Thursday 14 November 2019

Ireland: The taxman’s verdict

The OECD's hard-hitting director is taking flak from all sides in his battle with the large corprations and what they pay in tax, writes Colm Kelpie in Paris

Pascal Saint-Amans says his taxation campaign has been personally ‘extremely stressful and demanding’.
Pascal Saint-Amans says his taxation campaign has been personally ‘extremely stressful and demanding’.

Colm Kelpie

Pascal Saint-Amans sups water from a plastic cup, coughing and spluttering. There's a weariness about him. He's battling a cold, and is feeling "bloody sick". The state of his health isn't terribly surprising given his recent punishing travel schedule. New York last week preceded by Peru, where G20 finance ministers signed off on proposals to clamp down on global corporate tax avoidance spearheaded by Saint-Amans and his small team at the Organisation for Economic Cooperation and Development (OECD).

This week sees him off again, visiting the former Soviet state of Georgia, then Portugal next week followed by Barbados, selling the measures laid out in the so-called Base Erosion and Profit Shifting (Beps) project.

It's been his life for much of the past three years. Based in Paris, where he lives with his primary school teacher wife and two children, a lot of his time has been spent on the road, rubbing shoulders with finance ministers and heads of state, as his master plan evolved.

From his high-rise office along the banks of the Seine, where we meet to talk surfing, the joys of living in Paris, and, of course, tax, the skyline of the French capital is hidden under sombre skies. The broad base of the Eiffel Tower peaks out from low-lying cloud, but most is obscured behind a dense, grey mist, a bit like the international tax system to the man on the street.

The charismatic and engaging Saint-Amans, director of the OECD's centre for tax policy, sees himself as a storyteller. He's the man tasked with explaining to a world chastened by years of cutbacks and painful austerity why there's a need now to focus on the global tax structure, untouched in the good times, and why there's a requirement to have it overhauled.

For too long, big corporations have been exploiting loopholes to ensure profits are shifted out of the countries where the money is earned, and into low tax, or no tax, jurisdictions, he says.

A conservative estimate by the OECD of the amount of untaxed money moved by companies into tax havens is $100bn to $240bn annually, suggesting tens of billions of dollars in lost tax revenue.

A milestone was reached last week when G20 finance ministers agreed to back the OECD's proposals, designed to shake up rules dating back almost a century, against a backdrop of concern about weak economic growth, tight government finances and media reports exposing the tax structuring used by companies that have spurred public anger on both sides of the Atlantic.

The OECD plans include provisions to give governments a global picture of the operations of multinational companies, and sets out minimum standards on so-called "treaty shopping". The latter, the OECD hopes, will put an end to the use of conduit companies to channel investments. For Saint-Amans, luck has been on his side. Were it not for the financial crisis, the project might never have been.

"What surprised me was how quickly we got the political buy-in," the 47-year-old says.

"The reason we've made the progress is because of the financial crisis, not because the member states needed money. It was about restoring confidence. When you have growth which is largely based on the innovation of the financial sector, there is no urgency to address the issue. The money comes in, you have growth, you're reliant on the financial sector, you've been told that you need to be tax competitive.

"But when you see that the financial sector was not as sound as you thought it was, that you face massive debt because you have to bail out the banks, that you have the deficit exploding and you have to increase taxes, then it's much harder to say the big juicy guys don't pay anything."

Ireland, as we know, was in the international spotlight for being one of the jurisdictions that appeared to be facilitating corporate tax avoidance, thanks to the likes of the 'Double Irish'. Claims made in the US Senate that we were a tax haven have been rejected by the OECD, but Saint-Amans says that when the Beps project kicked off, Ireland's reputation was suffering.

"This is where the Beps project is pretty good for Ireland. That's where your government and your finance minister have been smart to understand that this was a way to get rid of the bad reputation aspects of Ireland's attractive tax offer," he says.

"Having a low rate can be defended only if you apply the low rate to the tax base. If part of the tax base is just channelled out of Europe, through Ireland to tax havens, it is harder to try to stick to a low tax rate with your main partners."

Ireland is one of the early adopters of the Beps measures, having introduced country-by-country reporting in Budget 2016, a move welcomed by Saint-Amans. He also gives broad backing to the Knowledge Development Box, which, although it is arguably just another state-sponsored corporate tax minimising tool, Finance Minister Michael Noonan insists will be the first patent box in the world to comply with OECD rules ensuring that Intellectual Property has to be generated in the jurisdiction where the tax rate will be applied. Saint-Amans says he has yet to look at the box in detail, but says he has no reason to doubt the bona fides of the minister.

I suggest he must now be relieved that the Beps project has reached its final stage - implementation. But he reminds me that the work is far from over.

Tax advisers agree the measures could force many companies to restructure their operations and rethink how they fund themselves, and they've warned companies will have to continue to make their voices heard in the implementation phase to limit the negative impacts on business.

Tax specialists in Ireland have also warned that the measures, while they may present an opportunity in terms of investment, will also place a considerable burden and cost on companies to comply. Then there are the demands from countries, which, while supporting the initiative overall, have different competing interests concerning the manner in which it is rolled out.

"It is extremely complex," Saint-Amans says. "How do you organise something which is also about global governance in an area that is sensitive as it's about sovereignty and tax?" The industry, he says, hasn't been a fan, at least publicly. Privately, he says, experts have told him action was needed. Publicly, from some quarters, it's been a different story.

"A number of business groups have just tried to stop the changes and have lobbied hard, both in the US and in Europe. They were so sceptical about our ability to deliver that they didn't really wake up until June 2014. Then, when we issued the first draft papers for consultation and we would say that we would deliver in September, they woke up, particularly in the US and they started very aggressive lobbying to try to stop this."

Big business hasn't been his only critic. Many global NGO representatives feel the OECD has ignored the needs of developing countries. Christian Aid described Beps as a "sticking plaster" approach which will leave global companies in a position to continue to cheat poor countries out of billions each year. The body argued the Beps project will provide just limited improvement in some areas.

Saint-Amans says he accepts some of the NGO criticisms, but some elements clearly annoy him.

"We've never pretended to address all the concerns of developing countries through Beps. When they say they [developing countries] should be more involved, probably, even though if you involve everybody at once, you don't do anything. It was a unique window of opportunity that we had to seize," he says.

"I'm angry when I hear some saying that Beps is against the interests of developing countries. That's not right. It's a lie. It's a lie for campaigning reasons. Pretending that this is against the interests of developing countries is really disgraceful, because they are pushing an agenda which is 'we want everything at the UN, and not the OECD', and just to push this agenda, they are lying. So that makes me very unhappy."

I point out that some believe country-by-country reporting should be made public, and that the European Parliament has already voted in favour of this as part of separate initiatives being designed for the EU.

Saint-Amans is sceptical about the latter point.

"I understand the frustration of those waiting for this information to be public. But they should understand that more important than having the information available to NGOs is this information will go to tax administrations for them to do their job," he says.

"The [European] parliament would like it to be public, but I'm not sure that the member countries or the Commission really are there. In Europe, I understand that if it's public, it's for European companies only. So you will oblige your companies to go for public country-by-country reporting but you will not ask the US companies or other companies to do it?

"What I am paid for by governments is to make sure that tax administrations can do their job. And for tax administrations to do their job in terms of risk assessment, they need the country-by-country reporting. Once you've said that, you have to go a step further, which is, can a government ask for the information, public country-by-country reporting from all over the world? The answer is no. Because you cannot really ask for information which is not linked to your territory."

Saint-Amans confesses the Beps work has been "extremely stressful and demanding". Even when he hasn't been travelling, he says there hasn't been a day over that period that he hasn't woken up to find a major issue developing that causes "headaches".

To unwind, he dabbles in the one sport that's impossible to do in Paris - surfing. Although hailing from the Biarritz area of the south-west of France, a popular surfing spot, he only took up the sport in his 20s during an internship in California. He didn't have much success.

When his now 12-year-old son was five, he promised him they would learn together, and heads to Biarritz every now and then to take to the waves.

He confesses he doesn't have a tax background, and never thought about devoting his life to it. With a master's in history behind him, he studied at the elite École nationale d'administration, the breeding ground for French civil servants, and from there he went on to work in the French finance ministry, where initially, the prospect of working in tax policy horrified him.

"I visited the OECD in 1996 and I remember saying, oh my goodness, I'd certainly not like to end up there," he recalls. He did, in 2007, and took up his current post in 2012.

With a considerable amount of envy, I suggest he has a rather nice life; travelling the world and living in central Paris. "I'm very fortunate. I rent an apartment in front of Nortre Dame. My wife this year was [appointed to a school in ] Place des Vosges, the most beautiful square in Paris," he says.

"As a bloody French arrogant, I would tell you that Paris is the most beautiful city in the world. But even if I try not to be a bloody French arrogant, I must recognise that it is a very beautiful city to live in."

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