ARE GLOBAL TAX REFORMS THE END OF ALL TAX EVIL

SUBJECT – DIRECT TAXATION

Submitted by: Submitted to:

Harsh Bishnoi Dr. Manoj Singh

Roll No: 1783, Semester VIII
Faculty of Law

National Law University, Jodhpur

NATIONAL LAW UNIVERSITY, JODHPUR

(Jan-May 2023)
 Table Of Contents
INTRODUCTION......................................................................................................................3
OECD GUIDELINES AND REFORMS...................................................................................3
MULTILATERAL INSTRUMENTS AND BILATERAL AGREEMENTS...........................5
CONCLUSION..........................................................................................................................6
Bibliography:..............................................................................................................................6
References:.................................................................................................................................6

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 INTRODUCTION

The concept of global tax reforms has gained prominence in recent years due to growing
concerns about tax evasion, tax avoidance, and the erosion of tax bases, which have resulted
in substantial revenue losses for many countries. While global tax reforms hold the promise
of creating a fairer and more efficient tax system, there are several challenges associated with
their implementation. In this essay, we will critically analyse the effectiveness of global tax
reforms and the issues involved in their implementation, with the help of OECD guidelines,
multilateral instruments, and bilateral agreements between countries.
Firstly, it is essential to understand the concept of global tax reforms. Global tax reforms aim
to address the challenges associated with tax evasion and tax avoidance by ensuring that
multinational companies pay their fair share of taxes in the countries where they operate. The
reforms aim to create a level playing field for all companies and eliminate the distortions
created by the current tax system. The OECD has been at the forefront of global tax reforms
and has developed several guidelines and instruments to help countries implement these
reforms.
One of the most significant challenges associated with global tax reforms is the issue of
jurisdiction. Multinational companies operate across several countries, and it is often
challenging to determine the jurisdiction where profits should be taxed. The OECD has
developed guidelines for transfer pricing, which aim to ensure that profits are allocated to the
countries where economic activities take place. The guidelines provide a framework for
determining arm's length prices for transactions between related parties, thereby eliminating
the scope for profit shifting.
Another challenge associated with global tax reforms is the issue of tax havens. Tax havens
are countries or territories that offer low tax rates and other incentives to attract foreign
companies. Many multinational companies use tax havens to avoid paying taxes in the
countries where they operate. The OECD has developed a framework for countering harmful
tax practices, which aims to identify and eliminate tax havens. The framework includes a list
of criteria for identifying harmful tax practices and provides for sanctions against countries
that engage in such practices.

OECD GUIDELINES AND REFORMS

The OECD has developed a framework for global tax reforms that is based on two pillars.
The first pillar focuses on reallocating taxing rights to market jurisdictions, while the second
pillar aims to establish a global minimum tax rate. In this essay, I will discuss the two pillars
of the OECD guidelines and how multilateral and bilateral agreements can help in global tax
reforms and ending tax evils.
Pillar 1: Reallocation of taxing rights
The first pillar of the OECD guidelines aims to address the challenges of digitalization and
the ability of multinational companies to generate profits in countries where they have no
physical presence. The pillar proposes a new framework for allocating taxing rights to
market jurisdictions, where the customers or users of digital services are located. This
framework would apply to multinational companies with global revenues above a certain

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threshold, and would require a portion of their profits to be taxed in the market jurisdictions
where they do business.
Multilateral and bilateral agreements can help in implementing the first pillar of the OECD
guidelines by providing a framework for allocating taxing rights between countries.
Multilateral agreements, such as the proposed global minimum tax agreement, can create a
level playing field for all countries and prevent a race to the bottom in terms of tax rates.
Bilateral agreements can also be used to allocate taxing rights between countries based on
factors such as the location of the customer, the location of the company, and the nature of
the business.
Pillar 2: Global minimum tax rate
The second pillar of the OECD guidelines proposes a global minimum tax rate to prevent
multinational companies from shifting profits to low-tax jurisdictions. The pillar aims to
establish a global minimum tax rate of at least 15%, which would apply to multinational
companies with global revenues above a certain threshold. The pillar also includes a
mechanism for countries to top-up the tax rate if the minimum tax rate is not met.
Multilateral and bilateral agreements can help in implementing the second pillar of the
OECD guidelines by creating a framework for enforcing the global minimum tax rate.
Multilateral agreements, such as the proposed global minimum tax agreement, can create a
level playing field for all countries and prevent multinational companies from shifting profits
to low-tax jurisdictions. Bilateral agreements can also be used to enforce the global minimum
tax rate by providing for the exchange of information and the enforcement of tax laws.
In conclusion, the OECD guidelines provide a framework for global tax reforms that are
based on two pillars: reallocating taxing rights to market jurisdictions and establishing a
global minimum tax rate. Multilateral and bilateral agreements can help in implementing
these pillars by providing a framework for allocating taxing rights and enforcing the global
minimum tax rate. While these agreements may not necessarily end all tax evils, they can
help prevent tax evasion and tax avoidance by creating a more transparent and equitable
global tax system.
Some of the key OECD guidelines and how they can contribute to ending tax evils.
1. Base Erosion and Profit Shifting (BEPS) guidelines: The BEPS guidelines were
developed by the OECD to address the practice of multinational companies shifting
profits to low-tax jurisdictions to reduce their overall tax liability. The guidelines
include measures to prevent treaty abuse, limit tax deductions for interest payments,
and enhance transfer pricing documentation requirements. By addressing these issues,
the BEPS guidelines can help prevent companies from engaging in tax evasion and
profit shifting.
2. Automatic Exchange of Information (AEOI) guidelines: The AEOI guidelines require
financial institutions to automatically exchange information with tax authorities about
the financial accounts held by non-residents. This helps prevent tax evasion by
providing tax authorities with information about the financial activities of their
residents in other countries.
3. Country-by-Country Reporting (CbCR) guidelines: The CbCR guidelines require
multinational companies to provide tax authorities with information about their
operations in different countries, including information about their profits, taxes paid,

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 and number of employees. This helps prevent tax avoidance by ensuring that
companies are paying taxes in the countries where they are generating profits.
4. Transfer Pricing guidelines: The OECD's Transfer Pricing guidelines provide a
framework for determining the appropriate transfer pricing for transactions between
related companies. This helps prevent companies from engaging in transfer pricing
practices that artificially reduce their tax liabilities.

MULTILATERAL INSTRUMENTS AND BILATERAL AGREEMENTS

The implementation of global tax reforms requires multilateral cooperation between

countries. The OECD has developed several multilateral instruments to facilitate this
cooperation. The most significant of these is the Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS). The
convention aims to prevent the erosion of tax bases and profit shifting by multinational
companies. It provides for the implementation of several measures, including the
introduction of a minimum tax rate, the limitation of interest deductions, and the
strengthening of transfer pricing rules.
While the BEPS framework is a step in the right direction, it has its limitations. For instance,
it does not address the issue of digital taxation, which has become a major concern in recent
years. The rise of digital economy has made it easier for companies to operate across borders,
and this has resulted in a situation where companies can generate significant revenues in
countries where they have no physical presence. As a result, many countries have proposed a
digital services tax (DST) to tax the revenues generated by these companies. However, the
BEPS framework does not provide a clear solution to this issue, and there is a need for
further discussions on this topic.
Another issue with global tax reforms is the lack of a universal approach. Different countries
have different tax systems and priorities, and this can create challenges when trying to
implement global tax reforms. For example, some countries may prioritize attracting foreign
investment and may be reluctant to adopt measures that could deter multinational companies
from investing in their jurisdiction. As a result, there is a risk that some countries may not
fully commit to global tax reforms, which could undermine their effectiveness.
In response to these challenges, multilateral instruments and bilateral agreements between
countries have been proposed as a means of facilitating global tax reforms. For instance, the
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI)
allows countries to modify their existing bilateral tax treaties to incorporate the BEPS
measures. Similarly, bilateral agreements between countries can facilitate the exchange of tax
information and cooperation in enforcing tax laws.
While these instruments can be useful, they also have limitations. For example, the MLI has
been criticized for being too complex, and it may take years for all countries to implement it.
Additionally, bilateral agreements may not be effective if some countries are reluctant to
cooperate or if there are disagreements over the interpretation of tax laws.
In addition to multilateral instruments, bilateral agreements between countries are also
essential for the implementation of global tax reforms. Bilateral tax treaties provide a
framework for the taxation of cross-border transactions and the prevention of double

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taxation. The OECD has developed model tax treaties, which provide a basis for the
negotiation of such treaties between countries.

CONCLUSION

Global tax reforms hold the promise of creating a fairer and more efficient tax system. The
OECD has been at the forefront of global tax reforms and has developed several guidelines,
multilateral instruments, and bilateral agreements to facilitate their implementation.
However, there are several challenges associated with the implementation of these reforms,
including the issue of jurisdiction and tax havens. Multilateral cooperation between countries
is essential for the effective implementation of these reforms.
While global tax reforms may not be the end of all tax evil, they are undoubtedly a step in the
right direction towards creating a fairer and more efficient tax system. , the OECD guidelines
are a critical component of global tax reforms. They provide a framework for addressing
issues related to tax evasion, tax avoidance, and unfair taxation practices. While they may not
end all tax evils, they can help prevent these practices and ensure that companies are paying
their fair share of taxes. The guidelines can create a more transparent and equitable global tax
system, which can benefit taxpayers, governments, and the global economy as a whole.
While these guidelines are important for global tax reforms, they may not necessarily end all
tax evils. There will always be individuals and companies that seek to evade or avoid taxes.
However, the guidelines can help prevent these practices by creating a more transparent and
level playing field for all taxpayers. Additionally, the guidelines can help ensure that
companies are paying their fair share of taxes in the countries where they are generating
profits.

BIBLIOGRAPHY:

1. Organisation for Economic Co-operation and Development. (2015). Addressing the

Tax Challenges of the Digital Economy, Action 1 - 2015 Final Report. OECD
Publishing.
2. Organisation for Economic Co-operation and Development. (2017). Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations 2017. OECD
Publishing.
3. Organisation for Economic Co-operation and Development. (2017). Country-by-
Country Reporting Implementation Package. OECD Publishing.
4. Organisation for Economic Co-operation and Development. (2014). Model Tax
Convention on Income and on Capital: Condensed Version 2014. OECD Publishing.
5. Organisation for Economic Co-operation and Development. (2014). Standard for
Automatic Exchange of Financial Account Information in Tax Matters. OECD
Publishing.

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 REFERENCES:

1. Avi-Yonah, R. S. (2019). The Rise and Fall of Arm's Length: A Study in the
Evolution of U.S. International Taxation. Journal of Taxation, 130(3), 6-17.
2. Clausing, K. A. (2021). Global Minimum Taxation: Economic Issues and Policy
Choices. National Tax Journal, 74(1), 117-142.
3. G20/OECD. (2021). Statement by G20 Finance Ministers and Central Bank
Governors. G20.
4. Klemm, A., Loeprick, J., & Pessina, M. (2021). Global Corporate Taxation: An
Analysis of Common Consolidated Corporate Tax Base and Formulary
Apportionment. International Tax and Public Finance, 28(2), 273-296.
5. OECD/G20. (2021). Statement on a Two-Pillar Solution to Address the Tax
Challenges Arising from the Digitalisation of the Economy. OECD.