Key Note Session - Mr. Philip Baker (QC)

EMERGING INTERNATIONAL TAX
TRENDS – PREPARING FOR THE NEW
WORLD ORDER
Philip Baker QC
Field Court Tax Chambers
3 Field Court
Gray’s Inn
London WC1R 5EP
Tel: 020 3693 3700
pb@fieldtax.com
FIELD COURT TAX CHAMBERS
TAXSUTRA CONCLAVE
16th
October 2015

pb@fieldtax.com
OUTLINE
 BEPS – a false dawn
 The new international tax architecture
 Transparency and the real world
 A focus on taxpayers’ rights
 NOTE: any views are personal views, and Chatham
House rules

pb@fieldtax.com
BEPS – A FALSE DAWN

pb@fieldtax.com
 The Final BEPS Reports do not constitute a new,
international tax, world order
 The building blocks of the old order remain the same:
source vs residence taxation; bilateral tax treaties; the
arm’s length principle; the separate entity concept;
leadership by the OECD
 The focus of the project was on MNCs and on direct
tax – perceived as a problem by some countries only
 It had little relevance to other taxes and other
taxpayers (though there is a fair degree of collateral
damage)

pb@fieldtax.com
 There are some very good aspects of the BEPS Final
Reports
 E.g. the Multilateral Instrument – hugely overdue as a
way of updating bilateral treaties
 E.g. some of the proposals on minimum standards on
MAP, and the commitments to arbitration

pb@fieldtax.com
 There are some aspects of the BEPS Final Reports
that are not so good
 The uncertainty created by the work on tax treaty abuse
 The uncertainty created by the PE changes
 The failure to make any real progress on the digital
economy or on CFC reform
 The increased opportunities for disputes

pb@fieldtax.com
 The impact of some aspects of the BEPS project
may be far-reaching (though may yet to be seen)
 Country by country reporting
 The transfer pricing changes
 The clamp-down on tax treaty abuse
 The restriction on interest deductibility
 The multilateral instrument

pb@fieldtax.com
 Why didn’t BEPS create a new world tax
order?
 NB comments as an outsider to the process
 The focus of the project was too narrow
 No time was spent analysing the causes of BEPS
 Too much was attempted in too short a time
 A consensus approach was adopted which allowed some
countries to prevent further progress being made

pb@fieldtax.com
 BUT BEPS may have incidentally pointed the
way to a new international tax architecture

pb@fieldtax.com
THE NEW INTERNATIONAL
TAX ARCHITECTURE

pb@fieldtax.com
THE NEW INTERNATIONAL TAX
ARCHITECTURE
 The BEPS project involved the OECD and G20 countries
as equal participants
 Other countries were drawn in to the project
 This continues a trend for global activities – e.g. the
global fora
 The multilateral instrument work has already attracted
over 100 countries

pb@fieldtax.com
ARCHITECTURE
 We can never go back to the 34 OECD member
countries making international tax rules – the BEPS
project has proved that
 A consensus model is outmoded – it gives too much
power to individual countries

pb@fieldtax.com
ARCHITECTURE
 A short excursus: the OECD as an accident of history
 Work between the World Wars was led by the League
of Nations
 The UN Commission on Taxation was wound up in
1954
 The OECD (OEEC originally) stepped in
 How different would the world be if the UN had
continued its work on taxation?
 Greater transparency
 Greater concern with the interests of the developing world
 Greater focus on indirect taxation

pb@fieldtax.com
ARCHITECTURE
 We can struggle on with the OECD providing support
to a series of wider, global groupings
OR
 We can establish a proper structure at the UN level
and transfer resources there
 This needs a proper, inter-governmental committee
operating on a majority-vote and coalition-building model
 Plus a series of specialist sub-committees and organs
 It takes power out of the hands of tax administrators
 OECD countries and some tax administrators will fight this

pb@fieldtax.com
ARCHITECTURE
 The current position is the most dangerous and
inefficient while we struggle on with an inappropriate
architecture

pb@fieldtax.com
TRANSPARENCY AND THE
REAL WORLD

pb@fieldtax.com
TRANSPARENCY AND THE REAL
WORLD
 The move to greater transparency pre-dates
BEPS:
 FATCA , UK-FATCA, EU-FATCA, CRS
 BUT BEPS has given it new impetus:
 CbCR
 Disclosure of tax rulings
 Disclosure of Tax Avoidance Schemes

pb@fieldtax.com
WORLD
 Greater transparency is now a fact of life
 All businesses and HINWIs will have to accept a
much higher level of scrutiny than previously in
their tax affairs
 NGOs will keep up their scrutiny of tax matters; so
will journalists

pb@fieldtax.com
WORLD
 The disclosures which led to BEPS (the UK Public
Accounts Committee; the Senate Permanent
Committee on Investigations) have disclosed a gap
between the tax world (the world of tax advisors)
and the real world
 The general public (and hence politicians) do not
understand / believe / trust the tax world

pb@fieldtax.com
WORLD
 Do we really believe in:
 BVI IBCs?
 That companies are “resident” where they are
incorporated or are “managed and controlled”?
 That companies in a corporate group behave as
separate entities?
 The arm’s length principle?

pb@fieldtax.com
WORLD
 Do we need to restore taxation to the realm of
reality? (or reality to the realm of taxation)?
 Taxation in accordance with reality works both
ways: the tax authorities also need to respect
reality
 (Remember: the arm’s length world doesn’t exist)

pb@fieldtax.com
A FOCUS ON TAXPAYER’S
RIGHTS

pb@fieldtax.com
A FOCUS ON TAXPAYERS’ RIGHTS
 Greater powers to tax authorities require a balance
of greater safeguards
 The justification is the need for greater voluntary
compliance
OR
 Simply the right to respect for individual rights

pb@fieldtax.com
 THE OECD has been woefully remiss in this
area
 E.g. pressurizing countries to drop safeguards on
data exchange
 E.g. not developing standards for conduct of tax
authorities
 The UN would not have been so remiss
(probably)

pb@fieldtax.com
 IFA 2015 Congress Report: The Practical
Protection of Taxpayers’ Fundamental Rights
 This is part of the new, world international
tax order
 It sets out minimum standards and best
practices
 It requires monitoring

pb@fieldtax.com
 E.g. Prohibition / restriction on retroactive
tax legislation
 E.g. Safeguarding of taxpayer’s confidential
data
 E.G. Safeguarding taxpayers’ rights in the
audit process
 Taxpayer’s rights will be an issue when BEPS
has been long forgotten

pb@fieldtax.com
SOME CONCLUDING
COMMENTS

pb@fieldtax.com
SOME CONCLUDING COMMENTS
 If the BEPS project did not create a new
international tax world order, who will?
 Isn’t the process an on-going one?

Key Note Session - Mr. Philip Baker (QC)

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Key Note Session - Mr. Philip Baker (QC)