In the wake of the financial crisis in 2008, a momentous inaugural meeting between G20 leaders took place in Washington, DC. Tasked with responding to the near collapse of the global financial system and its ramifications for the global economy, leaders from the world’s wealthiest and most influential nations set out to build a new economic system.

“We started to work on putting an end to bank secrecy, and then we moved onto the other branch of tax havens, which is about base erosion and profit shifting [BEPS],” Pascal Saint-Amans, director at the OECD Centre for Tax Policy and Administration, told fDi on the sidelines of Web Summit, a global tech event held in Lisbon in November 2019.


In 2015 the OECD delivered its BEPS programme to tackle tax avoidance, making significant amendments to international tax rules, which had been kept unchanged since 1928. It set out 15 actions aimed at improving the transparency of relations between taxpayers and tax administrations globally, and stopping companies shifting their profits to low-tax jurisidictions, where they locate profit but have no activity. 

FDI can be undertaken through special purpose vehicles, or subsidiaries created by corporations to absorb risk and facilitate specific business activities. While often criticised as existing purely for tax purposes, the use of such vehicles is motivated by reasons including joint ventures and having a number of vehicles for legal or insurance reasons.

“It seems that [the BEPS programme] had a pretty significant impact on the location of the investment and special purpose vehicles,” says Mr Saint-Amans. “More fundamentally there is a very serious impact on the way companies are planning their taxes, which means the opportunities of double non-taxation are just vanishing … We’ve affected the routes of FDI which were going through zero-tax jurisdictions and have [now] been rerouted either to the final destination of the investment or to what we call investment hubs.” One clear indication of the consequences of the BEPS programme was Ireland’s GDP increase of 26.3% in 2015, as many multinational corporations began ‘onshoring’ their assets and intellectual property.

US tax reforms introduced at the end of 2017 have made the impact of BEPS difficult to measure, however. The Tax Cuts and Job Act slashed the headline corporation tax rate from 35% to 21%, led to a huge repatriation of accumulated profits of US companies in low-tax jurisdictions, and warped global FDI figures for 2018. Despite slashing the tax rate, however, the US tax reforms contained several of the actions in the BEPS programme, says Mr Saint-Amans. 

Yet there is still more to be done. “We haven’t completed the work on transfer pricing – which are the rules in which companies need to price internal transactions and a big avenue for tax planning – and the tax challenges of the digitalisation of the economy,” admits Mr Saint-Amans.

One of the main areas of focus for the BEPS Action Report in 2015 was the tax challenges that arise from the digitalisation of the economy. A real issue faced by tax authorities across the globe is that an increasing proportion of the global economy is reliant on intangible property, which is easier to delocate and shift to lower-tax jurisdictions.


“Market jurisdictions with the existing rules don’t get much of the income generated by companies. Traditionally in the old economy, the IP was in the country of residence. In a globalised, more aggressive economy, intellectual property goes to a tax haven or investment hub,” says Mr Saint-Amans.

Taxing the digital economy has come to the fore recently, as some countries have pledged to impose digital service taxes on some of the world’s largest tech companies. One potential solution to this is to tax global tech companies where their consumers and users are.

“The beauty of this is that there is one thing that companies cannot manipulate and that is where the consumers are,” says Mr Saint-Amans. “You can shift your labour, investment and R&D, but you cannot shift your consumer.”