Thread by @alexcobham

Congratulations to @OECDtax on what may well be the most ambitious new work programme on international tax rules since the League of Nations.

But is that white light a brave new future beckoning, or the headlights of history about to run over the whole effort?

It truly is a watershed moment in international tax – but that’s not to say the OECD will actually be able to deliver on the promise.

Here's their press release and link to the report: oecd.org/tax/beps/inter…

When the Tax Justice Network was established in 2003 and began to raise the possibility of replacing the separate accounting approach (and the arm’s length principle) with unitary tax and formulary apportionment, the idea was written off by national policymakers and OECD staff.

Ten years later when the BEPS process got underway, a brief moment of possibility was quickly shut down by major OECD members insisting the arm’s length principle was untouchable. As we predicted, BEPS would turn out to be the last great defence of the arm’s length principle.

By 2016, it was already clear that BEPS had failed: the EU had revived the CCCTB proposals for unitary taxation, the US had set a path for major reforms that would break with the arm’s length principle, and many lower-income countries were actively considering alternatives.

The OECD has now been tasked to go beyond arm's length pricing and plot a path to one of the alternatives. The ‘digital tax’ work that was left over from BEPS rapidly became the vehicle for ideas of a more radical reform, culminating in this new work programme published today.

And where BEPS identified international consensus on the single goal of reducing the misalignment between where profits are declared and the location of multinationals’ real economic activity, the new programme *could* actually deliver on this.

There are two key elements that break with all that has gone before. First, the work programme is explicitly framed around allocation of taxing rights between jurisdictions - a welcome antidote to previous pretence that setting international tax rules is technical not political

The rules as they stand are responsible for major inequalities in taxing rights that face lower-income countries. Estimates of global revenue losses to avoidance vary $200bn-$600bn pa, with lower-income countries losing a consistently higher share of their current tax revenues.

Recognising that the OECD has presided over rules that systematically disadvantage non-member states is an important step to a less unjust outcome, and the new approach implicitly does so.

The second key element of the work programme is consideration of apportionment approaches: to distribute tax base according to location of multinationals’ real economic activity, which can ultimately provide the only coherent solution to the internationally agreed goal of BEPS

It is especially welcome that the first apportionment factor noted is employment. Our research, and that of the International Monetary Fund, confirms that employment is the key factor to ensure lower-income countries receive a fair share of taxing rights.

It remains to be seen whether any agreed outcome will involve apportionment; and whether it will apply universally across industry sectors and to all profits. And the OECD programme contains multiple caveats about the need for political agreement, which may well be unachievable.

But even if it achieves nothing else, the announced OECD work programme has already blown the doors off the near-century-long insistence of rich countries that the arm’s length principle must underpin international taxation.

The normalisation of alternatives opens the door for individual countries and regional groupings to explore unitary tax and formulary apportionment arrangements, and to be ready to move ahead if the OECD is unable to do so.

See e.g. the work of @ICRICT taxjustice.net/2018/02/07/icr…

Finally, explicit recognition that the setting of international tax rules is political rather than technical will make it increasingly difficult to defend the proposition that the rich countries’ club, the OECD, should provide the forum for decision-making – rather than the UN.