Last week I presented a work in progress on the OECD's newest global forum, which is being created to fulfill and further its BEPS initiative, as part of the BYU symposium "The Cutting Edge Of International Tax Reform." I tentatively titled my paper (ok, outline) "Not So Soft Law: The OECD Tax Regime" but I don't think I will stay with that title because soft law is still a fairly obscure notion among tax academics and practitioners, at least, in North America (it seems somewhat better-understood elsewhere). In any event I don't have a working paper yet but here is my working abstract:
Tax jurisdiction gaps and overlaps are inevitable in a world economy powered by constant cross-border flows of capital and income. States have long sought to overcome issues thus created by engaging in consensus building over nonbinding “soft law” norms via the Organisation for Economic Cooperation and Development (OECD). But with its most recent exercise, the Base Erosion and Profit Shifting initiative, the OECD is hardening these norms into a genuine global tax regime. It is doing so with model legislation, peer monitoring, and institutions that supplant its more inclusive policy rival, the United Nations, bringing in non-OECD countries as "BEPS Associates". This Article argues that the implications of these developments include building a new international tax organization (or world tax order) to avoid the encroachment of the United Nations as a potential tax policy rival, thus ensuring the continuing global tax policy monopoly of a core set of OECD nations.I'm still thinking through all of the fascinating institutional changes taking place as part of the BEPS process, and don't have any grand conclusions. International tax governance has become infinitely more complicated over the past several years, with multiple institutions popping up as potential rivals for the OECD's monopolistic grip on global tax policy norms and processes. I welcome the OECD's desire to develop an inclusive forum to enable more effective participation in global tax norm development. However I am wary about whether and how inclusive the proposed institution can be in light of the observation that agenda-setting is such an important aspect of effective participation. BEPS Associates don't quite seem like full partners yet, hence their title unfortunately seems all too apt.
If non-OECD countries set up a new forum, to which they invited OECD countries as Associates, would the major action items be those covered in BEPS? I am not convinced. A serious study of formulary apportionment as an alternative to transfer pricing seems like a topic that a truly inclusive forum would insist upon immediately. That is not to say that formulary apportionment is wonderful or great or a panacea--I am not sure it is. But there are so many calls for it, it seems to me impossible to understand the continued insistence by the OECD to quash the discussion. If it's not a great idea, fine: study it and reveal its weaknesses. If it is a great idea, why suppress it? Perhaps there are good reasons, but in general I favour studying things to not studying them, especially when not studying them looks like an attempt to intentionally thwart progress. Similarly, I would expect such a forum to tackle items of interest especially to "less developed" countries (as far as that term may be adequately defined), such as the longstanding source/residence compromise and the expansion of the permanent establishment regime to deal with services.
If these items were to become topics of attention and study within or because of the new OECD forum, I think I would reflect on this new tax order as a success story in developing the means for effective participation of more countries in the global tax dialogue. If not, I would be less sure that progress has been made. At this stage I have far more questions than answers.