Friday, May 23, 2014

My slides from the BEPS conference

The slides that I used at the Bocconi University BEPS conference this past Wednesday are available here.

A one-paragraph summary of my intended content, which I largely followed in writing up the slides, went as follows:

The US and EU have both some ability to address multinationals' base erosion and profit-shifting unilaterally, and good reason to want to do so.  Even if they might reasonably choose to allow profit-shifting up to a point, on the view that multinational investment and residence are highly mobile, at present things appear to have gone too far.  The two main tools for unilaterally addressing profit-shifting are (a) rules that address the reported source of net income, including transfer pricing / formulary apportionment and the treatment of interest expense, and (b) subpart F-style anti-tax haven rules, including those in territorial countries that limit the scope of exemption for resident companies' foreign source income.  These two sets of rules have different strengths and weaknesses, although it is notable that the latter can't help with respect to non-resident multinationals.  A more formulary approach to source may be unilaterally sustainable, and indeed might potentially induce other countries to follow suit.

An idea worth noting that I added to the slides after writing the above paragraph was that, against the background of U.S. concern about Pfizer / AstraZenica-style inversion transactions, we might want to consider an exit tax with respect to the unrepatriated foreign earnings of U.S. companies that expatriate.

Note, by the way, that in the absence of such an exit tax, the opportunity to repatriate is one more reason why "new view" assumptions - under which U.S. companies can't reduce the present value of the repatriation tax by keeping their foreign earnings abroad - may not hold.  Other reasons include the option value of waiting (e.g., lest the U.S. enact exemption in the future or else offer further repatriation tax holidays), and the possibility that one need never repatriate if doing so is merely an adverse paper-shuffling election, not needed to have all needed practical access to the funds and not just the firm level but even the shareholder level.

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