Abstract
Multinational corporations have contributed to the unfair phenomenon of tax base erosion and profit shifting by taxation planning and transferring profits into countries or territories with low tax rates. The OECD, under the push from G20 member countries, launched 15 action plans for BEPS (Base Erosion and Profit Shifting), as an attempt to drive reforms in tax systems across different countries for a just and efficient taxation system. As part of this global initiative, the Taiwanese government is also amending its tax laws for better consistency, substance, transparency and fairness. This paper examines Google, Amazon and Starbucks headquartered in the U.S. and Feng Tay headquartered in Taiwan and analyzes how multinational corporations leverage the difference in tax rates in different countries and the existence of bilateral tax agreements for tax planning and profit shifting. The European Commission holds the view that such practices violate the laws of the European Union. This paper conducts an in-depth analysis on the arguments from both sides and develops suggestions on the basis of tax fairness, moral issues and research findings. It is hoped that taxations and profits travel in a just and efficient environment so that taxation fairness benefits economic developments and effective use of resources.
Highlights
Taxes are an operating cost to corporates
The considerations include whether the rewards for intangible assets are in compliance with the OECD Transfer Pricing Guidelines [23], whether profits are enjoyed by the entities who make contributions to intangible assets and whether transfer pricing agreements violate the laws and regulations of the European Union
Apple and Google set up subsidiaries (CFCs) and offices (PEMs) in low tax-rate countries such as the Netherlands, Ireland and Bermuda and maximize post-tax earnings with transfer pricing for intangible assets
Summary
Taxes are an operating cost to corporates. It is a common practice that companies seek to reduce tax burdens to reduce tax expenses and boost profits by leveraging the different tax rates throughout the world. Tax planning for tax benefits typically involves the leverage of differences and information asymmetry in tax systems in different countries, via holding companies without comparable economic substances, and the legal engagements such as identity changes or transaction contracts. It is rather common for multinational enterprises (MNEs) to avoid taxes or to seek double non-taxation via tax arrangements to segregate profits and profit creating activities. The leverage of low tax rates or tax breaks offered by different countries by large corporates has led to base erosion and profit shift. These efforts aim to keep up with the international tax laws, contribute to the creation of tax justice and promote an effective utilization of resources for the global economy. [33]
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