Will multinationals pay more taxes where they do business?
This is a collection of recent news items related to the Base Erosion and Profit Shifting Initiative:
On Wednesday, the European Commission ordered that Starbucks pay up to 30 million euros, or $34 million, in back taxes to the Dutch government, a ruling with potential implications for thousands of corporate tax structures across the region. The commission accused Dutch authorities of making an illegal fiscal deal that allowed Starbucks to cut its Dutch tax bill, in part by moving large amounts of profit to Alki.
There are hundreds of empirical studies finding evidence of tax-motivated profit shifting, using different data sources and estimation strategies. While measuring the scope of BEPS is challenging given its complexity and existing data limitations, a number of recent studies suggest that BEPS is responsible for significant global corporate income tax (CIT) revenue losses. This report assesses currently available data and concludes that significant limitations severely constrain economic analyses of the scale and economic impact of BEPS and improved data and methodologies are required.
Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant.
Pedro Nicolaci da Costa: The Beef Over US Competitiveness
Hufbauer, a former US Treasury official, was unequivocal in his opposition to the OECD’s plan. “It’s clearly bad for US competitiveness and US multinational companies,” he said, adding it would stifle investment and hurt a fragile global economy.
That’s where Jared Bernstein, senior fellow at the Center for Budget and Policy Priorities and former chief economic adviser to Vice President Joe Biden, begged to differ. Bernstein, also presenting at the event, said US firms are wasting time, talent, and resources looking for tax loopholes rather than focusing on the products and services they make and provide. “It’s not obvious that paying taxes kills innovation,” Bernstein said.
So to complain of the OECD’s “sticking plaster” approach (as some lobby groups have) is to miss the point. Perhaps the best solution is a thorough overhaul of global tax, aimed at neutralising all possibility of harmful tax competition. But this was never on the cards. ...
Seen in this light, BEPS does as useful a job as one might hope for. Of the 15 action points in its final report, the most unambiguously positive is an agreed template for country-by-country reporting. This will require that companies above a certain size report their revenues, profits, taxes and a host of other data for every jurisdiction in which they operate. Such disclosure should produce a comprehensive map of where activities take place and where tax is paid. Tackling the divergence between tax and economic value is what BEPS was set up for.
Vanessa Houlder: Tax avoidance rules: will business end up paying more? - New standards aim to make it harder for companies to shift profits to low-tax jurisdictions
Finance ministers from the largest economies hailed the initiative, which they hope will raise revenue and force companies to pay the tax they owe. ... “George Osborne, UK chancellor, pledged to turn the rules speedily into law, saying: “People are fed up when they see large international businesses avoiding paying tax in any jurisdiction. So this isn’t about whether you have low taxes or high taxes, it is about paying your taxes.”
When the finance ministers were asked whether they would resign if they had not implemented the rules domestically within a year, none raised a hand, but all insisted they had their own ways to make companies pay their tax under the OECD initiative.
Jack Lew, US Treasury secretary, said: “From a US perspective, there are elements of this that don’t require legislation and we’re looking to getting to work right away.”
Michel Sapin, French finance minister, said the ambition crossed party and regional lines. “This is not a plan for north or for the south; it is not a plan for developed or emerging economies; it is a plan for everyone”.
Tuesday’s accord waters down a proposal from Mr Moscovici that nations should have to supply information on deals struck as long ago as 2007 — a decade before the new law becomes operational on January 1, 2017. Instead, the requirement will stretch back only five years, to 2012. For past rulings that are now defunct the equivalent deadline will be 2014.
... The deal comes ahead of a summit of the Group of 20 next month where leaders are expected to agree to more transparency over tax rulings. The Paris-based Organisation for Economic Co-operation and Development called for the compulsory and spontaneous exchange of information on such rulings at international level to combat tax base erosion and profit shifting.
Tax campaigners and members of the European Parliament denounced Tuesday’s EU accord as inadequate.
2013 OECD report: Addressing Base Erosion and Profit Shifting