Размышления женщины о геополитике. Татьяна Александровна Югай

i.e. the imposition of similar taxes in two or more States on the same taxpayer in respect of the same base – whose effects are harmful to the exchange of goods and services and to the movement of capital and persons, constitutes a significant component of such a climate»50.

      In 1980, the United Nations published the UN Model Double Taxation Convention between Developed and Developing Countries, which was preceded by the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (1979). Like all model conventions, the UN Model Convention is not enforceable, i.e. its provisions are not legally binding. The UN Model Convention reproduces many Articles of the OECD Model Convention.

      Ironically enough, the UN and OECD Conventions not only boosted flows of foreign direct investments but also had created a legal basis for massive tax avoidance. Multinational corporations took advantage of legal loopholes and skillfully used aggressive tax planning in order to hide their assets and profits in offshores. That became possible due to concluding bilateral tax treaties on avoiding double taxation. Shortly after successfully creating a worldwide network of more than 3,000 bilateral tax treaties, the OECD committed itself to developing an anti-offshore legislation.

      The Convention on Mutual Administrative Assistance in Tax Matters represents a kind of transitional law from protecting MNEs against double taxation to preventing double non-taxation by the same MNEs. The Convention was developed jointly by the OECD and the Council of Europe in 1988 and was amended by the Protocol in 2010. The Convention provides for administrative co-operation between states in the field of assessment and collection of taxes, in particular, with a view to combat tax avoidance and evasion. This co-operation ranges from exchange of information, including automatic exchanges, to recovery of foreign tax claims51. 106 jurisdictions currently participate in the Convention, including 15 jurisdictions covered by territorial extension. This represents a wide range of countries including all G20 countries, all OECD countries, all BRICS, major financial centres and an increasing number of developing countries.

      However, it was not until the late 1990s that world powers had begun their first coordinated attack on offshore shell games.

      Notably, first measures to prevent harmful tax competition from the part of low tax jurisdictions were undertaken by the European authorities. On 1 December 1997, the EU Council of Economics and Finance Ministers (ECOFIN) adopted the Code of Conduct for business taxation. The Code is the EU’s main tool for ensuring fair tax competition in the area of business taxation. It sets out clear criteria for assessing whether or not a tax regime can be considered harmful. All Member States have committed to adhering to the principles of the Code. The Code of Conduct requires Member States to refrain from introducing any new harmful tax measures («standstill») and amend any laws or practices that are deemed to be harmful in respect of the principles of the Code («rollback»). The Code covers tax measures (legislative, regulatory and administrative) which have, or may have, a significant impact on location of business in the EU.

      The criteria for identifying potentially harmful measures include:

      – an effective level of taxation which is significantly lower than the general level of taxation in the country concerned;

      – tax benefits reserved for non-residents;

      – tax incentives for activities which are isolated from the domestic economy and therefore have no impact on the national tax base;

      – granting of tax advantages even in the absence of any real economic activity;

      – the basis of profit determination for companies in a multinational group departs from internationally accepted rules, in particular those approved by the OECD;

      – lack of transparency52.

      In 1998, the OECD published the report «Harmful Tax Competition: An Emerging Global Issue». The report distinguishes between preferential tax regimes and harmful tax competition. Preferential regimes «generally provide a favourable location for holding passive investments or for booking paper profits. In many cases, the regime may have been designed specifically to act as a conduit for routing capital flows across borders. These regimes may be found in the general tax code or in administrative practices, or they may have been established by special tax and non-tax legislation outside the framework of the general tax system». Further on, the OECD defines «four key factors assist in identifying harmful preferential tax regimes:

      (a) the regime imposes a low or zero effective tax rate on the relevant income;

      (b) the regime is «ring-fenced»;

      (c) the operation of the regime is nontransparent;

      (d) the jurisdiction operating the regime does not effectively exchange information with other countries»53.

      The Report contains guidelines for dealing with harmful preferential tax regimes in member countries, similar to those of EU’s Code of Conduct, including:

      1. To refrain from adopting new measures, or extending the scope of, or strengthening existing measures, in the form of legislative provisions or administrative practices related to taxation, that constitute harmful tax practices;

      2. To review their existing measures for the purpose of identifying those measures, in the form of legislative provisions or administrative practices related to taxation, that constitute harmful tax practices;

      3. To remove, before the end of 5 years starting from the date on which the Guidelines are approved by the OECD Council, the harmful features of their preferential tax regimes etc.54.

      The turning point occurred in the middle of 2000, when two international organizations – the Financial Action Task Force on Money Laundering (FATF) and the OECD – almost simultaneously published reports about offshore jurisdictions. The FATF published its Review to Identify Non-Cooperative Countries (June 22, 2000) based upon 25 Criteria promulgated by the FATF’s Report on Non-cooperative Countries and Territories (February, 2000). The OECD published the Report on Progress in Identifying and Eliminating Harmful Tax Practices (June 26, 2000) prepared by the Forum on Harmful Tax Practices. From June 2000, the FATF and the OECD had started issuing «black» and «gray» lists of «non-cooperative» jurisdictions.

      The OECD acknowledged as a huge problem the practice of double non-taxation, as well as cases of no or low taxation resulting in multinational enterprises paying global corporate tax rates of just 1 or 2% due to sophisticated tax schemes including offshores. The OECD presumes that, «when reporting their global earnings, too many multinational companies can artificially (and legally) move their profits around in search of the lowest tax rates, often undermining the tax bases of the jurisdictions where the real economic activities take place and where value is created»55. The OECD estimated that in 2013 global corporate income tax revenue losses could be between 4% to 10% of global revenues56, i.e. almost a quarter of a trillion dollars annually57. The main reasons behind cross-border tax evasion were aggressive tax planning by some multinational enterprises, interaction of domestic tax rules, lack of transparency and coordination between tax administrations, limited country enforcement resources and harmful tax practices. The affiliates of MNEs in low tax countries report almost twice the profit rate (relative to assets) of their global group, showing how BEPS can cause economic distortions58.

      Two pillars of international anti-offshore legislation

      Current international tax agenda relies on two building blocks: tackling tax avoidance via the OECD/G20 Base Erosion and Profit Shifting (BEPS) project; and promoting transparency and exchange

50

United Nations (2001) Model Double Taxation Convention between Developed and Developing Countries, New York: United Nations, p.vi.

51

OECD (1988) Convention on Mutual Administrative Assistance in Tax Matters URL: http://www.oecd.org/ctp/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax- matters.htm.

52

European Commission (2014) Harmful tax competition. URL: http://ec.europa.eu/taxation_customs/business/company-tax/harmful-tax-competition_en.

53

OECD (1998) Op. cit., p.25.

54

Ibid, p.72.

55

Saint-Amans, P. Global tax and transparency: We have the tools, now we must make them work. URL: http://www.oecd.org/tax/global-tax-transparency-we-have-the-tools.htm.

56

Ibid.

57

OECD (2015) Secretary-General Report to G20 Leaders. Antalya, Turkey November 2015, Paris: OECD Publishing, p.9.

58

Saint-Amans, P. Op. cit.