Co-operative Compliance & BEPS Jeffrey Owens Jonathan Leigh Pemberton

Tax & Growth – the current context The economic environment is already characterised by uncertainty Political discourse about the role of MNEs remains largely hostile in tone Foreign Direct Investment has not recovered to pre- crisis levels World trade is now growing more slowly than GDP The recently agreed sustainable development goals require LDCs to mobilise their domestic resources An adverserial approach to ensuring tax compliance by MNEs drives up uncertainty and costs and can act as a further barrier to FDI, without necessarily delivering good outcomes

How will BEPS impact this environment? There is still uncertainty about the impact of some of the BEPS actions because: More work still needs to be done on the detail Countries have options to choose from Capacity to implement and interpretations may vary If more countries adopt anti-diversion rules, these could overlap and risk double taxation Tax Administrations will have access to much more data: TP documentation, CbyC reports, disclosure of ATP schemes and increased EOI. THIS COULD RESULT IN MORE DISPUTES, GREATER UNCERTAINTY AND REDUCED FDI

How can the Co-operative Compliance model help? The model requires transparency on the part of the taxpayer - full access to all the relevant facts is built into the relationship with the tax administration. The tax administration needs to be clear about the application of the law to the facts disclosed, so that it can provide early certainty. To the extent the model encourages real-time discussion of transactions it builds on the positive experience of APAs, including multi-lateral APAs It offers better tax outcomes at lower cost to the parties

But will Co-operative Compliance survive BEPS ? The political climate encourages an adversarial relationship Tax administrations do not want to be seen to be too close to, or “soft” on business There are concerns about the balance of rights and legal protections for business participants in CC programmes As exchange of information becomes more routine, will information disclosed to one tax administration be misused when it is shared with treaty partners? Are the practical operational capabilities that CC requires in place?

Sustaining the Co-operative Compliance Model If the potential of the model to offset some of the negative results of BEPS is to be realised it needs: Some advocacy Continuing research into the challenges facing tax administrations and businesses engaging in this type of relationship and how they can be overcome Ongoing analysis of current practice, lessons learnt and compliance results achieved These objectives are best achieved through a collaborative effort of academics, government and business coming together in a respected neutral forum

Specific strengths of the Co- operative Compliance model It is capable of delivering tax outcomes that are, and can be shown to be, consistent, evidence based and fair. It drives good governance within MNEs and tax administrations alike. It improves the efficiency of tax administration and reduces costs for compliant businesses. It offers a means of securing early certainty about tax outcomes at a time when certainty is potentially harder to come by as countries move to implement the BEPS Actions It is capable of operating multilaterally as well as bilaterally

Relevant to the needs of tax administrations in Africa? Tax administrations in many African countries lack the capacity to apply all BEPS tools to MNEs operating in their countries A co-operative approach offers the opportunity to achieve the correct tax outcomes at lower cost The lessons learnt will help to target the right actions against those still engaging in aggressive tax planning The model allows countries to reconcile their need for stable revenues with the desire to create a fiscal climate that encourages inward investment

Proving the concept in the African context Although the benefits of the model for developing countries seem clear, they are not informed by practical experience Some pilot programmes would be an ideal way to test the assumptions and learn if and how the model needs to be developed to meet the needs of developing countries and the MNEs that operate there A joint project between the Institute for Austrian and International Tax Law and the African Tax Institute could achieve this.

Some goals for today Reach a common understanding of the open questions about the Co-operative Compliance Model and the challenges it faces. Discuss which of these questions would benefit from further research and what gaps exist in the current research programmes that are focused on the practical aspects of MNE taxation. Scope a potential pilot programme in Africa