The Database of Approved Precedents (DAP) : a Proposal to Steer the Application of the BEPS Action 6 Minimum Standard Towards Global Harmonization

Following the release of the Final Reports of the BEPS Action Plan in 2015 and the signature of the MLI starting in 2017, members of the Inclusive Framework began updating their income (or income and capital) tax treaties to make them adhere to the OECD recommendations. Among those was the minimum standard of Action 6, designed to curb base erosion and profit shifting resulting from the improper use of tax treaties. This minimum standard was presented by the OECD as a new preamble and a set of rules that should have been implemented by members of the Inclusive Framework via the addition to their tax treaties (Covered Tax Agreements in the MLI) of either a PPT clause, or a PPT and an LOB clause, or an LOB clause coupled with a mechanism to deal with conduit financing arrangements. We argue that these “alternative modes of compliance” with the minimum standard as formalized in Article 7th of the MLI represent structural loopholes that can generate implementation asymmetries. We also list post-BEPS tax treaties that deviate from the minimum standard and have either been recognized as compliant or not recognized as non-compliant by the Peer Review reports of BEPS Action 6 released to date, a phenomenon that can itself generate implementation asymmetries. These findings raise questions as to whether the practical results of BEPS Action 6 have led jurisdictions within the Inclusive Framework closer to achieving global tax justice, and, if not, whether the Peer Review system is capable of correcting their course. We do not find evidence to support that capability. We also view that, given that the political agreement surrounding BEPS Action 6 was led by the Executive Branch and the ratification of the treaties themselves was authorized by the Legislative Branch (or their equivalents) of jurisdictions that later became members of the Inclusive Framework, any effective solution to steer these jurisdictions towards the harmonization of the BEPS Action 6 minimum standard should rely on precedents from their Judiciary Branch (or from Administrative Tax Courts performing a judicial role). It is this pursuit of global harmonization of anti-abuse rules in tax treaties that bases our proposal for a non-binding Database of Approved Precedents (DAP) about the implementation of the BEPS Action 6 minimum standard in the member jurisdictions of the Inclusive Framework. We propose that the DAP be published by the OECD and that its formation be subject to four distinct assessment and decision procedures: the Regular Assessment (RA), the Exclusion and/or Replacement of Precedents via Individual Request (ERPIR), the Periodical Review (PR) and the Extraordinary Assessment (EA). It is our view that the DAP can incentivize tax judges from the jurisdictions of the Inclusive Framework to not only analyze tested, discussed and approved foreign court precedents (those approved by the Inclusive Framework and included in the DAP) and possibly use them as a basis to write their own decisions about the implementation of Action 6 provisions in tax treaties, but also produce decisions on unexplored Action 6 issues that may themselves be eligible for inclusion in the DAP. It is also our view that our proposal revolutionizes the role of tax judges in the formation of global tax policy, altering their political position from that of passive interpreters to key agents in the effectuation of global tax justice