxation of multinational enterprises (MNEs). Nevertheless, such intersection was inevitable since the creation of the General Agreement on Trade in Services (GATS). While measures related to direct taxation are not carved out from the scope of application of the GATS, the drafters have left rooms for WTO Members to take measures to ensure the effective imposition of direct taxes and to conclude agreements among each other to avoid double taxation. However, the depth and breadth of the current global tax reform under the auspices of the Organisation for Economic Co-operation and Development (OECD) and the G20 goes beyond the scenarios envisaged by the GATS negotiators back in the 1990s. As will be explored by this paper, the Argentina – Financial Services case revealed just the tip of the iceberg. Whether the meeting between the global tax reform and the WTO rules will be amicable depends on how countries choose to implement and advance the tax reform project and how the WTO Members intend to accommodate the current trade rules to such reform project. This paper tries to assist this process by providing a systemic analysis of the measures envisaged by the OECD/G20 Base Erosion and Profit Shifting (BEPS) project and how the provisions of the GATS could be relevant. Keeping in mind that the GATS is still a “young” multilateral trade agreement with ambiguities and limited guidance in jurisprudence, recommendations will be proposed concerning the application of the GATS to measures with manifold policy objectives, keeping in mind the asymmetry of the WTO disciplines on goods and services. To put the issue into perspective, this paper will start with an inquiry into the genesis of the current global tax reform project and the origin of its intersection of the GATS and the BEPS Package. Part II will take a detailed look at how the recommendations in the 2015 BEPS Package could potentially cause trade concerns under the GATS, and if the Agreement’s exception clauses are sufficient to excuse the measures taking to implement these recommendations. In doing so, measures related to the BEPS Package are categorized into three groups, namely measures specifically recommended by the BEPS Package; measures designed domestically, but under the guidance developed by the BEPS Package; and measures countries may unilaterally adopt to counteract non-compliance or induce compliance of BEPS Package’s recommendations by other countries. Finally, Part III will spell out recommendations to ensure an amicable meeting between the BEPS Project and the international trade rules.