Like Pandora’s Box gradually opening up – criticisms of the BEPS 2.0, Two Pillar Solution are popping up with increasing regularity as reality hits home for many. To a great extent, I agree with many of the shortcomings of the process but today, I would like to offer some perspective:
- Before BEPS, the international tax system was no longer fit for purpose – the BEPS process, at least P1, was a targeted initiative to do something which the OECD Secretariat and subsequently the Inclusive Framework member countries spearheaded. Lets put aside for now how much of a voice each member country truly had at the table, the impossible timeline that was imposed and what drove the Pillar 2 solution.
- The fundamental issues relating to international distribution of resources are systemic – countries continue to compete against each other, corporations continue to be driven by profits. Pre-BEPS we had tax competition, now we have competition for taxes. The theme of economic competition at national and corporate levels will continue and unless a fundamental shift occurs, this will continue to be the theme that dominates.
- What was significant about the BEPS process was the way in which engagement was permitted and executed with agility. For certain we have much to learn from the shortcomings of the process, but it would be a waste to cast aside all that we have learned about how to engage in international dialogue as well. Let’s keeps in mind that the dialogue process continued through erratic global leaders and a global pandemic.
- During the negotiation process, as an international community, apart from a few key dissenting voices, generally there was implicit support for the steps taken. The OECD Secretariat took various initiatives to offer some level of public consultation and many of the P2 innovations are the product of feedback.
Lessons learnt:
- Tax policy awareness matters. Our favourite catch phrase of the first half of this decade is “the train has left the station”. By now, with rules going live in many jurisdictions, indeed the process has truly started. But it’s not too late to take smaller steps to shape and understand the rules. Waiting till rules are effective or have a personal impact to become informed is often too late.
- The real issue – many of the problems that we have with the international tax system are systemic. Competition between countries has always been there and the influence of international instruments intended to promote collaboration continues to deteriorate. The fundamentals of “playing fair” is no longer a prerequisite to participating in the international game.
Our international tax system sits within this web of complexity and due recognition has to be given to this challenge as we grapple with the issues coming out of the 2 pillar solution and we work towards the real goal of harnessing the resources that we need to continue to develop.