BEPS Action Plan: Action 11 – Data and methodologies

It appears to us, from action 11 of the BEPS Action Plan, that the OECD has not yet given up on continued economic analysis of existing data to determine the scale of BEPS — and that the objective now is to establish methodologies to collect and analyse data on BEPS, and to focus on actions to address it. Our commentary is below.


29 January 2016

Apparently, since the OECD could not determine the exact amount of BEPS activity, it was considered politically expedient to...

at least determine a range within which that amount probably fell. The OECD has recognized the lack of sufficient data to perform a detailed analysis, but hopes to correct the issue in future monitoring and its statistics team under David Bradbury is working on this as well as on broader issues around the growth agenda. While many attempted definitions of BEPS have been incoherent and highly subjective, clearer parameters, consistently applied, should help establish identifiable trends.

It is one thing to estimate BEPS from identifiable activity, but quite another to draw any policy conclusions as to how much additional revenue is potentially accessible and to which countries. For the latter, it is necessary to make assumptions about business and national government behavioural responses, get a handle on the benefits and costs of different courses of action and reflect more broadly on all elements of tax system design. To illustrate each of these:

  • Many anti-BEPS actions (broadening the definition of PE, for example) may lead to responses intended to frustrate their effects. Poorly-conceived counter-measures could even worsen BEPS in some scenarios. Tax administrators, arguably, focus on solutions which give them more power and discretion, but an economist might look at incentives and prefer to address BEPS by lowering the corporate tax rate. Most OECD countries have taken this approach in recent decades, so perhaps there is something to this theory.
  • Much of the analysis focusses on the revenue lost to BEPS, but not the negative economic consequences of anti-BEPS measures -- risk of double tax, more disputes and greater uncertainty for business. Many would argue that the estimated revenue leakage is worth it to minimise the risk of double tax.
  • BEPS raises the broader question of the degree of reliance on corporate income tax, an economically costly and difficult to enforce form of taxation. Given the fragmentation of global sovereignty, cross-border problems will inevitably arise when we try to tax 'profits'. Perhaps the best anti-BEPS measure is to tax bases like consumption or land which cannot be manipulated easily. Comparing the Total Tax Contribution made by companies may be one way of satisfying the community’s need for fair treatment of taxpayers.

None of this means that the OECD shouldn't look at ways of estimating revenue leakage, but getting the right policy analysis is critical, especially if subsequent estimates of particular actions show little impact and the overall total tax revenues show no significant change. It's like climate change. Many people agree it is occurring, but there is enormous difference between the philosophies of mitigation and adaptation. Sound responses will draw on both mitigation and adaptation, but many prefer the former for ideological reasons.

The fact that BEPS is in large part about competing claims for taxing rights will make monitoring more difficult. Furthermore, all the costs of the counter actions should be considered in order to make a true evaluation.


5 October 2015

One significant development is that the OECD has carried out its own research and now estimates that BEPS may result in corporate tax losses of…

4-10% (which at 2014 levels it calculates as USD 100-240bn).

There are two main areas of focus for the necessary supply of data for ongoing BEPS analysis which place reliance under this Action firmly on tax authorities:

  • information already collected by tax administrations which has not been used effectively, and
  • new data proposed to be collected under Actions 5, 13 and, where implemented, Action 12 of the BEPS Project.

The OECD has carved out a role for itself in working with governments to analyse these two forms of data in an internationally consistent manner.

The Report specifically recognises the need to maintain appropriate safeguards to protect the confidentiality of taxpayer information.


13 May 2015

A consolidated document on Action 11 has been published by the OECD comprising our response and the 19 others.


8 May 2015

In our response to the OECD on the latest discussion draft on BEPS Action 11 we point out that...

for two of the indicators time trends are reported over the 2005-2012 period and, given the global economic crisis may not be representative. We also point out that many of the indicators have arbitrary elements which ought to be considered further.

We recommend calculating indicators for all MNEs for which data are available, not just large MNEs. We also recommend that results be reported with and without inclusion of loss companies. We note that outliers are a common issue with indicators of the type suggested in the discussion draft and suggest ‘winsorizing’ the data may be appropriate.

We note the effect of omitting various non-tax factors affecting income and agree with the discussion draft conclusion that multiple approaches to measuring the scale and trend of BEPS activities are better than reliance on a single measure.

The report takes a “balanced budget” approach to analysing BEPS meaning that revenues raised by BEPS are assumed to be used to lower other taxes. Under this approach, the economic benefit of BEPS counter-measures is not the revenue raised, but rather the improvement (if any) in the allocation of economic resources that leads to increased output.

PwC notes that it is not clear ex ante that BEPS counter measures will be efficiency enhancing. In particular, proposed changes in transfer pricing rules that more closely align profit with economic activity such as employment and assets may have the effect of increasing investment by MNEs in tax havens.


16 April 2015

There are some firm conclusions about indicators of BEPS in the discussion draft published on 16 April under Action 11 but...

there is also recognition that assessing the extent of BEPS is ‘severely constrained’ and no attempt is made in the draft to ascertain an overall figure for total BEPS. In fact, many of the existing attempts to do so are fairly heavily criticised.

Much of the draft deals with broad indicators of BEPS:

  • Relative concentration of net foreign direct investment (FDI) to GDP
  • High profit rates of low-taxed affiliates of top global MNEs
  • High profit rates of MNE affiliates in lower tax countries
  • Profit rates compared to effective tax rates (ETRs) for MNE domestic and foreign operations
  • ETRs of MNEs compared to comparable domestic firms
  • Relative concentration of royalty payments relative to R&D expenditures
  • Interest expense to income ratios of top global MNE affiliates in high statutory tax rate countries

Two approaches are put forward as alternative ways of seeking to measure BEPS:

  • extrapolating from studies assessing the impact of tax rate differentials on the movement of profit from one location to another, and
  • adding the amounts identified for each separate BEPS channel (per the Action Plan) with an adjustment for interactions between them.

Existing data sources are considered but questions remain as to whether there are other sources and whether the data will be adequate to perform reliable analyses.

The discussion draft does not discuss new tools to monitor and evaluate the effectiveness and economic impact of the actions taken to address BEPS, or new types of data that might be useful in helping to analyse BEPS in future.

However, it is potentially a concern for MNEs that the draft suggests confidential data could be used or more data might be necessary. No recommendation is made as to whether business should be asked to provide that data.


19 September 2014

We’ve submitted some initial thoughts in response to the OECD request for input but...

anticipate that information already compiled by governments, supranational bodies and academia will provide the best source of information on the impact of BEPS activities to date. However, further analysis may be required to identify the appropriate trends, particularly in relation to spillover effects.

We think that any proposals should be constrained by the burden which would be imposed on different stakeholders, including business. We believe the analysis of new data in future should be technologically automated as far as is possible. The aggregation and analysis of raw data should be carried out wherever possible by governments and supranational bodies.

We also pointed out a number of potential difficulties in identifying the impacts of particular transactions or structures.

In measuring the impact of BEPS actions it is important to consider not only the narrow impacts on tax revenues and effective tax rates, but the broader macroeconomic impacts, including the dynamic impact on tax revenues due to changes in economic growth. Care should be taken in any analysis which seeks to consider effective tax rates.

If it is found necessary to require individual entities to supply additional information for Action 11, the confidentiality of that information needs to be considered.


19 August 2014

The OECD’s request for input invites public comments regarding work on establishing methodologies to collect and analyse data on BEPS and the actions to address it but...

it’s largely targeted at academics. It may be useful at this stage though to see a commitment to principles that any BEPS measure should satisfy that would emphasize exploitation of existing data (including new transfer pricing and country-by-country information) rather than imposing additional reporting burdens on business.

The findings may not be that obvious and there could be a paradox that BEPS increases corporate tax revenues. The scale of productive activity in the host country could be greater in a similar way that it has been found that reductions in the statutory corporate tax rate have not reduced the tax to GDP ratio in many OECD countries.

There should be another opportunity to comment when the OECD sets forth proposed BEPS metrics in a future consultation document.


10 September 2013

The action point also recognises the importance of taking into account the need to respect taxpayer confidentiality, although there remain concerns...

about the security of data transmission and handling and a level of scepticism from business on use of data by some tax authorities. There may, for example, be commercial sensitivities around new ventures which aren’t respected and disclosure of certain data may have an impact on price-sensitive information.


2 September 2013

Care will be needed to ensure that any new types of data to be collected for the purposes of assessing BEPS, and actions to address it, don’t...

impose a significantly greater burden on business. That includes also any reference to more public reporting on a ‘country by country’ basis or otherwise.


28 August 2013

It makes considerable sense to try to work out what additional data would be needed in order to provide trend and impact information in future...

The G8 conclusions of the Northern Ireland summit included: commitments on reporting by large companies to tax authorities according to an agreed template; beneficial ownership registers; and automatic sharing of information. So it is possible that requests for information from business could be moulded into those requirements.

Data and methodologies archive

26 August 2013

The OECD’s February 2013 report on BEPS considered available studies and found little of substance to shed light on...

the scale and impact of BEPS. It seems the OECD has not yet given up on continuedeconomic analysis of that data — and that the objective now is to establish methodologies to collect and analyse data on BEPS and to focus on actions to address it.


19 July 2013

There is recognition that there has been a lack of hard evidence to quantify the extent to which governments lose substantial corporate tax revenue...

because of planning aimed at eroding the taxable base and/or shifting profits to locations where they are subject to a more favourable treatment. The Plan seeks to correct this in future and also to enable analysis of the impact of the various actions which are implemented. Part of this work will require an assessment of the kind of data which taxpayers are required to report to tax authorities.

It is welcome that the action, which will take two years to deliver, identifies the need for taxpayer confidentiality to be respected and for the administrative burden on business to be considered.

Contact us

Stef van Weeghel
Leader, Global Tax Policy & Administration Network
Tel: +31 (0) 88 792 6763

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