A thousand pages on corporate tax shenanigans is not normally the sort of thing that captures the public imagination. But amid the technical detail of international tax rule changes proposed by the OECD lie some of the most fundamental governance developments of recent years.

The aim of the OECD-G20 Base Erosion and Profit Shifting (BEPS) package of 15 reforms released on 5 October is to help governments close the gaps that allow corporate profits to 'disappear', or be artificially shifted to low/no tax environments.

As Mike Callaghan has noted, whether tax laws can keep up with globally operating businesses and constant technological change is a fundamental challenge confronting governments.

In the forthcoming volume The G20 and the Future of International Economic Governance, Miranda Stewart suggests that tax governance is still at an embryonic stage, with no global accord, and the world remains heavily reliant on bilateral cooperation. Some key elements of global tax arrangements are not far advanced from what was agreed by the League of Nations back in the 1920s.

It's clear international tax rules have evolved much more slowly than the globalised economy. Technical progress was made at the OECD throughout the 1990s and 2000s on modern and cooperative international tax systems, but a lack of political drive meant the research didn't translate into policy. This changed with the elevation of the G20 to the leader level in 2008 and a shift in public opinion in light of incriminating examples of tax avoidance strategies by multinationals such as Google, Starbucks, and Apple.

Some 60 countries have agreed to the final BEPS package and it was also endorsed by G20 Finance Ministers in Lima last week. It is complex but can be understood in three broad areas.

The first is to end the divorce between the location of profits for tax purposes and the location of value generated. There are a number of technical matters here. Notable is an agreement to cooperate on strengthening guidelines around transfer pricing (the practice of lowering a multinational company's tax bill though the pricing of offshore transfers between its subsidiaries). Redressing a weak interpretation of the arm's length principle will make it much harder for companies to use creative risk accounting so their profits accrue in very low tax jurisdictions. Work is also ongoing regarding the interest-deductibility of a company's inter-group lending. The leader of the BEPS work at the OECD, Pascal Saint-Amans, predicts countries will converge over time to between 10-30% of earnings before investment, taxes and amortisation (although it will vary by institution and industry). This has the potential to change effective tax rates over time.

The second area is transparency, with more information set to be passed between tax authorities. G20 countries have already agreed to the automatic exchange of tax rulings by 2018. This will be joined by country-by-country reporting to tax authorities by large multinationals with annual turnover of more than $750 million. This covers 10% of multinationals but 90% of profits, and is a significant accomplishment, although already it appears a quarter of the companies affected may miss the first deadline for country-by-country reporting.

The third focus is implementation. In the post-GFC era even agreed policy is proving hard to ratify, and the delivery of a policy package needs to be seen as the 'end of the beginning'. The effectiveness of this project will be determined by widespread and consistent implementation of agreed actions. Some actions, such as the transfer pricing interpretation, can occur instantaneously, but reforms requiring amendments to tax treaties will take much longer. In another positive development, almost 90 countries are collaborating on a multilateral instrument, to be signed in 2016, that will fast-track changes to BEPS provisions for as many as 3600 bilateral tax treaties.

The risk remains that countries will go their own way to escape multilateral tax avoidance efforts, like the UK which introduced a diverted profits tax earlier this year — a development that caused embarrassment at the OECD. Global fragmentation in tax arrangements that undermines the hard-won multilateral agreements of the past two years will continue to be a threat.

It will also be important to ensure efforts to raise global tax standards do not come at the expense of the already stretched tax administration capacity of developing economies. Building enduring tax administration capacity is not a simple exercise, and it will require a concerted emphasis from G20 countries and technical bodies such as the OECD, IMF and World Bank.

Critics, including the grumpy tax ideologues at The Economist, will argue the package could be stronger, less complex, more transparent; some will hold that in a perfect world we might not tax corporate income at all. There will also be complaints about the long and messy path of implementation that lies ahead. There is some truth to all these criticisms, although they often ignore the pragmatic realities of global decision-making. Context is also important. BEPS is one element of change in international tax governance arrangements. It's part of a broader tax story.

The BEPS agenda should, however, be seen as a success story for global economic governance. It will be a valuable case study for future textbooks wanting to demonstrate how technical expertise and political drive can interact and provoke real change.

Image courtesy of Flickr user 401calculator.org.