Regional and global rules on taxation

In our last step, we have heard about the Swiss legal system with respect to corporate taxation. Every country on our globe has its own particular national tax system. At the same time, corporate taxation has also become a matter for regional and global consideration, in particular in the context of attempts to combat harmful tax competition, fraud and evasion. This is precisely the subject matter of this article. Note that the focus is on the existence of multi-level regulation and not on the quality of such regulation.

One of the most important international organisations in the present context is the Organisation for Economic Co-operation and Development (OECD). It comprises member countries from North and South America to Europe and Asia-Pacific, among them many EU Member States and also Switzerland. Taxation has long been a major focus point of the OECD, which takes initiatives and sets standards in this field. A particular focus in the work of the OECD concerns harmful tax practices and tax transparency. The OECD created a ‘Forum on Harmful Tax Practices’, which focuses on its Member Countries as well as on tax havens and which also attempts to involve non-OECD economies. The Forum has produced a number of reports and, together with cooperative tax havens, a ‘Model Tax Agreement on Exchange of Information in Tax Matters’.

The OECD cooperates with other organisations. For example, it hosts the Global Forum on Transparency and Exchange of Information for Tax in cooperation with the G20, an organisation of 19 economically important states plus the European Union (Switzerland would like to be a member but is not, even though it is economically one of the most powerful countries in the world). The OECD and the G20 also collaborate in the Base Erosion and Profit Shifting Project. There is an OECD study on ‘Addressing Base Erosion and Profit Shifting (BEPS)’and a BEPS Action Plan which details a number of actions to address profit shifting, including Action number 5, ‘Counter Harmful Tax Practices’.

Turning to the European regional level, here it is the European Union (EU) that plays a particularly important role in fighting harmful tax competition, tax fraud and evasion. The EU explains on its website:

Tax fraud and tax evasion affects us all. It occurs within a country and across countries both within the EU and globally. That is why a single country cannot solve the problem on its own. The EU and Member States need to work more together and internationally to combat the problem at home and abroad.

In order to reach this goal, in 2012 the European Commission adopted an Action Plan to strengthen the fight against tax fraud and tax evasion. The plan set out measures to help Member States protect their tax bases and recapture billions of euros lost through these practices. The document additionally includes an external dimension, ie it also relates to what is happening in third countries. As a consequence of this Action Plan, the EU recently changed the corporate tax law adopted at Union level.

With respect to harmful tax competition, the EU Member States in 1997 adopted a Code of Conduct for business taxation. Whilst the Code is not a legally binding instrument, it does have political force. By adopting this Code, the Member States have undertaken to abolish existing tax measures that constitute harmful tax competition and to refrain from introducing any such measures in the future.

We have now mentioned a number of international and regional rules and initiatives in the context of corporate taxation. In how far they are relevant for an individual country depends first and foremost on its membership in the relevant fora. Switzerland is a member of the OECD but not of the G20 or the EU. However, as mentioned above, EU initiatives may have an external dimension. In addition, the example of the Swiss–EU dispute on corporate taxation shows how the EU tried to rely on the Swiss–EU Free Trade Agreement when accusing Switzerland of predatory tax regimes. In our next step in this course, we will discover how this dispute was solved.

Further reading

The OECD on tax transparency.

The EU Code of Conduct for business taxation.