OECD Studies Multinational Taxation
Date | 01 July 2015 |
Author | Caroline D. Strobel |
DOI | http://doi.org/10.1002/jcaf.22073 |
Published date | 01 July 2015 |
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© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22073
OECD Studies Multinational Taxation
Caroline D. Strobel
The G20 finance ministers
called on the OECD to develop
an action plan to address base
erosion and profit‐shifting
issues (BEPS) in a coordinated
and comprehensive manner.
Specifically, the action plan
would provide countries with
domestic and international
instruments that will better
align rights to tax with eco-
nomic activity. The action plan
identifies actions needed to
address BEPS, sets deadlines to
implement these actions, and
identifies the resources needed
and the methodology tobe used
in implementing these actions.
The OECD report notes
the fact that the pace of global-
ization has increased substan-
tially in recent years. The move-
ment of capital and labor; the
shifting of manufacturing bases
from high‐cost to low‐cost
locations; the gradual removal
of trade barriers; technological
and telecommunication devel-
opments; and the ever‐increasing
importance of managing risks
and of developing, protect-
ing, and exploiting intellectual
property have caused a sig-
nificant increase in the number
of cross‐border transactions.
Globalization has resulted in
growth, the creation of jobs,
the fostering of innovation, and
lifting millions of people out of
poverty.
As early as the 1920s, the
League of Nations recognized
that the interaction of individ-
ual countries’ tax systems could
give rise to double taxation
and conversely to profits not
being taxed at all. Out of this
realization our current system
of international rules has devel-
oped. As economies became
more and more integrated, so
did corporations. Multinational
enterprises (MNEs) now pro-
duce a large portion of global
gross domestic product (GDP).
Globalization has resulted in
global models based on matrix
management organizations and
integrated supply chains that
centralize several functions at
a regional or global level. The
importance of the service com-
ponent in the economy and dig-
ital products that are delivered
over the Internet allow MNEs
to locate many of these pro-
ductive activities in locations
far from the physical locations
of their customers. The use of
sophisticated tax planning has
enabled MNEs to reduce their
effective tax rates considerably
by placing activities not only in
low‐cost environments but in
environments that have little or
no tax cost.
Because of these develop-
ments, governments have been
harmed because they are faced
with lower revenues and higher
costs to assure compliance
with their tax laws. Thereport-
ing of low effective tax rates
undermines the integrity of
a country’s tax system and is
viewedas unfair by the public.
In developing countries, the
lack of tax revenue leads to
critical underfunding of pub-
lic investment that could help
promote economic growth.
When tax rules allow busi-
nesses to shift their income
away from jurisdictions where
income activities are con-
ducted, other taxpayers in that
jurisdiction bear a greater tax
burden. Family businesses and
new, innovative businesses
are at an unfair disadvantage
because they are not able to
compete with MNEs’ ability to
shift income to low‐tax juris-
dictions.
The Organization for Eco-
nomic Cooperation and Devel-
opment (OECD) has embarked
on an ambitious action plan
that involves the work of a
number of task forces tasked
with the job of analyzing the
issues, making reports, and
then integrating the recommen-
dations into instruments to aid
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