Abstract

AbstractIt is widely recognized that international corporate taxation holds a distributional bias toward advanced economies and that developing countries only play a marginal role in tax governance-making. Yet, it is the ambition of both the G20 and the Organisation for Economic Co-operation and Development (OECD) to integrate developing countries in the BEPS Inclusive Framework. The Base Erosion and Profit Shifting (BEPS) action is the latest global initiative to update the international framework of corporate taxation and curb corporate tax avoidance. On one hand, the integration for developing countries within the policy-making forums remains incomplete and focused on the implementation of the global tax rules. On the other, even when lower-income countries have a seat at the table, uneven power relations shape the distributional outcomes of the G20-OECD tax reform project. This analysis of the power relations at play during the revision of the transactional profit split method (TPSM) reveals how dominant logics on value creation work against the material interests of developing countries in the distribution of taxing rights. Therefore, for a tax reform to be truly legitimate for developing countries, it should emancipate and even “decolonize” the discourse and ideas of the international tax regime. While the updated OECD guidelines on transfer pricing expanded the size of the overall cake of taxable profits, the dominant logics and criteria of the guidance make it difficult for lower-income countries to obtain a decent slice of the cake and actually eat it.

Highlights

  • Within the shadow of the G20-OECD Base Erosion and Profit Shifting (BEPS) Project, transfer pricing experts pack up their suitcases to go and assist developing countries in their efforts to implement a complex regime of transfer pricing auditing (Peters 2015; Tax Inspectors Without Borders 2018)

  • Reveals that even though the reform expanded the size of the overall cake of taxable profits, the criteria that authorize the use of the transactional profit split method (TPSM), along with the ongoing complexity of the regime, make it difficult for lower-income countries to obtain a decent slice of the cake and eat it

  • Throughout the discussions, the BEPS Monitoring Group brought in the statement that every related party transaction that takes place within a transnational corporations (TNCs) adds to the creation of residual profits as the existence of these profits is the ‘raison d’être’ of integration in the first place (WP6 2016b, 2017a)

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Summary

Introduction

Within the shadow of the G20-OECD Base Erosion and Profit Shifting (BEPS) Project, transfer pricing experts pack up their suitcases to go and assist developing countries in their efforts to implement a complex regime of transfer pricing auditing (Peters 2015; Tax Inspectors Without Borders 2018) At first glance, these efforts support the reduction of fiscal losses caused by “aggressive” transfer pricing practices, an important channel of corporate tax avoidance in Sub-Saharan Africa (Fuest and Riedel 2012). Mosquera Valderrama (2015, 2018) already argued that the reform should offer a way out of the collective action problem developing countries face in the regulation of transfer pricing and bring about solutions that are efficient and implementable within the tax culture and context of these countries From this view, the legitimacy of the BEPS project depends on more than the sole representation of. The institutionalization of transfer pricing guidelines, and in this case the revised guidance of the TPSM,

Getting the Short End of the Stick
The Different Faces of Power in Global Tax Governance
The Profit Split Method and the OECD Standard-Setting Process
2016 Discussion
The Cake
The Slicing of the Cake
Findings
Capturing the Slice and Eating It
Conclusions
Full Text
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