The famous Shakespeare quote is what comes to mind for Herman B. Bouma, Esq. when he thinks of BEPS, according to his article in BNA.
We don’t share his conclusions about what ultimately ails the international tax landscape, but his critique of the OECD and the BEPS process is on the money:
First of all, the project was off to a bad start when, in the fall of 2012, the OECD failed to zero in on exactly what the G20 was concerned about. Instead, once the G20 expressed some concern and asked the OECD to come up with an Action Plan, the OECD took off running. Apparently in an effort to impress the world (and perhaps keep the UN Committee of Experts on International Cooperation in Tax Matters at bay), the OECD came up with a huge list of items, throwing in everything except the kitchen sink. Thus, the project never had a clear focus. …Once it identified the solutions, it should have then come up with an Action Plan for countries, not for the OECD. Instead, the Action Plan that the OECD developed for itself was a jumbled assortment of different items with different purposes and no clear focus.
He also emphasized a point we’ve often made, which is that base erosion is meaningless bureaucratic jargon that captures a lot of actions that not only are not wrong, but which have net positive outcomes (see tax competition):
A second major factor leading to the failure of the BEPS project is that the term “BEPS” is empty. What does it really mean? I always draw a complete blank when I hear the term. It stands for “base erosion and profit shifting” and we’re told by the OECD that profit shifting is a type of base erosion. Thus, we’re left with the term “base erosion.” But what does this mean? Beaches erode, not tax bases. Tax bases are reduced. Thus, we’re talking about base reduction. But much base reduction is clearly legitimate. In fact, everyone agreed, including the OECD, that what the lambasted multinationals were doing was perfectly legal. Thus, base reduction can be perfectly innocuous.
Thus, if BEPS really means base reduction, what actually is the problem? Clearly, the OECD BEPS project was upset about certain types of base reduction but not others. But how do you distinguish between the two? The OECD BEPS project talked about “BEPS risks,” “BEPS issues,” “BEPS concerns,” “BEPS channels,” etc., but what exactly were these? If the project had defined “BEPS” as involving certain specific types of base reduction, then the term would have had some meaning. However, the OECD never did this; it simply referred to BEPS as some type of generic category of base reduction and thus it was never clear what exactly it was referring to.
Here, I suspect, is where we begin to part ways with the author. When BEPS is understood through the lens of an attack on tax competition, as argued by my paper, this vagueness is easily seen to be deliberate. They didn’t clearly define the scope of their agenda to exclude legitimate causes of base reduction because they did not want to exclude those things. They want to eliminate such activity altogether, so that free spending politicians may enact bad tax policies without suffering the immediate consequences of a fleeing tax base. Of course, they’ll still suffer in the end when economic growth fails to keep up with government growth, but politicians and their tax collectors are nothing if not myopic.
