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December 22, 2014
Pascal Saint-Amans -- the Face of BEPS
by Stephanie Soong Johnston

Full Text Published by Tax Analysts®

If there were such a thing as a tax celebrity, then Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration (CTPA), would be an A-lister. He fits the part well with his French accent, stylish glasses, finely tailored suits, and magnetic personality. However, it's his role in overseeing the OECD's base erosion and profit-shifting project -- arguably the most high-profile international tax reform initiative in recent history -- that is turning heads and grabbing headlines, as well as making him TNI's person of the year.

Saint-Amans met with reporters at Tax Analysts headquarters for an exclusive interview about his thoughts on how the project is progressing, what's in store for 2015, and his long-term hopes for the project. His enthusiasm for the work is obvious -- he is clearly a man who loves what he does.

"Oh yeah, it's fantastic," he said when asked whether he had landed his dream job. "I'm the luckiest person in the tax world."

He's also one of the busiest. A former official in the French Ministry for Finance who was head of tax treaty negotiations and mutual agreement procedures, as well as France's delegate to the OECD Committee on Fiscal Affairs' working party 1 -- and elected chair of the working party in 2005 -- Saint-Amans joined the OECD in 2007 when he was appointed head of the International Cooperation and Tax Competition Division in the CTPA. In 2009, he became head of the Global Forum Division, which serves the Global Forum on Transparency and Exchange of Information for Tax Purposes.

Since taking over as director of the CTPA in February 2012, Saint-Amans has hit the ground running, taking the lead on major projects that many thought were going to be hard sells, including the BEPS project.

Shortly after he and his team proposed that BEPS be put on the G-20 leaders' agenda for their meeting in Los Cabos, Mexico, in June 2012, the group issued a mandate to the OECD to pursue the initiative. The OECD issued a report in February 2013 and unveiled its BEPS action plan in July 2013, which laid out 15 items slated for staggered completion by December 2015.

Pascal Saint-Amans (Tax Analysts/Derek Squires)The BEPS action plan is halfway finished -- no small feat for a project whose critics thought the deliverables timeline was overly ambitious and impossible to meet.

Saint-Amans said that the work has been challenging because of the sheer number of stakeholders involved in the process. The stakeholders that he must keep track of include government ministers, the technocrats of the G-20, the NGOs, the business sector, the developing countries, the international organizations, and the CTPA team.

"And you need to bring all that together with a whip to make sure that you meet the timelines," he said. "It's extremely challenging, very demanding, and extremely exciting."

Halfway There

Seven of the 15 action items outlined in the BEPS action plan were covered in the September 16 publication of progress and final reports.

Of the deliverables that were produced, Saint-Amans was especially satisfied with how the country-by-country (CbC) reporting template under action 13 turned out.

"I think one of the best examples of the benefits for all the stakeholders of what we're doing is country-by-country reporting," he said, acknowledging that CbC reporting is controversial among the business sector. While businesses may dislike CbC reporting because of the additional costs it imposes, there are reasons for them to appreciate it as well.

"If all the activities are in countries A, B, and C and all the cash is in country D, which is a tax haven, good luck explaining that [to your board]," he said. "So it's controversial, it's difficult, but it's necessary and it's happening."

For Saint-Amans, the final outcome demonstrates the value of multilateralism because all countries that want to implement CbC reporting were able to compromise with each other and with business and are now on the same page with a uniform template. "If we hadn't done it at the OECD, we would have ended up with Chinese CbC, an Indian CbC, a Brazilian CbC, an African CbC, and a European CbC, and that would have been a complete mess," he said. "And none of course would have been compatible with the other. Here we have agreed on something substantial, so I'm very pleased with that."

However, Saint-Amans and his team were frustrated with the outcome of action 5. In its report, the OECD said that a preferential intellectual property regime should not be viewed as harmful as long as its tax benefit depends on whether substantial activities are performed in a jurisdiction. But no consensus has been reached on how to define "substantial activities."

"It was the only thing we didn't deliver" at the November 15-16 G-20 leaders summit in Brisbane, Australia, he said, although he did note a November 11 agreement between Germany and the U.K. to negotiate new rules for preferential IP regimes based on the OECD's proposed modified nexus approach outlined in the action 5 report. "The Netherlands to date has not yet agreed. I think by January they will agree, but it's a bit frustrating to see it's hard to move there."

Saint-Amans was pleasantly surprised about the outcome of and response to action 6 on treaty abuse, which resulted in the OECD recommending a minimum standard through a flexible approach to addressing treaty shopping. According to the OECD's final report, countries may adopt policies that are most appropriate for them, as long as they have a minimum standard for guarding against treaty abuse.

"On treaty abuse we went beyond what I thought we would deliver," he said. "It shows we could go beyond what was initially planned."

Cool and Efficient

Keeping the project on task and on budget may be challenging, but Saint-Amans's focus on efficiency has helped keep the project's momentum strong. It should come as no surprise, then, that no more than 15 people at the CTPA are working on the BEPS project full time and on a shoestring budget. "It's a small team, very dedicated, working not to death but working very hard," he said.

While some experts have pegged the total cost of the BEPS project at €20 million to €60 million, Saint-Amans said that the CTPA will spend no more than €4 million to €5 million over two years.

"I think we're quite cost efficient, and maybe sometimes the team complains about me being obsessed with being cost efficient, but it's because we spend taxpayers' money, so I feel quite strongly about that," he explained.

Efficiency is also crucial for a project with such a short timeline. A major reason for the project's two-year timeline, Saint-Amans said, is that the OECD had to move quickly to keep consensus among all countries and to prevent them from acting unilaterally to tackle sources of BEPS.

"Two years is still in the political horizon of governments," he said. "You can tell them to wait for two years, but they cannot wait for five years. And you also need the political impetus to do the top-down approach."

The top-down approach is effective, as delegates in the working parties are more readily able to agree on real changes. Up until the BEPS project, delegates would come to the OECD working parties, and their main objective was to agree on certain proposals as long as they didn't require changes to their countries' domestic legislation, he said.

"Imagine you are an administrator in France or the U.S. or elsewhere, you go to the OECD, and you go back home, and you tell your minister and your parliaments, 'By the way, we need to change this because I committed the country to do so.' Doesn't happen," he said. "Here, they are mandated to make changes so they can agree on real stuff and that's part of the political momentum, which means we need it to go fast."

It was clear to Saint-Amans that the BEPS project was necessary because he was observing that countries were moving away from consensus on the international tax framework while he was chair of the OECD's working party 1. "I could see that countries were diverging and we were hiding this with commentary, which was contradicting itself, so we were not doing a great job, but we were producing stuff," he said. "We had a big risk of the international tax framework unraveling because of that, so that's why we launched the BEPS initiative."

When the OECD presented its BEPS action plan to the G-20 finance ministers in Moscow in July 2013, the reaction was mixed. Some observers said that the deliverables timeline was overly ambitious, while others argued that if the deliverables were produced too fast, they wouldn't be done well. However, the OECD proved in 2014 that it was able to meet its deadline and produce deliverables that weren't watered down, Saint-Amans said.

"So when I read [Tax Analysts'] reports on what we were issuing, I was happy because I feared that the view of the experts would be 'Well, they've compromised on too many things, and it's not meaningful.' I think what we've done is meaningful and on time," he said.

Of course, that's not to say it hasn't been difficult for Saint-Amans to hear criticisms from different sectors of stakeholders in the BEPS process, such as business.

"I'm annoyed by [their] comments. I'm very impatient, so I first react badly, and then I think of it, and I say, 'They're right,'" he said. "So you really need to be open."

Another example is dealing with NGOs. "I really hate it when they say, 'Well, all this is meaningless because the developing countries are not on an equal footing,'" he said. "I'm sorry, it's not meaningless for developing countries! It's a breakthrough change for them."

He agreed that developing countries must participate in the BEPS project on an equal footing and that their voices should be heard. "That's why we've changed the plans a bit late, which is a frustration. We could have done better," he admitted.

That the BEPS project started with 34 OECD member countries and has brought in 10 non-OECD countries on a level playing field, however, is a "massive change," according to Saint-Amans. He said that he thought the OECD would need more time to absorb Brazil, India, China, and South Africa but in one year's time, he's seen those countries participate more actively and on the same level as the OECD member states.

"Sometimes you can hear the difference in terms of positions taken, but in terms of engagement, of ownership of the process, you cannot tell any differences," he said. "I think it's a great victory."

What's In Store for 2015?

Work on the remaining BEPS deliverables is underway, with several discussion drafts and consultations scheduled for 2015. The OECD will also unveil its implementation package on CbC reporting early next year.

Saint-Amans's expectations vary for each remaining action item. For action 3 on the design of domestic rules to strengthen CFC rules, he said, the OECD can come up with some best practices, but he said he was uncertain about whether it makes sense to introduce a minimum standard.

"If a country doesn't want to do CFCs, it's going to be very hard to oblige them, so I'm not sure if it's relevant," he said. "But we can definitely provide for best practices in particular for European countries which have EU constraints."

He also identified the interaction between the work on CFCs and other aspects of the BEPS project as a potential challenge. He pointed to the OECD's experience with hybrid mismatches, which resulted in a report exceeding 50 pages. "And that's where you get lost," he said. "How do you avoid the silos and keep an overall perspective there?"

One of his personal techniques to keep working groups focused is to ask them to create narratives. "I want to be in a position to explain to non-technicians the meaning of what we're doing," he said.

Action 4, the design of domestic rules to limit base erosion via interest deductions and other financial payments, will be a major item, according to Saint-Amans.

"What kind of approach do you take for this?" he asked. "It's very interesting, and there's a lot of money at stake."

Such rules are easy to explain but difficult to put in place, and carry many risks for double taxation. However, there is a real need to do something, in Saint-Amans's view. "Countries are converging, there is real consensus," he said. "So that's going to be a big one."

Action 7, preventing the artificial avoidance of PE status, is "very controversial, very difficult," according to Saint-Amans, but there is agreement that commissionnaire arrangements are coming to an end.

"The flaws in article 5 need to be fixed; most of these schemes are just based on the fact that it's flawed," he added. "The contracts reference is wrong and needs to be changed. How do you put an end to that without changing the threshold? That is another debate. It's very difficult, but interesting."

For the transfer pricing items to be addressed in actions 8-10 -- assuring that transfer pricing outcomes are in line with value creation -- Saint-Amans noted that there is agreement that cash boxes should be eliminated but no consensus on how to do so. In addition, he said that it's necessary to save the arm's-length principle because there is no available alternative.

"I don't believe in any god, in tax at least," Saint-Amans said. "I don't believe in the arm's-length principle god, nor in the formulary apportionment god, and I'm struck by the fact that people argue. I'm not interested in that. The arm's-length principle is there because the cost of the transaction to move outside of it is too big, the problems with formulary apportionment would be even bigger, so let's stick to the principle."

However, the principle was not designed to funnel cash into Bermuda, according to Saint-Amans. Perhaps it's time to change the interpretation of the arm's-length principle without changing the way article 9 is drafted, he said.

"Also, how do you simplify that for developing countries, when most of the OECD countries are not able to apply that properly, not to mention the developing countries?" he asked.

He said that he did not expect that action 12 on requiring taxpayers to disclose their aggressive tax planning arrangements would be too difficult to accomplish. Action 11, establishing methodologies to collect and analyze data on BEPS and the actions to address it, is more geared for economists, but is an important undertaking nonetheless, he said.

"I remember during the first meetings I did on BEPS, people were saying, 'Do an analysis of whether there is a problem first, then come back to us,'" he said. However, his team had only anecdotal evidence and lacked the data to come up with an estimate, which led to the creation of action 11. Saint-Amans recruited David Bradbury, former Australian assistant treasurer, and Thomas Neubig, former national director of quantitative economics and statistics at the Washington office of EY, to lead the charge. Bradbury and Neubig are now head and deputy head, respectively, of the CTPA's Tax Policy and Statistics Division.

Action 14, making dispute resolution mechanisms more effective, will be "extremely difficult" because countries are resisting movement because of sovereignty issues and are doing "an awfully bad job" resolving treaty-related disputes under the mutual agreement procedure, Saint-Amans said.

He admitted that he did a poor job when he was the French competent authority during 2003-2005, recalling that in 2003, he finally closed a case with Belgium that was initiated in 1973. "We closed the case, but it shows how dysfunctional the dispute resolution mechanism is," he said.

However, he did initiate two cases of arbitration in France under the European multilateral arbitration convention on transfer pricing, which has been in force for the past 20 years. At the time, there was no case of arbitration in European tax history. "We closed these cases, but there were hundreds in Europe which should have gone to arbitration," he said.

On action 14, political momentum must be used to require competent authorities to be more transparent about the number of mutual agreement procedure cases they have, how many they have closed without eliminating double taxation, and how many cases they have that are more than two years old, Saint-Amans said. "That will increase the pressure," he added.

Action 15, which calls for developing a multilateral instrument to allow jurisdictions to quickly implement measures developed under the BEPS project by amending bilateral tax treaties, is "quite exciting," he said.

"Instead of ratifying 70 modification protocols for treaties, for example, you'd sign one and ratify one," he said. Work is underway to develop a mandate, which he expects the Committee on Fiscal Affairs to adopt before presenting it to G-20 finance ministers in February.

"What I would like to achieve here is to make this instrument a living instrument, something that can be amended on the way forward," he said.

One lesson that the OECD learned in 2014 and which Saint-Amans hopes to carry forward in 2015 is that even though the top-down approach is working very well in producing results, it must be used carefully because it can also be destructive.

"For instance, something I don't like, which is extremely political, is politicians talking about fairness," he said. "And our job is to feed the beast, to feed the ministers, because they need to depart from that type of language and be more technical and engage with the business community. I think we've never done that on that scale. It's really deep engagement, it's difficult, but it's useful."

Another key takeaway is the importance of improving the OECD's communication to stakeholders, which is why Saint-Amans came up with the idea of holding progress reports via webcast. The first webcast, held on January 23, had 1,500 registrants. By contrast, the most recent webcast, held on December 15, had 7,000 registrants.

"One of the lessons is communicating and being more transparent. One of the things we've tried to do was to release discussion drafts before there was consensus, which has downsides and upsides," he said. "The downside is you frighten people with many options, as we did with the country-by-country reporting, but at least they have several months to comment."

Even though Saint-Amans and his team are closing in on completing the project in 2015, there are still concerns about packaging the deliverables in a way that ensures proper implementation. "You can deliver a good product, but if it's not implemented properly you will not do a good job," he said. "The challenge is to do each of the actions and bundle them, in a good narrative to make sure it makes sense, and then see what's next, in particular with the engagement of the G-20 countries."

BEPS . . . and Beyond

When he's not working on BEPS or other initiatives at the CTPA, Saint-Amans goes for a run or a swim three to four times a week, and on occasion, he does some serious surfing in the seaside city of Biarritz, in southwestern France. When pressed on whether he has plans to celebrate the end of the BEPS project around this time next year, he would not look that far ahead. "I have just not thought of it -- and will not be thinking of it before it is done," he said.

However, he did have some ideas on the future of a post-BEPS OECD. Before the BEPS project took off, the OECD's role was mainly routine updates of the model tax convention to eliminate double taxation. Under the BEPS project, the core objective remains to promote cross-border investment, which contributes to growth, by eliminating double taxation, according to Saint-Amans. "But to do that, you first need to repair the current international tax rules to ensure they are sustainable in the long term," he said.

While critics say that by undertaking the BEPS project the OECD has forgotten its core role, Saint-Amans explains that the reason for the initiative is precisely to avoid the rules from unraveling.

"What's our role? Our role is to eliminate double taxation by providing and fixing the standards," he said. But once those standards are fixed, he predicts an environment that will be more uncertain because of new players -- developing countries and tax administrations being more active -- due to globalization, according to Saint-Amans.

"Because of all that, I think our role will be useful if we're able to monitor what's happening and to check how countries implement their commitments so we don't end up with a complete mess," he said.

"That's where I see our role, moving toward more tax administration components of our work, which is much less sexy but very pragmatic, practical, and important, and maybe we should have done that earlier as well," he continued.

What does he hope his lasting legacy will be under the BEPS project? "Well, I'm not dead yet," he laughed. One thing is for sure: He doesn't want people to praise the outcome of the BEPS project only to have the results unravel two or three years later, he said.

"It's very gratifying to shine, to be at key meetings, to be recognized. But the real test is whether it will really be long-standing or not," Saint-Amans said. "Only time will tell what we've achieved."

Stephanie Soong Johnston is a reporter with Tax Notes International.

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