THE BEPS project was started by the OECD to fix the current international tax system, which by OECD's own reckoning was not fit for purpose. The project was essentially directed at analysing the various ways that multinationals exploit the gaps and mismatches in different corporate tax regimes along with the bilateral tax treaties to reduce their overall tax outgo. Following the financial crisis, the project was essential to ensure the survival of the OECD as the leading organisation in the world of international taxation. Considering that the current tax system is almost entirely based on the models and guidelines developed by the OECD itself, changes were required in the same. So far, OECD has set the rules primarily for its own members who are the dominant capital exporting nations and there is certain moral authority associated with the solutions proposed by it. In order to garner greater legitimacy, the OECD roped in the G-20 countries considering the changed economic equation in the world. Ever since the BEPS project meant different things to different people. Ironically, even though the initial momentum for the project was the exposure in different committees of the US Senate of the tax practices of its multinationals, soon it became clear that the USA would do nothing to change the status quo that is stacked in favour of the American MNCS, particularly of the digital kind and who are considered to be their national champions.

The Europeans however went ahead with their own enquires in various committees and the EU commission in particular took a very proactive role exposing various malfeasance of such MNCs and suggested measures that were perhaps even more radical than what the consensus seeking OECD could digest. Initially, there was doubt as to whether the USA will participate in the BEPS project at all. Soon however, the US representatives took the leading role in the discussions and mostly blocked all substantial proposals to change the status quo.

The developing emerging economies had never had any role in standard setting earlier and found that the current OECD rules are heavily stacked against them and naturally tried to alter at least some of them to their advantage. However their efforts were stymied by the developed world and no consensus could be achieved on the most vital taxation of digital economy. Nevertheless, OECD came up with its final action plan in 2015 suggesting some changes in the existing system that was better than nothing. Now, it was time for implementation of whatever consensus was achieved. At the outset, one must admit that two of the outstanding contribution of the BEPS project was the adoption of the country by country reporting and adoption of a multilateral instrument to simultaneously implement the changes in bilateral tax treaties.

To ensure greater adaptability the OECD roped in more and more countries and so the concept of inclusive framework was adopted wherein more than 130 countries are now represented. It is also to be admitted that developing countries are not a monolith block and various interests have competing claims. In this connection, apart from the emerging economies, there are countries and jurisdictions including dependencies that are traditionally considered to be either tax havens or facilitate the erosion of tax base of market economies. Some of these names in the list of 134 on the OECD website, just by way of illustration are- Andorra, Anguilla, Antigua and Barbados, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands etc. Their interests are best served by aligning with interest of the capital exporting countries because at the end of the day, that is what they do; facilitate movement of capital from capital excess countries to other areas without allowing them to suffer any taxation or minimal taxation. Therefore, this addition of numbers in the inclusive framework, although not conducive to achieving consensus, will give OECD the strength in numbers if voting has to be resorted to. The stated goal of the OECD, at least as of now remains to achieve consensus though.

Even within what has already agreed in the BEPS project, there are major differences. The USA, the most powerful country in the world will not be part of the MLI. Therefore countries will have to separately negotiate any change in the terms of their tax agreements with that country. An issue relatively unconnected with BEPS had to be accommodated at the insistence of the USA- the compulsory arbitration for resolution of disputes. It is of course true that many other developed countries also rooted for the same. Since this was unacceptable to the developing countries, the compromise solution was that there will be emphasis on resolution of disputes in these countries by strengthening the Mutual Agreement Procedure and the MAP dispute resolution process would then be subject to peer review. So on this aspect there is a clear cleavage between the developed countries and the developing ones.

Amongst the European countries also interests do not converge. Some of these like Luxembourg, Ireland etc., are known for facilitating exploitation of their regimes by the MNCs and they do not see eye to eye with others trying to impose a minimum tax on the MNCs. Most importantly, another traditional power that has contributed enormously to the development of the current international tax system, the UK, chose to go its own way even before the OECD report of 2015 could be finalized by going in for the diverted profits tax. In so far as tax rates are concerned, the stated policy of the current UK government is to make the UK, one of the lowest corporate tax rate paying country in Europe. This also fits in with their obsession of implementing the BREXIT.

OECD's basic function is to coordinate the tax functions amongst its member countries. To this effect it has been developing models and trying to implement uniform application amongst its member countries. The emergence of the UN Model, even though largely based on the OECD model did pose some challenge to the supremacy of its model. Therefore, another of the OECD's objectives is to try to keep the differences to the minimum. The OECD contributes to this cause by supplying the knowhow and the experts who are mostly from the OECD member countries. Some sub-committee members are also taken from the developing countries and more often than not, if they are from the private sector, they toe the OECD line. The OECD is also trying to increase its membership which currently stands at 34. Some of these members may not be hugely developed in terms of experience and expertise. Some of the OECD members are from the erstwhile eastern block and used to follow a completely different model of taxation and when these countries wanted to become members, it was mostly the experts from the OECD that played the most crucial role in their development. But despite such differences, most of such members do not very often take a stand that will be completely out of tune with the OECD line of thinking.

It has however to be admitted that the OECD standard on transparency and exchange of information is helpful for all nations, developing and developed. It is on the back of the success of its efforts in that direction, that OECD tries to derive its legitimacy in laying down the soft law involving all aspects of the international tax regime. However, when it comes to the more serious issue of divvying up the tax revenue of multinationals, then the real divergence emerges and the interests of emerging market economies and those of most of the OECD member countries differ. The same is playing out even now in the context of the digital economy and it is unlikely that there will be any resolution of this intractable problem in the near future. The pillar 1 proposal favoured by India tries to allocate more revenue to the market jurisdictions while the pillar 2 is the adaptation of the recent US GILTI proposal renamed as the GLOBE programme by the OECD that only talks of a minimum global tax paid by the MNC group failing which the residence jurisdiction gets the right to tax. Obviously, such a proposal does not benefit emerging market economies. OECD has promised to come up with a blue print in November. One has to see what the outcome will be.

In the meantime, OECD has to keep working in furthering the interests of its member countries. In that context we may note an important work that is going on - the International Cooperation Assurance programme (ICAP). The OECD has recently unveiled the ICAP version 2.0 gaining from the experience of the pilot tried out last year. The program depends almost entirely on the cooperation amongst the tax administrators. As will be evident from the discussion below the program is suitable for tax administrations having sufficient comfort level in dealing with multinationals.

The OECD publication on ICAP mentions that the first ICAP pilot was launched in Washington D.C. in January 2018, that brought together eight tax administrations from Australia, Canada, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States where a majority of MNCs are headquartered. For the first pilot the companies were selected for participation by invitation. The program seems to build on the recent experience of country by country reporting and the mechanism put in place for its implementation as also from the experience of implementing the MLI and also builds on the considerable experience gained by these tax administrations in implementing the Advance Pricing Agreements.

At the outset, it must also be noted that ICAP is an entirely voluntary programme but it allows the taxpayer to engage with multiple tax administrations at the same time assessing its tax risks most notably the transfer pricing and risk of permanent establishment exposure. In ICAP 2.0 the scope has been extended to other categories of international tax risk as may be agreed by the multinational and the tax administrations, for example in the areas of hybrid mismatch arrangements, withholding taxes and availability of treaty benefits etc.

The core documents to be relied on and supplied by the taxpayer are the CbCR report, the Transfer Pricing Master file, audited consolidated financial statements, audited entity financial statements, permanent establishment documentation and a value chain analysis.

Under the version 2.0, an MNC may indicate an interest in participating in ICAP to the tax administration in the jurisdiction of its ultimate parent entity or may be approached by that tax administration to discuss its possible participation in the programme. This will be followed by a discussion to identify proposed covered tax administrations, covered periods and any covered risks the MNE would like included in its ICAP risk assessment .

Although the tax administrations of all the FTA members are eligible, it seems that the administrations participating in ACAP 2.O are now at 17 with Austria, Belgium, Denmark, Finland, Germany, Ireland, Luxembourg, Norway and Poland joining the program. ICAP 2.0 document however mentions that although all the FTA members are eligible to participate, experience from the first ICAP pilot suggests that a multilateral risk assessment including between four and eight covered tax administrations is likely to be most effective.

It is also important to note that it is the tax jurisdiction of the ultimate parent entity of the group that will play the leading and coordinating role. ICAP 2.0 mentions that if the ultimate parent entity tax administration is willing to act as lead tax administration, it may contact other FTA member tax administrations as appropriate, to discuss whether they would be willing to act as covered tax administrations in an ICAP risk assessment of the MNC.

There are four stages for the ICAP- the pre-entry, scoping, risk assessment and issue resolution and outcomes with each stage having a time frame within which the work is expected to culminate.

The pre-entry stage is basically for parleys between the taxpayer and the tax administration of the ultimate parent about the suitability of the particular group to avail the programme. The main document available with the administration will be the CbCR and at this stage no further documents may be necessary. If at least three tax administrations (including the lead tax administration) agree to participate, the MNC confirms whether it wishes to progress to the scoping stage. If the MNC wants to proceed, the lead tax administration will confirm to the MNC and other covered tax administrations that the MNC is now participating in the ICAP programme. If the MNC does not wish to proceed, the ICAP process ends and the other tax administrations are notified by the lead tax administration.

At the scoping stage it is to be decided as to what risks of the taxpayer will be examined. The OECD document mentions that at this stage, the MNC will be asked to provide high level information, using standard ICAP templates provided by the lead tax administration, to support tax administrations in considering whether they would be willing to participate in the MNC's ICAP risk assessment, but typically would not need to provide any detailed documentation. The target time frame here is 4-8 weeks.

The process for making the scoping documentation package available to tax administrations will be agreed by the lead tax administration with the MNC. The preferred approach is for the MNE to upload documents to a secure virtual data room to which the lead tax administration and other covered tax administrations are given access. Alternatively, it may be agreed that documents will be provided by the MNC to the lead tax administration, which are exchanged with the other covered tax administrations under instruments for the exchange of tax information.

Where a tax administration has already concluded a unilateral, bilateral or multilateral APA or tax ruling with respect to a particular transaction, this will not be included as a covered transaction for the ICAP risk assessment by that tax administration, though the same may be included as a covered transaction and considered separately by other covered tax administrations.

The third stage is the most crucial risk assessment and issue resolution stage that involves a multilateral risk assessment and assurance of the covered risks by the lead tax administration and other covered tax administrations. This stage begins with the submission of the main documentation package by the multinational group. In most cases, the risk assessment stage will include at least one multilateral call or meeting between the MNC, the lead tax administration and other covered tax administrations, with further calls or meetings held as required. The lead tax administration and other covered tax administrations will discuss their findings, until each is able to gain comfort that the covered risks pose a low risk, or else determines that such a finding is not possible.

Each country may have different risk assessment parameters. It is therefore suggested that the processes used to perform an ICAP risk assessment will include the covered tax administrations' usual policies and practices for risk assessing the covered risks, such as transfer pricing risk assessment and permanent establishment risk assessment. From developing country perspectives, it is interesting to note that ICAP 2.0 mentions that where there is a reported permanent establishment, "these will also include a covered tax administration's usual transfer pricing policies and practices for attributing profit to a permanent establishment".

It may so happen that despite all efforts the tax administrations reach different conclusions, which then will be discussed by the tax administrations to understand the reason for the difference and whether a consistent approach is possible, taking into account each other's risk assessment findings. However, ultimately each tax administration must draw its own conclusions and may just agree to disagree. It is stipulated that the target time frame for this phase should not exceed 20 weeks.

The final stage in the process is the outcome where the lead tax administration will issue a completion letter confirming the finalisation of the ICAP risk assessment on behalf of all other tax administrations together with an outcome letter by each covered tax administration, containing the results of its risk assessment and assurance of the covered risks for the covered periods. The time frame for this stage is 4-8 weeks.

While BEPS has been hogging the limelight of international tax agenda for close to a decade now, the ICAP programme does indicate that perhaps OECD may be moving to some other agenda and focus more on the area of dispute resolution.