Profit Shifting Project Research Articles

The Anti-Avoidance Rule Regarding Permanent Establishments in Third Countries of the OECD/G20 Base Erosion and Profit Shifting Project: Is It Necessary?

In this article, the author considers the OECD/G20 Base Erosion and Profit Shifting Project as it affects permanent establishments (PEs) and third countries. Having examined the proposal, he concludes that the rule has several flaws, is difficult to apply and may not be necessary.

Action 4 of the OECD/G20 Base Erosion and Profit Shifting Project and the Non-Discrimination Clauses in South Africa’s Tax Treaties

In this article, the author considers the implications of Action 4 of the OECD/G20 Base Erosion and Profit Shifting Project in relation to the non-discrimination clauses in the tax treaties that South Africa has concluded and how it impacts the country’s domestic legislation enacted to advance the goals of Action 4.

Article: Economic Substance for Holding Companies in the Post- BEPS World and after Recent ECJ Case-Law: An Analysis of Developments in Europe

Over the last decade, following the Base Erosion and Profit Shifting project (BEPS), the international tax framework has been in constant change. Some of those changes, such as the introduction of the Principal Purpose Test (PPT) in the Organization for Economic Co-operation and Development (OECD) Model Convention and the Anti-Tax Avoidance Directive (ATAD I and II) in the European Union (EU) aim at denying benefits to corporate structures and transactions put in place by Multinational Corporations (MNEs) whenever those are deemed to be abusive. Recent European Court of Justice (ECJ) judgments arguably further modified the international tax framework. One of the most important elements – following those developments – commonly analysed to assess abuse is ‘economic substance’. This article focuses on the analysis of substance requirements particularly for holding companies, which typically are less robust than those of companies generating active income. After analysing the definition and object of a holding company, the author explores the current views of the OECD and the EU on this topic, including ECJ jurisprudence, to assess to what extent those have converged. The article compares different instruments and concepts, as well as their underlying principles, aiming at applying them to specific cases of cross-border holding structures. Holding companies, substance, anti-tax avoidance directive (ATAD), principle purpose test (PPT), abuse of rights, tax treaty abuse, principal purpose test (PPT), general anti-avoidance rule (GAAR), beneficial ownership

Unctad Insights: A new framework to assess the fiscal impact of a global minimum tax on FDI

The OECD agreement in principle on a global minimum corporate income tax – Pillar Two of the Base Erosion and Profit Shifting project – is a major step in international tax regulation and coordination. Yet, its consequences for foreign direct investment (FDI) have received limited attention thus far. In the present paper, the authors detail the analytical framework developed to underpin the findings of the World Investment Report 2022: International Tax Reforms and Sustainable Investment. The paper introduces the notion of FDI-level effective tax rate (ETR). Unlike standard ETRs, FDI-level ETRs embed the profit shifting schemes of multinational enterprises (MNEs). They capture not only the taxes paid on income reported in the host country of the foreign investment but also those levied on income shifted to offshore financial centres (OFCs). The effect of Pillar Two on these two components of the tax base determines the increase in the overall tax rate faced by MNEs, which ultimately affects the investment decisions of MNEs. After empirically calibrating ETRs, profit shifting and FDI-level ETRs of more than 200 countries, the authors quantify the effect of Pillar Two on FDI-level ETRs. The results show that after the reform FDI-level ETRs are likely to increase by 2 to 3 percentage points in non-OFCs, which corresponds to an increase in the corporate income tax liability for MNEs between 14 and 20 per cent.

The Economic Allocation of Income and the Disregarding of Narrowly Held Entities Following the OECD/G20 Base Erosion and Profit Shifting Project: Coordination of Work on Exchange of Information and Income Allocation Rules

The implications of developments regarding exchange of information rules together with changes to the international taxation regime have been underestimated. The use of economic concepts to exchange information relating to tax treaties could overapply economic and substance approaches in the allocation of income, thereby disregarding legal arrangements and persons.

Action 14 of the BEPS Project: Taking the Pulse of Tax Certainty and Determining the Effectiveness of the Peer Review Process Five Years On

This article considers Action 14 of the OECD/G20 Base Erosion and Profit Shifting Project (the “BEPS Project”) regarding the minimum standards for tax treaty dispute resolution procedures in realizing taxpayer certainty. It also evaluates the effectiveness of the OECD’s concurrent and related peer review process.

On the Apparent Widespread Misapplication of the OECD Transfer Pricing Guidelines

In this article, the authors examine the apparent widespread misapplication of the OECD Transfer Pricing Guidelines. Though most evident in relation to the rules on risk introduced by the OECD/G20 Base Erosion and Profit Shifting Project, it is argued that the cause stems from some wider problems with the ALP.

A reassessment of UNCTAD’s transnationality indices in the digital economy

This research note reassesses UNCTAD’s transnationality indices in light of recent economic trends that are quickly changing the international investment landscape: the digital economy, the new industrial revolution and the resulting asset-light international business models. The recent international “Agreement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy” through the Base Erosion Profit Shifting project emphasizes the importance of fully understanding and correctly interpreting the implications of digitalization for investment and development policy. The analysis shows that UNCTAD’s internationalization indices are still able to capture relevant structural changes but could benefit from several fine-tuning options to allow a clearer interpretation and consequently a better elaboration of policy advice. Relevant policy areas include international taxation, as suggested by the analysis of the FDI lightness index, but also employment and more generally development strategies of host economies.

Aligning the Location of Taxation with the Location of Value Creation: Are We There Yet!?!

In this 75th anniversary issue of the Bulletin for International Taxation, Angelo Nikolakakis examines critically the implications of the initiatives – the OECD/G20 Base Erosion and Profit Shifting Project and the (resulting) Pillars One and Two – that have been suggested as ways of reforming the international tax regime. The analysis is focussed in particular on the implications of these initiatives with regard to the goal of aligning the location of taxation with the location of value creation.

From the Avoidance of Double Taxation to the Avoidance of Double Non-Taxation: The Changing Objectives of Tax Treaties

The OECD/G20 Base Erosion and Profit Shifting Project has clarified that relief from double taxation under tax treaties does not extend to double non-taxation. This (new) objective of tax treaties is analysed from the perspective of the preamble and the amendments to the OECD Model (2017) and the related case law.

Canada at the Crossroads of International Tax Reform: Between Harmonization and Tax Competition

In this article for the 75th anniversary issue of the Bulletin for International Taxation, Nathan Boidman and Michael Kandev provide their thoughts on Canada’s response to the proposed reform of international taxation as suggested by the OECD/G20 Base Erosion and Profit Shifting Project and succeeding initiatives.

Full Taxation

It has recently been argued in the international tax literature that the OECD Base Erosion and Profit Shifting project (BEPS) reflects and effectuates full taxation, namely an international norm that would suggest that all of a company’s income should be taxed in places where it has real business activities, representing a modern approach to the single-taxation paradigm. This Article builds upon the concept of full taxation and argues that although rhetorically attractive, the concept is still conceptually inconsistent, particularly because it is incapable of providing any hints as regards where and who should finally be taxed. Moreover, it adopts an overinclusive and instrumental approach, the purpose of which appears to be only to legitimatise the use of coordinated provisions whose rationale attends exclusively to avoid the complete absence of taxation in cross-border transactions. This approach, innocuous at first sight, suggests however the unprincipled purpose of taxation just for the sake of taxation, putting at risk countries wishing to attract real economic activities and stigmatising the outcome of double non-taxation in a permanent way.

The Influence of the BEPS Multilateral Instrument on Tax Treaties Concluded by Non-signatory Countries

This article intends to assess the impact of the Base Erosion and Profit Shifting Project (BEPS) Multilateral Instrument (MLI) on tax treaties concluded by non-signatory jurisdictions. To achieve this goal, the authors initiated the analysis with forty-four countries that are members the BEPS Inclusive Framework but have not yet signed the MLI. Out of these forty-four countries, the authors focused on those that had tax treaties signed or amended after 2017 which has narrowed down the scope to the following countries: Angola, Botswana, Brazil, Cape Verde, Congo, Maldives, Thailand, and Vietnam. In this context, the article examines the tax treaty-related BEPS measures that were adopted by these countries in their bilateral tax treaties, addressing the merits and potential consequences of the choices made by non-signatory jurisdictions. Based on the findings of the research, the article concludes that the impact of the MLI varies significantly depending on the tax treaty policy of each country and that, thus far, it has been limited primarily to the minimum standards on dispute resolution. Multilateral instrument, non-signatory countries, tax treaty policy, minimum standard, bilateral tax treaty negotiation, BEPS implementation, hybrid mismatches, treaty abuse, permanent establishment, dispute resolution.

Australia’s Inaction on Mandatory Disclosure Rules: Can You Have Too Many Disclosure Regimes?

Australia has not enacted Mandatory Disclosure Rules, either in the form recommended in the Final Report on Action 12 of the OECD/G20 Base Erosion and Profit Shifting project or the OECD’s Model Mandatory Disclosure Rules. This article explores some potential explanations for Australia’s inaction.

Tax Policy and Planning: Lessons From Developed Countries

Abstract One of the fundamental issues in developing countries is how to evolve tax policies that can generate sufficient revenue for government activities. Consequent upon the above, this study examined tax policies and planning in developing sub-Saharan African countries. It adopted table content analysis and descriptive statistics in its methodology. The study observed that aggressive tax planning which the Multi-National Corporations execute through royalty payment, interest payment, strategic transfer pricing and treaty shopping, among others, has caused countries around the globe huge revenue losses annually and has become a matter of serious concern to both the developed and developing economies. The implication of this is that achievement of objectives of tax policies and their reforms will remain a mirage in sub-Saharan African countries. The study concluded that the prevalence of illicit financial outflows in the form of tax evasion and avoidance in the guise of aggressive tax planning by multinational corporations, however, makes Africa’s tax policies worse. It was recommended that the Organization for Economic Corporation and Development, and the G-20 should involve developing countries in the Base Erosion and Profit Shifting project as they are the worst victims of these activities. Keywords: Tax Policy, Aggressive Tax Planning, Developing countries, Africa.

The Complementary Role of the WTO in the Enhancement of the Base Erosion and Profit Shifting Project

The current rules on international tax do not function properly due to the gaps which allow for tax manipulation. Whereas most tax agreements largely contribute to the prevention of double taxation, they do not effectively approach double non-taxation matters arising from tax competition based on the agreements’ bilateral nature. In order to tackle this issue, the Base Erosion and Profit Shifting project was introduced. Developed under the Organization for Economic Co-Operation and Development framework, the Base Erosion and Profit Shifting project deals with tax avoidance practices that use mismatches and gaps in tax rules. Nevertheless, the success of this new soft law initiative requires a forum that can promote and enforce its recommendations. The structural nature of the Organisation for Economic Co-operation and Development has led to the consideration of the World Trade Organization to be this forum by many. However, the World Trade Organization covered agreements are drafted in a way that includes some of the tax competition matters but not others, including traditional tax havens. This paper aims to bridge the gaps in the area of the international tax regime. By examining the international trade and international tax regimes, it is shown that there is space for variations in the World Trade Organization broadly drafted agreements for such matters to find a resolution. It is argued that the World Trade Organization can play a complementary role in the enforcement of the new international tax rules.

Revisiting the Case of Customary International Tax Law

Abstract Customary international tax law has traditionally not received a lot of acclaim in international tax law literature. However, the infrastructure of international tax law is becoming increasingly multilateral. The recent adoption of the Multilateral Instrument and the creation of the Inclusive Framework, two initiatives related to the OECD/G20 Base Erosion and Profit Shifting Project, have accelerated the width of cooperation on international tax matters. For that reason, the authors (re)consider the existence of customary international law in the area of international tax law. They conclude that, perhaps contrary to the intuition of tax lawyers, the evidence in favour of customary international tax law is building up. The question whether customary law exists within the area of international taxation is therefore not misplaced.

Permanent Establishment in the Form of Dependent Agent in the Light of the Base Erosion and Profit Shifting Project

Agata Lipińska Full Text of Paper Read paper (PDF) Source Type: Journal Document Type: Study Document Language: English Published on: 31. 3. 2021 File Format: PDF File Size: 660 kB In: Societas et iurisprudentia • 2021 • Volume 9 • Issue 1 • Pages 122-140 • ISSN 1339-5467 Abstract: The subject of the paper is an analysis of the issue […]

Диагностика налоговой выгоды в национальном и международном праве (методологические аспекты)

The article is devoted to the aspects of substantiation of tax benefit in transnational operations. The schemes of tax evasion including transnational ones face strong opposition in national legislation, judicial doctrine and provisions of international agreements. In author`s opinion, now the doctrine of unfounded tax benefit is at the new stage of development after the adoption of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation on appraisal by arbitration courts of relevance of gaining of tax benefit by tax residents, dated October 12 № 53. The author examines interaction between internal (Article 54.1 of the Tax Code of the Russian Federation) and international tax rules taking into account new approaches adopted after the OECD/G20 Base Erosion and Profit Shifting Project was realized. Special attention is paid to Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting particularly to principle purpose test. The author notes that principle purpose test was designed on the basis of legal link between principal purposes of tax payer transaction and object and purpose of international agreement. The nature of such approach can be explained by peculiarities of international agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Taxing multinationals: The scope for enforcement cooperation

AbstractPolicymakers seeking to raise more tax revenues from multinational enterprises have two alternatives: to raise tax rates or to devote more resources to improve tax compliance. Tougher tax enforcement increases the cost of profit shifting, and thus mitigates tax competition. We present a tax‐competition model with two policy instruments (the corporate tax rate and the tightness of tax enforcement). In line with the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting project, we analyze the scope for enforcement cooperation among asymmetric countries, considering that taxes are set noncooperatively. We show that the low‐tax country may fail to cooperate if asymmetry is large enough and that tax havens would never agree to cooperate. Then we identify two drivers for enforcement cooperation. The first driver of cooperation is the complementarity of enforcement actions across countries. This is because the efficiency loss from enforcement dispersion is greater under complementarity. The second driver of cooperation is tax leadership by the high‐tax country, which acts as a level‐playing field in the tax competition and reduces the extent of disagreement on enforcement.