Base Erosion And Profit Shifting Project Research Articles

CROSS-BORDER TAX CHALLENGES AND SOLUTIONS IN GLOBAL FINANCE

In the dynamic landscape of global finance, cross-border transactions have become increasingly prevalent, facilitating economic growth and international trade. However, accompanying this expansion are complex tax challenges that both multinational corporations and governments encounter. This abstract delves into the multifaceted issues arising from cross-border taxation and explores potential solutions to mitigate these challenges effectively. One of the primary concerns in cross-border taxation is the issue of base erosion and profit shifting (BEPS), where multinational enterprises exploit gaps and mismatches in tax rules to artificially shift profits to low-tax jurisdictions, thereby eroding the tax base of higher-tax jurisdictions. Such practices not only lead to revenue losses for governments but also create an uneven playing field for businesses. Furthermore, navigating the intricate web of international tax treaties and agreements poses significant hurdles for taxpayers and tax authorities alike. The lack of uniformity in tax regulations across jurisdictions often results in ambiguity and disputes regarding the allocation of taxing rights and the determination of taxable income. Addressing these challenges requires a comprehensive approach that incorporates both policy reforms and international cooperation. Implementing measures such as the OECD/G20 BEPS project, which aims to modernize international tax rules and combat tax avoidance strategies, is crucial. Additionally, enhancing transparency through initiatives like country-by-country reporting enables tax authorities to gain insights into the global operations of multinational corporations, thereby facilitating more effective enforcement of tax laws. Moreover, fostering collaboration among nations through information exchange agreements and multilateral frameworks enhances the effectiveness of tax enforcement efforts and reduces opportunities for tax evasion. Embracing digitalization and leveraging technology tools can also streamline tax compliance processes and enhance the efficiency of cross-border tax administration. The complexities of cross-border taxation in global finance necessitate proactive measures to address BEPS, enhance tax transparency, and promote international cooperation. By implementing comprehensive strategies that blend policy reforms with technological innovations, stakeholders can navigate the challenges posed by cross-border taxation while fostering a fair and conducive environment for sustainable economic growth.
 Keywords: Cross-Border, Tax, Environment, Sustainable, Economy, Review.

Towards an Amended Arm’s Length Principle: Tackling Complexity and Implementing Destination Rules in Transfer Pricing

The arm’s length principle (ALP) is the cornerstone of multinational enterprises’ (MNEs) profit taxation. However, despite extensive improvements by the OECD’s Base Erosion and Profit Shifting (BEPS) Project, two aspects of the ALP has been widely criticized. First, market jurisdictions where MNEs serve their customers have little access to the MNEs’ profits because there is often no place of supply for tax purposes or, if there is, the profits reported there are very low. This reduces the perceived fairness of profit allocations and the acceptance of rules by taxpayers and jurisdictions. Second, the rules governing the ALP have continuously become more complex and difficult to implement. Whereas the first point of criticism will presumably be addressed by Pillar One, the second has not yet been dealt with and is even more exacerbated by the BEPS Project. The authors suggest amending the ALP by attempting to effectively focus on its complexity and implementing destination rules. The former can be achieved with a reduction of functional analyses and information requirements as well as a standardization of margins reduces complexity while the latter target the allocation of MNEs’ profits to market jurisdictions which they have in common with Pillar One. However, in contrast to Pillar One that rests on a multilateral agreement, the amended ALP is embedded in a bilateral context (usually a double tax agreement (DTA) and underlying transfer pricing guidelines). Keeping the bilateral character significantly reduces conflicts of interest between jurisdictions, simplifies tax enforcement, and offers important benefits for dispute resolution. This is assumed to increase the perceived fairness of profit allocations and acceptance of the ALP. A stylized example is used to demonstrate how the amended ALP can be applied.

ПОДАТКОВЕ ПЛАНУВАННЯ ТНК НА ЗАСАДАХ РИЗИКО-ОРІЄНТОВАНОГО ПІДХОДУ В УМОВАХ ПРОЕКТУ BEPS ТА ДІДЖИТАЛІЗАЦІЇ ЕКОНОМІКИ

The article investigates the peculiarities of the transnational corporations (TNC) tax planning in the context of the base erosion and profit shifting (BEPS) project and economic digitalization. The authors conducted an analysis of the rules that regulate the application of risk management in TNC activities, and they justified the feasibility of using SWIFT and matrix methods for assessing tax risks in the process of TNC tax planning. A model of TNC tax planning in the context of economy digitalization and BEPS project, which allowed for increased tax planning effectiveness by obtaining objective and sufficient information for the construction of possible scenarios of the companies' operations, is proposed in the article. The model includes stages of the tax planning process, namely: tax landscape analysis for countries of registration, countries of digital presence, and international taxation rules; constructing a tax risk trigger chain for the company; assessing the probability and impact of tax risks; identifying and selecting tax risk management options; integration of tax risk management in the business scenario. The conducted research allowed us to predict what would happen if tax rates, conditions for determining the object of taxation, or other taxation conditions in the TNC’s country of registration or presence changed. In the article, it was proposed to use the results of comparing corporate performance indicators (the rate of change in profit, return on assets, return on capital, return on sales) and indicators characterizing tax consequences (the rate of change in tax liabilities) as criteria for selecting tax risk management options for TNC. The authors defined the mechanism for choosing the tax risk management methods in the context of the economic digitalization and the particular BEPS project, which allowed conducting the real-time control not only by TNC, but also by tax control bodies, auditors, financial consultants, and representatives of international organizations, simplified communication between them, and reduced subjectivity when making any decisions.

Assessing the Influence of Different Interest Groups on International Tax Policy: Evidence from the BEPS Project*

ABSTRACTThis study investigates the influence of three interest groups—businesses, the tax profession, and civil society—on tax rules in the context of the Organisation for Economic Co‐operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project. Our study is important as prior research has not examined the direct influence of various interest groups on the content of tax rules by means of comment letters. Using content analysis, we seek to explain the lobbying success of the different interest groups by examining the relevance of the kind of information transmitted and the alliance strategies used. Results indicate that lobbying success is mainly explained by the vested interests of the three groups, with businesses less successful than the other two interest groups as long as all interest groups are equally able to provide information. We also find that the lobbying success of businesses increases when proposals require specific expertise. However, bias is still relevant for lobbying success as we find that proposals from tax professionals with practical experience, likely to reflect less bias, are relatively more successful than proposals from businesses. Furthermore, our results suggest that mobilizing commenters who have a shared interest in the form of alliances is a promising lobbying strategy. Overall, our findings highlight the importance of expertise and collective actions for lobbying success.

Messaging without a Message: Executive Value and Social Media Activity

The final report on Action 14 of the Base Erosion and Profit Shifting (BEPS) project, Making Dispute Resolution Mechanisms More Effective presents a commitment by countries to implement certain “minimum standards” on dispute resolution. In many ways, Action 14 is the linchpin to the success of the entire BEPS project. To implement the significant changes developed under the BEPS project and make certain that there is neither unintended double taxation nor double non-taxation, there must be a strong and effective mechanism in place when disputes do (inevitably) arise. While the goal of the BEPS project is to create a more cohesive international tax framework, it would be naive to assume that governments will suddenly stop having disagreements over how a particular transaction should be taxed or how a treaty provision should be applied. Indeed, we could see more disputes if countries do not implement the BEPS recommendations in their domestic law in a broadly consistent manner. Therefore, it is of utmost importance that the implementation of the suggested BEPS proposals is complemented by a stronger and more efficient dispute resolution mechanism to ensure certainty for businesses. This research paper provides an overview of the existing Mutual Agreement Procedure (MAP) framework in Singapore and other selected Asian countries and the practical experiences around it. It also discusses the gap analysis for these countries (existing framework in these countries vis-a-vis the minimum standards and best practices prescribed under Action 14). The paper then focusses on the ‘mandatory arbitration’ as recommended under Action 14 including an overview of the already existing arbitration systems. This section also seeks to analyse the practical experience of arbitration in other countries and evaluates arbitration as an additional dispute resolution mechanism for Singapore. Finally, we analyse the implications of the multilateral instrument developed as part of Action 15 and the joint audit as an alternative dispute resolution mechanism.

Legitimacy in International Tax Law-Making: Can the OECD Remain the Guardian of Open Tax Norms?

The fight against tax avoidance and tax evasion has become a policy priority of many states. Unilateral action is, however, not an appropriate solution. Global problems of tax avoidance and evasion can only be successfully addressed through international cooperation. In this context, the efforts of the OECD for enhancing cooperation in international taxation have been impressive over the last decade. Reference can, for example, be made to the various initiatives relating to information sharing and the Base Erosion and Profit Shifting (BEPS) Project. Although these initiatives seem legitimate, the role of the OECD in international tax law-making has been criticized. The more influential the OECD’s initiatives are and the more the decision-making authority in relation to taxation shifts from the national to the international level, the more its legitimacy is questioned. The purpose of this article is to examine whether the OECD indeed lacks legitimacy and, if so, what could be done to overcome such a legitimacy deficit. The article starts by analysing in more detail the role that the OECD has played (and is still playing) in international tax law-making and what legal value should be attached to the instruments that have been developed by the OECD. The authors then proceed to assess the legitimacy of the OECD during the BEPS Project. A conceptual framework is needed to assess an international institution’s legitimacy. In this respect, the political science-oriented angle of input, output and throughput legitimacy was taken as a basis. The research shows that the OECD lacked input and output during the BEPS Project, but the authors also identified many flaws in the decision-making process itself. The authors argue that whatever international (rule-making) body is developed to take on a role in international tax law-making, legitimacy issues will remain in the absence of appropriate decision-making procedures. Whilst turning the OECD into a sounding board under the auspices of another organization may therefore not be very helpful, the organization should acknowledge that it needs to monitor its decision-making procedures if it wants to remain the guardian of open tax norms in international taxation. More transparent and equal participation by states, other stakeholders and the public at large, as well as more robust accountability mechanisms, may restore the OECD’s legitimacy.

Pakistan: Bracing for BEPS

The article spatially juxtaposes the BEPS Project and the recommendations package handed down thereunder in Pakistan and critically appraises its response at two levels: ideational and practical. It is argued that the ideational lens of sovereignty, efficacy, and legitimacy through which the BEPS phenomenon and its outcomes are being keenly looked at elsewhere has not really spiced Pakistan’s response to the Base Erosion and Profit Shifting (BEPS) proposals or the public policy debate surrounding them. At the practical level, it critically maps the BEPS-specified areas that Pakistan has already chartered and those that remain unchartered. The ideational level strings obliquely steer the debate at the practical level. Pakistan & BEPS, BEPS and Sovereignty, BEPS and Legitimacy, BEPS Implementation, International Tax Reform.

US Tax Reform: A Multilateral Success?

The US tax reform passed by Congress in December 2017 constituted a major overhaul of its tax system and of its international tax rules in particular. According to statements made by the administration and members of Congress supporting the law (informally known as the Tax Cuts and Jobs Act), the tax reform had as its primary goal generating domestic economic growth. But lawmakers’ statements also highlight the need for tax reform to protect against erosion of tax revenues through cross-border tax planning. Unlike some other countries’ legislatures, which gave the OECD and its base erosion and profit shifting (BEPS) Project explicit credit in enacting international tax rule changes, the US Congress was practically silent on BEPS as a rationale for the TCJA, and indeed, some members’ statements about the Project were overtly hostile. And yet a number of the anti-base erosion provisions incorporated into the new law are directly traceable to the BEPS Project, and some also serve to protect other countries’ tax bases from profit shifting by multinationals. At the same time, it would be inaccurate to characterise the US international tax reforms as a wholesale adoption of the BEPS recommendations. The multi-faceted nature of the US tax reform—unilateral, focused on local competitiveness, while simultaneously incorporating aspects of the BEPS multilateral project—raises the question of whether it is more appropriate to characterise the reform as a success of multilateralism or vogue unilateralism. The short answer is that it displays aspects of both. The 2017 US tax reform supports the notion that ideas and processes developed as part of multilateral engagement can influence individual country law changes, even when those changes do not explicitly adopt the recommendations reached through multilateral agreement. While the US reform had nothing formally to do with multilateral engagement, it simultaneously may demonstrate that multilateralism can be characterised as a success even when lacking the appearance of it.

Curtailing BEPS through Enforcing Corporate Transparency: The Challenges of Implementing Country-by-Country Reporting in Developing Countries and the Case for Making Public Country-by-Country Reporting Mandatory

Ensuring corporate transparency is essential in a globalized economy to prevent tax base erosion and profit shifting (BEPS). This article explains several corporate transparency initiatives by international bodies that are currently spearheaded by the OECD. Under Action 13 of its BEPS Project, the OECD recommended that multinational enterprises must comply with a globalized three-tier documentation structure, which includes country-by-country (CbC) reporting. At the domestic level, countries that are part of the OECD Inclusive Framework are expected to implement certain provisions to enable CbC reporting and to undergo a Peer Review of the same by the end of 2020. This article addresses three related matters that relevant to ensure the effectiveness of CbC reporting from a developing country perspective. First, the article recognizes that although the OECD has issued reports and guidelines on CbC reporting, the capacity constraints of developing countries often make it difficult for them to engage constructively with those reports. This article provides a one-stop synopsis of what CbC reporting entails and the procedures relating to its implementation. This synopsis will be considered instrumental for policy makers and tax administrations in developing countries. Second, the article discusses some challenges that developing countries face in complying with the implementation requirements of CbC reporting. The article provides recommendations as to how those challenges can be addressed. Third, the article postulates that, even if those challenges are addressed, a policy concern is that the OECD’s restricted approach to CbC reporting (which only permits exchange of the reports between tax authorities) impacts the ability of developing countries to access CbC reports. The paper advances the fact that CbC reporting is not a new phenomenon. The United Nations (UN) was the first to propose policy initiatives on CbC reporting in the 1970s, to be public in nature as the most effective way to ensure corporate transparency. The UN’s policy initiatives protected the interests of developing countries by safeguarding their tax bases. However, the 1970 proposals were not supported by developed countries. This article reviews the extent to which the OECD has taken on the UN’s proposals and argues that any departures from those proposals will negatively impact developing countries’ ability to benefit from CbC reporting. The article recommends that the OECD adopt the UN’s proposal by making public CbC reporting mandatory, otherwise competing interest may hamper the effectiveness of the OECD’s initiative.

Diverse Interests and International Legitimation: Public Choice Theory and the Politics of International Tax

In her article, Mason concludes that politics – or “bargaining over national interests”— “will play a starring role in determining the outcomes” of the current digital tax project. In this essay, I apply public choice theory to the politics of international tax and argue that two questions can shape our understanding of international tax negotiations and therefore help us predict the outcomes of future international tax reform projects. First, what interests are country delegates representing? Second, how are countries using their involvement in international negotiations to represent these interests? The first question highlights that country delegates are often not defending some agreed-upon “national interest” but are instead often protecting the interests of particular political parties, industries, or taxpayers, which in turn means that interests can change over time and that some voices are missing from debates. The second question highlights that country delegates can engage in international tax negotiations in a variety of ways. They can try to limit what, if anything, the negotiations achieve; they can try to push for more expansive results; and they can use the negotiations to provide international support for their own country's laws. This essay focuses on one particular version of this third type of engagement, where delegates use their country's involvement in an international project to validate and legitimate an idea or proposal that may previously have had little support. I refer to this involvement as “international legitimation,” and I argue that the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) Project shows that delegates who took this approach may have achieved the most long-term success in that their inclusion of little-known provisions or concepts in the international outputs of the BEPS Project ended up leading to these provisions and concepts being adopted by countries around the world.

Country Note: Review of Implementation of the Inclusive Framework on Base Erosion and Profit Shifting in Indonesia

Tax avoidance by multinational enterprises in Indonesia has led to a massive, ongoing loss of tax revenue. A type of tax avoidance known as base erosion and profit shifting (BEPS) has become a global issue and compelled the OECD to take measures by releasing the BEPS Action Plan and launching the BEPS Project. Indonesia declared its commitment to adopt appropriate parts of the outcome of the BEPS Project for developing countries in Indonesia’s domestic tax rules, recognized as the Inclusive Framework on BEPS or BEPS Minimum Standards. This article analyses the implementation of the BEPS Minimum Standards in Indonesia and how the government has taken action to counteract tax base erosion. The author considers qualitative research and data collected through a literature study and in-depth interviews. Indonesia is in the process of implementing the BEPS Minimum Standards, as addressing transfer pricing issues and preventing tax treaty abuse are currently particular areas of focus for the government.

The DNA of the Principal Purpose Test in the Multilateral Instrument

This article provides a comprehensive analysis of the framework of the principal purpose test (PPT) included in the Multilateral Convention (MLI) designed by the OECD as part of the Base Erosion and Profit Shifting (BEPS) Action 6 Final Report, ‘Preventing the Granting of Treaty Benefits in Inappropriate Circumstances’, included in the BEPS Project. This article maps the primary and secondary elements generally used in a general antiavoidance rule (GAAR) to check the feasibility of these concepts in the PPT. Potential weaknesses are pointed out, as well as challenges for its legal implementation, application and interpretation. The article assesses the feasibility of the main features of the PPT as a general anti-treaty avoidance rule (GATAR) to be included in the tax treaties of the states and jurisdictions that joined the MLI. From this perspective, whether the PPT will prevent treaty abuse, treaty avoidance or aggressive tax planning without creating uncertainty and shifting too much discretionary power to tax administrations is one of the issues. Ultimately, the strengths of this provision will depend on the legislatures and courts in the near future.

A Theoretical Reflection on the OECD’s New Statistics Reporting Framework for the Mutual Agreement Procedure: Isolating, Measuring, and Monitoring

In October 2015, the G20 Finance Ministers endorsed the base erosion and profit shifting (BEPS) project, which has been acclaimed as the most fundamental transformation of the international tax rules in almost a century. The BEPS project contains 15 actions, of which Action 14 aims to strengthen the mechanisms of international tax dispute resolution, particularly the mutual agreement procedure (MAP). This article provides a theoretical reflection on a key initiative of Action 14—the new MAP Statistics Reporting Framework (vis-A -vis the 2007 MAP Statistics Reporting Framework). While scholarly attention to this initiative is scant, this article explores its theoretical and practical implications. Specifically, the logic underlying this framework is to structure the MAP process so that the contribution of an individual competent authority could be segregated and measured and that the agency problem characterizing the MAP process could be mitigated. Based on this logic, several prospects of improving the current mechanism of MAP have been envisaged. First of all, it is proposed that the MAP process could be further structured so that the performance of the competent authorities could be better measured. Second, a more structured MAP process lends itself to more comprehensive domestic judicial review. In a broader sense, this article could also be regarded as a response to a methodological gap in the past studies of international tax dispute resolution—the shortage of theoretical reflection in this area.

Estimating the fiscal effects of base erosion and profit shifting: data availability and analytical issues

The multilateral efforts, led by the Organisation for Economic Cooperation and Development (OECD), to address base erosion and profit shifting (BEPS) have attracted much attention from tax policy makers, practitioners and academics. In 2012, the OECD/G20 BEPS Project was launched to address BEPS through a range of international tax policy measures. A key part of the BEPS package was the Action 11 report, which considered the fiscal and economic impacts of BEPS and produced an empirical estimate of the global corporate income tax (CIT) revenue losses arising from BEPS of between 4 per cent and 10 per cent of global CIT revenues. This research note highlights some of the data-related and methodological challenges facing researchers attempting to estimate the fiscal impacts of BEPS, discusses some of the methodological approaches that have recently been applied to this end, and provides a preview of the forthcoming release of the first edition of the OECD Corporate Tax Statistics.

What made base erosion and profit shifting project possible?

PurposeThe purpose of this paper is to unveil the true background of the Base Erosion and Profit Shifting (BEPS) Project and to suggest crucial indexes for bringing a movement into a future ceiling causing a struggle of the international tax system.Design/methodology/approachThis paper looks into the historical context of this project before and after Starbucks’ scandal, comparing to other contexts of the international tax system. Also, this paper partially reviews BEPS from a legal perspective.FindingsThe key factors for building momentum of reform of international taxation are a country having a government willing to embrace the cause of reform, unfairness felt toward entities using tax avoidance schemes which other comparable entities could not be use, grass-roots pressure for the reform, effective places to negotiate cooperation among major countries for the reform, solid cooperation among many countries in the world to implement standards and rhetoric of slogan with less opposition.Originality/valueThe momentum of the reform of international taxation was analyzed before. But the BEPS Project has involved some unique events as compared with the Organization for Economic Cooperation and Development’s project on harmful tax practices, such as initiation of NGOs and boycott by consumers. Additionally, this paper will discuss insights, which the former research did not do.

A Historical Analysis of the BEPS Action Plan: Old Acquaintances, New Friends and the Need for a New Approach

In 2012, public opinion focussed on what has been called ‘aggressive tax planning of multinational enterprises’. Since then, the G20 and OECD developed the Base Erosion and Profit Shifting (BEPS) Action Plan – a phenomenon that has received enormous attention. Despite this attention, the efforts, methodology and outcomes, and the instruments used to implement them, pose very little innovation. This article analyses the issues raised by the BEPS Action Plan from a historical perspective, showing that they remain grounded on the same basis of discussions that took place decades ago. This is probably because the project was triggered by a decrease in tax revenue, and not by an actual study of the failures of the system. The only real innovation of the BEPS Project is the change in the public state of mind and attitude towards tax planning, as well as a totally new way of developing international tax rules through consensus with the participation of a broad number of countries. Future steps should take advantage of this actual innovation, get rid of previous analysis and, taking into account of the current economic situation, study (1) the structure of the tax system and tax burden; (2) the jurisdiction to tax rules and the source and residence principles; and (3) the relationship between private law and tax law, i.e. legal personality and recognition of foreign persons and contracts. Without such in-depth analysis, any changes would be changes that only deepen already existent failing principles forming the base of the current system.

Revolutionary Changes to the Arm’s Length Principle under the OECD BEPS Project: Have CFC Rules Become Redundant?

Title question of the article is deliberately provocative. The subject of interactions between Controlled Foreign Company (CFC) regulations and transfer pricing (TP) regulations is a complex topic that has been bringing divergent opinions over many decades (In United States, from where both CFC regime and TP regime originated, the literature on this subject has been present at least since 1969, being no more than one year after the introduction of detailed US TP regulations (1968). CFC regulations – Subpart F – was introduced therein in 1962. See for instance: L. Kauder, Taxation of Domestically Controlled Foreign Corporations: A Comparative Study of Subpart F and Section 482, 14(2) Villanova L. Rev. (1969)). The polemic in this regard has, however, acquired a new dimension together with the OECD’s adoption of modifications to the arm’s length principle as referred to in Article 9 of the OECD Model Convention under the Base Erosion and Profit Shifting (BEPS) project, which led to publishing the 2017 TP Guidelines for Multinational Enterprises and Tax Administration (OECD, 2017 TP Guidelines for Multinational Enterprises and Tax Administration, available at http://www.oecd.org/tax/transfer-pricing/oecdtransfer- pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm). These amendments, which involve the expansion of the guidelines on the relationship between (1) the legal title to the asset, and (2) the eligibility of a cross-border group of related entities to recognize the corresponding income generated by that asset, has led to an unobservable earlier approximation of the scope of CFC and TP regimes. It is therefore the study question of this article to verify whether the enhanced TP regulations are capable of replacing CFC regulations.

China and BEPS

This article provides an overview of China’s reaction to the G20/OECD Base Erosion and Profit Shifting (BEPS) project. From 2013 to 2015, the OECD developed a series of actions designed to address BEPS activities by multinational enterprises, culminating in a final report of 15 action steps. The article reviews and explains China’s reaction to the BEPS project and its actions in detail, with a particular focus on transfer pricing issues. It shows that China has actively participated in both developing and implementing the BEPS project. The article further suggests that in the post-BEPS era, China is expected to implement the BEPS project in a more consistent and coherent way, and will take whatever measures necessary to guarantee the successful implementation of the BEPS package in collaboration with the global community.

Lobbying on the BEPS Project? Assessing the Influence of Different Interest Groups

This paper investigates the influence of firms, the tax profession, and civil society on tax legislation in the context of the OECD Base Erosion and Profit Shifting (BEPS) project against international tax avoidance. Based on content analysis, we simultaneously study two lobbying levers that interest groups can deploy via sending comment letters: taking a position of support or opposition to proposed tax rules and providing individual proposals to modify these rules. The two levers differ in their complexity and thereby the degree of asymmetric information between interest groups and the OECD. Our analysis results in three findings. First, asymmetric information limits civil society’s influence. Second, the tax profession as mediator between firms, society, and the tax authorities is significantly more successful with both lobbying levers than firms. Third, alliances and mobilization of many commenters with shared interests seem to be a promising lobbying strategy for firms.

Critical Evaluation of Action 14 Recommendations and the Suggested Way Forward for Singapore

The final report on Action 14 of the Base Erosion and Profit Shifting (BEPS) project, Making Dispute Resolution Mechanisms More Effective presents a commitment by countries to implement certain “minimum standards” on dispute resolution. In many ways, Action 14 is the linchpin to the success of the entire BEPS project. To implement the significant changes developed under the BEPS project and make certain that there is neither unintended double taxation nor double non-taxation, there must be a strong and effective mechanism in place when disputes do (inevitably) arise. While the goal of the BEPS project is to create a more cohesive international tax framework, it would be naive to assume that governments will suddenly stop having disagreements over how a particular transaction should be taxed or how a treaty provision should be applied. Indeed, we could see more disputes if countries do not implement the BEPS recommendations in their domestic law in a broadly consistent manner. Therefore, it is of utmost importance that the implementation of the suggested BEPS proposals is complemented by a stronger and more efficient dispute resolution mechanism to ensure certainty for businesses. This research paper provides an overview of the existing Mutual Agreement Procedure (MAP) framework in Singapore and other selected Asian countries and the practical experiences around it. It also discusses the gap analysis for these countries (existing framework in these countries vis-a-vis the minimum standards and best practices prescribed under Action 14). The paper then focusses on the ‘mandatory arbitration’ as recommended under Action 14 including an overview of the already existing arbitration systems. This section also seeks to analyse the practical experience of arbitration in other countries and evaluates arbitration as an additional dispute resolution mechanism for Singapore. Finally, we analyse the implications of the multilateral instrument developed as part of Action 15 and the joint audit as an alternative dispute resolution mechanism.