On 18 March 2015 the OECD’s Task Force on Tax and Development met to consider the input resulting from regional network meetings on base erosion and profit shifting (BEPS). The meeting also considered capacity building support provided to developing countries. The participants in the meeting came from governments, international and regional tax bodies, business and civil society. The feedback on transfer pricing and BEPS will be considered by the OECD’s Working Party 6 on transfer pricing, together with feedback from the public consultation on BEPS and transfer pricing issues held on 19 and 20 March 2015.
Dialogue between the OECD and developing countries is based on three strands. The first is direct participation in the OECD’s committee on Fiscal Affairs (CFA) and its subsidiary bodies. Fourteen developing countries plus the African Tax Administration Forum (ATAF) and the Inter-American Center of Tax Administrations (CIAT) are directly participating in the discussions of the CFA and meetings of the Working Party on BEPS. This allows developing countries to offer input and make sure that their concerns are heard by the bodies that are developing BEPS solutions.
Another route for developing country participation is the regional networks of tax policy and administration officials. The BEPS project has received feedback from the regional meetings that indicates the main priority areas for the developing country participants, including the transfer pricing treatment of commodity transactions, comparability issues, tax incentives and exchange of information. The regional organizations are setting up working groups to coordinate the responses of their members on BEPS issues.
The Task Force emphasized the importance of balancing domestic resource mobilization with the need to attract foreign direct investment (FDI). The necessity of maintaining political interest in BEPS issues was noted and the need for input from business and civil society bodies was recognized.
A third strand in the developing country involvement in the BEPS project is capacity building support. The G20 has requested international and regional tax organizations to put together toolkits that will help developing countries to implement BEPS recommendations and deal with other areas of concern. There was discussion of two toolkits that are due to be completed in 2015, on tax incentives and on transfer pricing comparability data.
There is currently no coherent policy in developing countries for granting tax incentives. The tax administrations of developing countries do not have the resources to conduct an effective cost benefit analysis of the tax incentives introduced. There is a lack of transparency in the governance surrounding the incentives. The participants were presented with the outlines of a report by international organizations that will help low income countries to design efficient and effective tax incentives.
It is difficult for developing countries to develop effective transfer pricing regulations because there is often a lack of sources for comparable data. The discussions centered on the question of using a wide range of approaches to deal with the difficulty involved in finding comparable transactions. The development of a toolkit is seen as an important step in dealing with the issues.
The practical support given through transfer pricing capacity building programmes is having an important impact in developing countries and has led to the collection of increased tax revenues. The demand for the support is currently greater than the supply of expertise and ways to increase the supply of expertise were discussed. Possible solutions include organizations such as Tax Inspectors Without Borders (TIWB). TIWB focuses on targeted tax audit assistance programs in developing countries.
Regional tax organizations need to deliver capacity building support in relation to the development of toolkits to put into practice BEPS recommendations. The international and regional tax organizations were urged by the Co-Chairs of the meeting to provide input to consultations on implementation of BEPS measures and to provide the necessary technical resources for capacity building programmes.
