imc indymedia

Los Angeles Indymedia : Activist News

white themeblack themered themetheme help
About Us Contact Us Subscribe Calendar Publish RSS
latest news
best of news



CopWatch LA


A-Infos Radio

Indymedia On Air

Dope-X-Resistance-LA List


IMC Network: africa: ambazonia canarias estrecho / madiaq kenya nigeria south africa canada: hamilton london, ontario maritimes montreal ontario ottawa quebec thunder bay vancouver victoria windsor winnipeg east asia: burma jakarta japan korea manila qc europe: abruzzo alacant andorra antwerpen armenia athens austria barcelona belarus belgium belgrade bristol brussels bulgaria calabria croatia cyprus emilia-romagna estrecho / madiaq euskal herria galiza germany grenoble hungary ireland istanbul italy la plana liege liguria lille linksunten lombardia london madrid malta marseille nantes napoli netherlands nice northern england norway oost-vlaanderen paris/Île-de-france patras piemonte poland portugal roma romania russia saint-petersburg scotland sverige switzerland thessaloniki torun toscana toulouse ukraine united kingdom valencia latin america: argentina bolivia chiapas chile chile sur cmi brasil colombia ecuador mexico peru puerto rico qollasuyu rosario santiago tijuana uruguay valparaiso venezuela venezuela oceania: adelaide aotearoa brisbane burma darwin jakarta manila melbourne perth qc sydney south asia: india mumbai united states: arizona arkansas asheville atlanta austin baltimore big muddy binghamton boston buffalo charlottesville chicago cleveland colorado columbus dc hawaii houston hudson mohawk kansas city la madison maine miami michigan milwaukee minneapolis/st. paul new hampshire new jersey new mexico new orleans north carolina north texas nyc oklahoma philadelphia pittsburgh portland richmond rochester rogue valley saint louis san diego san francisco san francisco bay area santa barbara santa cruz, ca sarasota seattle tampa bay tennessee urbana-champaign vermont western mass worcester west asia: armenia beirut israel palestine process: fbi/legal updates mailing lists process & imc docs tech volunteer projects: print radio satellite tv video regions: oceania united states topics: biotech
printable version - js reader version - email this article - view hidden posts - tags and related articles

Base Erosion and Profit Shifting (BEPS)

by Olesya Kazantseva Wednesday, Dec. 06, 2017 at 7:53 AM

Closing tax havens, ending tax competition, and prohibiting profit-shifting are necessary for a fair tax system. The richest 1% in Pennsylvania could receive another $3 billion from Trump’s tax scam! Democracy is different than plutocracy. Problems do not disappear when they are ignored.


Planned Measures against Aggressive Tax Planning

By Olesya Kazantseva

[This 2015 Master’s thesis is translated abridged from the German on the Internet,]

1. Introduction

In the last years, both public and academic interest in the tax planning strategies of international businesses has greatly increased. [1] Big businesses that successfully reduced their corporate tax burden by utilizing international tax differentials provoked this dissertation. US companies like Google, Apple and Starbucks pay less than 5% tax on their profits gained outside the US. [2] Businesses like Amazon recognized the “tax savings trend” and implemented tax-optimizing measures. [3] Their “aggressive” tax planning can be seen as “unethical” tax evasion. However this is by no means an illegal tax fraud amounting to violations of the law. The savings benefit the businesses.

A general definition of aggressive tax planning did not exist in the past. The new phenomenon has intensely negative consequences. An unethical tax optimization leads to massive profit shifts or profit reductions and resulting losses in tax revenue. [5] Many empirical discoveries on profit shifts by multinational businesses are already documented. For example, a study by Eggert and Winner shows that the tax payments of multinational businesses turn out lower than comparable national businesses. [6] In their meta-study, Hockemeyer and Overesch evaluate empirical studies of profit shifts by 25 international businesses. [7] Studies estimate the concrete extent of profit shifts and profit contractions. According to Murphy, the annual corporation tax shortfalls from tax avoidance or evasion in Britain amounted to 12 billion GBP. [8] In Germany, the German Institute for Economic Research carried out a similar investigation. In 2001, profit shifts and profit reductions already amounted to 100 billion euros. [9]

In the meantime, the problem of profit shifting and profit contraction has increased enormously. [10] The EU, the OECD and the G20 states oppose aggressive tax structures. [11] In July 2013, the OECD in its action plan named 15 measures against profit shifting and profit reduction (Base Erosion and Profit Shifting, BEPS). Since December 2012, the EU Commission also proposed different measures against tax avoidance by multinational businesses.

However, the proposed solutions were rather vague in some passages and did not fully consider the complexity of international taxation. [12] Thus, the question is raised whether and to what extent individual measures are workable and which show deficits. The goal is to analyze the possibilities of multinational businesses and critically judge the measures for fighting abuses.

First, a definition of international tax planning with its goals and instruments will be attempted. The problem fields in taxing multination al businesses will be identified. In the next step, the typical forms of aggressive international tax structures and the possibilities for combating these structures will be thematicized. OECD-, EU- and nation-state measures will be compared. The proposals will be analyzed as to their applicability. At the end, the central conclusions will be summarized and critically examined.

2. Tax Planning in the International Context

Increasing globalization of the markets as well as growing border-crossing business relations leads to changes in questions of business taxation. While a far-reaching freedom of capital transactions prevails nowadays, the national tax systems of individual countries have clear differences and need an international harmonization. [13] For multinational businesses, globalization is a challenge for tax planning because these businesses come under the tax sovereignty of other states. [14] For this reason, considering the operational tax planning in the international context becomes increasingly important. How business decisions are carried out is very relevant since every alternative can lead to different tax law consequences in international tax law. [15]

2.1 Goals and Instruments of International Tax Planning

The term tax planning is composed of two elements “taxes” and “planning.”… Tax payments can be regarded like material- and wage-costs as expense factors that must be borne and planned for the long-term. [17]… In this study, the terms “tax planning” [32] and aggressive tax structures are understood as exploiting inter-state possibilities in a way harmful to competition…

More and more businesses have cross-border activities. The goals and instruments of tax planning in the international environment should be defined on that background. When a business conducts international commercial activities, it is confronted with the tax law norms of other states and different interpretations of certain facts. A problem results that one and the same business transaction is liable for tax both at home and abroad. [35] Therefore, the core idea of international tax planning consists in avoiding double international taxation that can occur in border-crossing business activities. [36]

In addition, the different worldwide taxation principles lead international businesses to “lower their relative tax payments and uncouple from the existing tax rate.” [38] Since tax payments are considered negative components, another goal arises in the course of international tax planning – the relative minimization of the cash-value of the tax payment. [39]…

International tax planning has a broad palate of available instruments. The different instruments of international tax planning could be subdivided in three areas – planning the structure of groups, control of the assessment basis and avoidance of internal profit realization… Ultimately, a continuous monitoring of tax planning could help integrate tax chances in tax planning, minimize tax risks and improve the overall tax position of the business. [48]

2.2 Fields of Conflict in Border-Crossing Taxation

2.2.1 Poor Harmonization of Tax Systems

In the growing international linkage of the economy, many businesses have developed into an expanded system of mother- and subsidiary companies, holdings and financing partnerships so their border-crossing revenue streams can be taxation-objects for several states. International tax planning faces great challenges. Three regulations must be considered in the border-crossing reality – the domestic or source tax law, the foreign national tax law and the interstate agreements of the concerned countries. Tax law conditions are marked by a great diversity. [50] The poor harmonization of tax systems can prove to be problematic.

On principle, the border-crossing revenues of a multinational business are subject simultaneously to a country of residence and a source land principle. The amassed profits are taxed both by the country of residence (the land where the business has its headquarters) and by the source land (the land where the revenues originate). The revenues of a domestic business are subject to the unrestricted tax obligation, including foreign revenues. With their domestic revenues, foreign businesses are simultaneously subject to a limited tax obligation. [51]

However, double international taxation represents an undesired eventuality because all double taxation reduces international trade and the competitiveness of multinational businesses. Thus, states try to avoid double taxation in different ways. [52] Two standard methods are applied to avoid double taxation – the exemption method (the revenues taxed in the source land are exempt from the home country) and the enrichment method (the tax levied in the source land is credited to the required tax in the home country). [53] In addition, the deduction method and the generalization method are also used to avoid double taxation. [54]

The application of these methods should guarantee the competition-neutrality for international businesses without violating the tax law autonomy of individual countries. [55] That inconsistent nation al tax systems can lead to a double non-taxation or reduced taxation makes these procedures problematic. [56] Withdrawing the tax liability through measures for avoiding a double taxation entails the risk that some revenues will not be fiscally captured and thus could be completely ignored. [57]…

The arising double non-taxation or reduced taxation is a by-product of non-harmonized or uncoordinated tax systems in globalized markets [60] and should be removed. Whether and how far a stronger harmonization of national tax systems increases the effectiveness of international taxation is questionable since “every change in the norm structure of international tax law in favor of one state necessarily lowers revenues in at least one other state.” [61] An international standardization of tax regulations means that the national and regional peculiarities of national tax systems of individual countries will not be fully considered and their own tax policy possibilities like fiscal incentives cannot be used to the full extent. Finally, the adjustment measures could burden the international tax competition since every state wants to ensure its “fair” share in the total tax revenue. [62]

Despite many open questions on the current harmonization in international tax law, the adjustment of the tax systems is unavoidable… The basis of tax assessment of member states cannot be undermined by utilizing present system distinctions so tax revenues will not be cut in the future. [64]

2.2.2 International Tax Competition

The tax competition of the states accompanied by diverse tax planning strategies of international businesses is another vantage point under which the missing harmonization of tax systems should be considered. [65] States in international competition compete for workers and consumer spending and not only for capital. The competitive pressure for lowering the (effective) tax rates on business profits intensified in the last decades since the competitiveness of a country depends on the relation between the tax burden {66} and other location factors like infrastructure, education level and social and economic stability. [67] A strong downward trend can be shown for the collective tax rates of OECD countries. The average tax rate that was still 47.5% in 1986 has nearly been cut in half to 25.5%. [68]

On one hand, a “healthy” tax- and location competition is regarded as positive since the states must critically examine again and again the relation between their services and their tax burdens. [69] Tax competition enables businesses and well-to-do skilled workers to “vote with their feet” on the respective location. [70] In this sense, international tax competition can be seen as an effective political-economic instrument for improving the “price-service relation” of taxation. This should help states discover the tax system that corresponds best to their national preferences. [71]

On the other hand, an uncoordinated tax-cutting competition can cause a mutual race to the bottom and as a result can lead to inefficient low tax rates. Here the tax competition can give rise to negative consequences because the shortage of public goods then be comes greatly magnified to compensate for the ever-lower tax revenues. [72] Besides this political-economic perspective, mobile factors increasingly withdraw from fiscal burdens and thereby contribute to the erosion of national tax revenue and shift the tax burden to the immobile factors. [73]

The positive aspects of international tax competition are often emphasized. [74] On the other hand, an unfair tax competition is described as harmful and always to be avoided. Competition with unfair means is not consistently defined. Harmful tax competition includes the tax practices of tax havens and tax preference systems. The term “tax haven” describes a country or area where tax evasion is very attractive on account of the tax law regulations effective there. [75] Under tax preference systems, tax policy instruments and measures are subsumed in which foreign taxpayers are favored with reduced tax rates. [76] By granting considerable tax advantages, states hope to attract foreign investors or highly trained workers. [77]

In the past, an international consensus formed on whether tax competition should be supported or prevented in international tax planning. A harmful competition over favors should be prevented since “renouncing on `unfair’ and dangerous tax practices is an important precondition for functioning competition. That much is clear.” [78]

2.2.3 Insufficient Taxation of Business Profits

The combination of two fields of conflict in international tax planning – the inconsistent organization of tax systems and the tax competition of the states – leads to multination al corporations creating legal systems for profit reduction and profit shifting. Multinational businesses are not taxed when they cross borders. [79] The widespread insufficient taxation of international businesses (so-called reduced taxation) is an important problem alongside the double non-taxation of business profits resulting from taxation gaps that imperil the system.

All tax reductions not in harmony with the principles of an even and competition-neutral business taxation come under the term “reduced international taxation.” [80] For example, reduced taxation occurs when a business with headquarters in a home country shifts its company headquarters to a low-tax country without renouncing on its economic interests at home. [81]

Agreement exists on the fundamental problematic although there is no complete agreement both in theory and in legal praxis on the definition of reduced taxation. [84] From a business management perspective, reduced taxation increases the realized profits of border-crossing investments because the net proceeds of investments rise by lowering the financial burden. Reduced international taxation represents an advantage in financing- and competition for international businesses while domestic businesses are disadvantaged. [85] From a political-economic standpoint, reduced taxation systems prove problematic because they distort competition. To protect its international market position, every state is interested in resident businesses in its sovereign territory being as successful as possible abroad. In the case of a reduced foreign taxation, the home country loses tax revenues and must also expect possible locational effects since investments at home with unchanged state spending are subject to a higher tax burden. [86]

These negative business management and political-economic effects show that insufficient taxation of business profits leads to harmful competition distortions and should be removed as much as possible.

The numerical notes can be found in the German original on
Report this post as:
Share on: Twitter, Facebook, Google+

add your comments

Local News

The Eagle Rock Peace Vigil Marks 15 Years N27 11:23AM

12/2-3 LA Binational Conference To Cancel NAFTA and Unite Workers Of Mexico and the US N27 3:44AM

Winter 2017 National Immigrant Solidarity Network Monthly News Alert! N26 9:22PM

Nuclear Shutdown News November 2017 N26 4:23PM

Report Back on November 18th Counter Demonstration Against Anti-Muslim March N20 10:57AM

Report Back on November 18th Counter Demonstration Against Anti-Muslim March N19 7:12PM

National US Gov as wellas EPA slow to act on Abandoned uranium Mines Cleanup in Southwest N15 10:50AM

OUR HOUSE Grief Support Center Hosts 9th Annual Comedy Fundraiser N14 10:47AM

BUSTED: Watch LAPD cops plant drugs in black suspect’s wallet – unaware body cams were on N10 5:32PM

lapd shootings 1998 - 2015 N06 11:21PM

“Oh Say Can You See” How the LAPD Singing the National Anthem Cost the Dodgers WS Game 7? N03 7:30AM

Car drives into immigration protesters outside Rep. Ed Royce's office in Brea N02 2:06PM


LAUSD, Privatization, Charters And The Fight To Defend Public Education Education Conferen O04 12:10PM

Afghan Women Read founded 1977 S27 9:42PM

[France] The State Attacks Indymedia-Grenoble and Indymedia-Nantes… Solidarity! S25 5:18PM

Segregation in the City of Angels: A 1939 Map of Housing Inequality in L.A. A15 7:44PM

Justice Dept. seeking info, IDs on 1.3M visitors to protest website A15 1:04PM

San Francisco Rally Protests Hate Crimes in Charlottesville A14 5:38PM

New Google algorithm restricts access to left-wing, progressive web sites A02 1:52PM

Tracking Twenty Years of Stockton Killings by Law Enforcement A02 1:27PM

Garcetti Cronyism - Why and How to Ignore Your LA Dog License A01 5:05PM

Nation's Worst Meltdown Was In LA J31 4:54PM

As RV towing resumes in LA, officials say program won't 'target homeless' J31 1:15PM

Class War on the Waterfront: Longshore Workers Under Attack J21 10:18AM

Limits to Growth Published Forty Years Ago J18 5:15AM

More Local News...

Other/Breaking News

Paraphysique de la prohibition D16 2:14AM

Philippines: We condemn extension of Martial Law in Mindanao D14 9:37PM

The Shortwave Report 12/15/17 Listen Globally! D14 4:27PM

What the State Can Do D14 5:50AM

November 2017 Honduras Pre-Coup Repeat Update: Part 1 D14 5:23AM

Le système, ses agents, ses exécutants D13 11:49PM

Police problem officers D12 11:13AM

Masturbatorium de capitalisation D11 10:15PM

Palestinians, Beware Jewish Days of Rage, Hanukkah is Coming to Israel! D11 5:28PM

Asian Superstar's Book Finding Julia, Based on the Movie, Goes on Sale D11 11:16AM

I am the victim of murder for hire and need help to file a police report D11 12:29AM

Modus operandi de l'apocope D10 10:04PM

Archbishop and Evangelical Leader Tell Congress to Protect Puerto Rico in Tax Plans D08 9:51AM

Fbi is Gestapo D07 6:12PM

The Shortwave Report 12/08/17 Listen Globally! D07 5:10PM

Paraphysique de l'argutie D06 10:18PM

Holiday Tips for Grievers D06 1:27PM

Stand Against Reem's. Stand Against hate. Stand Against Violence D06 8:44AM

Base Erosion and Profit Shifting (BEPS) D06 7:53AM

Philippines - Why there is nothing Revolutionary about the call for a "Revolutionary Govt" D06 2:04AM

Historicisme d'hybridation D04 10:08PM

Real filthy fbi D03 7:30PM

People in Uproar in West Virginia-US Public lands Hearings 2017 D03 10:42AM

Le capital ou la société des inégalités D03 12:11AM

Stop Trump's tax plan D02 3:10PM

Government Regimes Are On A Global Kill Spree D01 8:29PM

Global High Crimes By Government D01 7:47PM

The Right to the City and the Greed of the Rich D01 3:32AM

More Breaking News...
© 2000-2003 Los Angeles Independent Media Center. Unless otherwise stated by the author, all content is free for non-commercial reuse, reprint, and rebroadcast, on the net and elsewhere. Opinions are those of the contributors and are not necessarily endorsed by the Los Angeles Independent Media Center. Running sf-active v0.9.4 Disclaimer | Privacy