OECD outlines strategy to engage emerging markets in fight against tax base erosion


By Kim Nilsen

The Organisation for Economic Co-operation and Development (OECD) released this week a strategy for deepening developing-country engagement in its work to stop the erosion of national tax bases and the shifting of profits to jurisdictions solely to avoid paying tax.

The emerging-market strategy, designed to strengthen developing-country involvement in decision-making processes of the OECD’s Base Erosion and Profit Shifting (BEPS) Project, has three key elements:

  1. Direct participation in the Committee on Fiscal Affairs (CFA) and its subsidiary bodies. Building on their engagement in the earlier phase of the BEPS Project, about ten developing countries, including Albania, Jamaica, Kenya, Peru, the Philippines, Senegal, and Tunisia, will be invited to participate in meetings of the CFA, a key BEPS decision-making body, and its technical working groups. Several other developing countries are expected to confirm their participation in the CFA or the technical working groups in the coming weeks, the OECD said in a press release.
  2. Creation of five regionally organised networks of tax policies and administration officials. The networks will co-ordinate an ongoing dialogue with a broader group of developing countries on BEPS issues.
  3. Support for capacity building. The regional networks will play a role in developing toolkits to support the practical implementation of the BEPS measures as well as some of the priority issues for developing countries (tax incentives and transfer-pricing comparable data), which are outside the BEPS Action Plan. The regional networks will also be a forum for interested developing countries to discuss the negotiation and implementation of the multilateral instrument under Action 15 of the BEPS Project.   

“This is not an anti-business initiative,” OECD’s Grace Perez-Navarro said of the BEPS project in a presentation this week to the World Congress of Accountants in Rome. Perez-Navarro, who is deputy director of the Centre for Tax Policy and Administration, described the work as an effort to modernise tax law and create greater predictability within the tax system.

In September, the OECD released the first of seven reports and recommendations called for in its 2013 Action Plan on Base Erosion and Profit Shifting. If implemented by OECD member states, the recommendations would address several problems identified by the OECD and G20 leaders that reduce countries’ tax revenue from multinational companies.

The OECD said in a news release that base-erosion and profit-shifting issues pose “acute problems for developing countries” because they generally have smaller tax bases than developed economies, and a larger share of their tax revenue comes from taxing corporations. The G20 finance ministers called on the OECD to develop a new structured dialogue process for deepening developing-country engagement in tackling BEPS issues and ensuring that their concerns are addressed.

Kim Nilsen (knilsen@aicpa.org) is publisher of CGMA Magazine.

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