After two years, 12,000 pages of comments, 1400 contributions from stakeholders all over the world, and 23 drafts and working documents, the OECD has developed its final plan aimed at stopping multinational profit shifting.
The Base Erosion and Profit Shifting (BEPS) plan aims to stop hundreds of billions of dollars being lost annuallydue to an array of tax avoidance schemes devised by multinationals and their advisers that to date have exploited loopholes in international tax laws.
The OECD estimates anywhere between about US$100 billion ($141.5 billion) and US$240 billion ($339.5 billion) is lost every year due to such schemes. That "conservative" estimate translates to between 4 per cent and 10 per cent of global corporate income tax revenue.
The verdict, from tax experts and community groups, is partly one of relief, and partly one of disappointment.
Relief, that finally some steps are being taken to stop multinationals exploiting loopholes in international tax laws as they have done for decades.
And, at the same time, disappointment that the plan hasn't gone far enough and will take years to implement (the OECD itself notes that it could take five years to come up with a multilateral instrument to ensure tax is paid where it's supposed to be).
There are also questions about what happens if there's disagreement between global revenue authorities about where tax should be paid. A new arbitration process will have to be set up.
A coalition of civil society organisations including the Global Alliance for Tax Justice, Tax Justice Network, Christian Aid, Action Aid, Oxfam and Tax Research UK expressed disappointment with the plan.
The group also suggests that the proposed changes to the definition of permanent establishment "are not as far-reaching as they might have been".
Multinationals have been able to artificially reduce the taxes they pay by shifting profits to low-tax jurisdictions in which little or no economic activity is performed.
They've done this by claiming they have no physical "permanent establishment" (PE) because their businesses are online.
The OECD plan stops short of saying whether such a tax should be levied where the customer is and value is created (source), or the country where the product originated (residence).
"Unfortunately, the BEPS project has continued to emphasise the independent-entity principle, which starts from the fictitious assumption that affiliates of a corporate group act like separate legal persons, while attempting to counteract its harmful consequences," a report by the group said.
While BEPS would "provide considerable strengthening of existing [tax] rules, giving better tools to tax authorities if they have the capacity and will to use them", "overall, the proposals offer a patch-up of existing rules, making them even more complex and in many cases contradictory, and do not provide a coherent and comprehensive set of reforms".
The civil society coalition said "the BEPS project was again hobbled from the start" by not reconsidering the traditional split between residence and source taxation, which has long been a concern for developing countries, as largely host countries for multinationals.
It said PE and other BEPS proposals, including those on transfer pricing, "will be a recipe for disagreement and conflict".
"They would not deal with sales of immaterial products, or services, so they would affect physical but not electronic books, and DVDs but not streaming services. They also leave continued scope for fragmentation of production functions and their location in jurisdictions where the profits would be lightly taxed."
Already many MNEs had restructured their production chains to separate basic manufacturing, which can be allocated a "routine" profit, from functions such as R&D or design, which may be considered high-value-adding, and can be located where they would be lightly taxed, it said.
There's also likely to be disagreements about where profits will be taxed.
The OECD says in a situation where there is taxation, rather than non-taxation, everyone is a winner.
But others warn that the outcome is likely to be greater revenue wars. One country's revenue gain could be another's revenue loss.
"Understandably, the greater scope for subjectivity and discretion resulting from many of the proposals has led to fears of greater conflicts," the civil society coalition warns.
The OECD's response in Action 14 is to propose stronger dispute settlement, including a commitment by many OECD countries to mandatory binding arbitration.
"It is a totally inappropriate response to deal with problems caused by vague rules by entrusting decisions involving often hundreds of millions of dollars to a secret and unaccountable procedure of third-party adjudication," the group states.
"In our view, arbitration can only be effective and accepted as legitimate if the rules to be applied are clear, and it is conducted under due-process standards. This means that arbitrators should be drawn from outside the closed circle of tax advisers and should have no conflicts of interest, and the procedures must be open and transparent to the public, including the publication of reasoned decisions."
While some in civil society would like to have seen a reopening of the question of source and residence taxation, KPMG tax partner Grant-Wardell Johnson said this would have "bogged down the project, rather than produce meaningful change".
"The OECD-G20 has rightly focused on the achievable."
