Friday, December 18, 2015

American Enterprise session on OECD-BEPS

This morning I was in Washington, where I participated in an AEI panel discussion entitled "The OECD Base Erosion and Profit-Shifting Report: Should the United States Be Worried?"

You can see a video of the two-hour event here.  I come on at about minute 52 (I started a minute earlier than that, but initially my mike was off.)  And my slides, which pretty well tracked my talk (though of course I didn't just read them) are available here.

It mainly went as follows.  Grace Perez-Navarro and Thomas Neubig presented the report on behalf of the OECD. Apart from providing the backstory, details, etcetera, they say that, at least outside the U.S., there is widespread movement in favor of actually adopting the report's recommendations, reflecting multiple levels of support (e.g., from both political leaders and technical staff) in many countries.

David Ernick of Price Waterhouse then offered some U.S. practitioner or taxpayer-based skepticism - arguing, for example, that, as long as our corporate marginal tax rate is higher than the global norm elsewhere, we may not want to join the crowd (even if we would otherwise).

I said - well, my slides are short, so you can have a look for yourself - that it seems unlikely to me that U.S. policy will in fact be significantly swayed by anything about this process. This is typical of U.S. policymaking, but in addition there's been a perception here that the process is anti-U.S. multinationals.  Plus, if it did start making headway, there'd be an awful lot of money deployed to stop it (and this may be happening anyway).  So we are just going to do whatever we do, and if that involves getting tougher on U.S. or foreign multinationals, it will be for our own reasons.

I also said that, if one is proceeding unilaterally, the really tough issue is to decide how one should respond to foreign-to-foreign tax planning.  This is the issue at the heart of battles over our subpart F rules, and other countries' CFC rules, over the decades.  The problem is that, from both a residence country and a source country standpoint, there are rationales both for letting such tax planning go forward, and for trying to impede it.  Read the slides to see how I would explain this.

Martin Sullivan then addressed how to model economic substance - the issue raised by the OECD's focus on "artificial" profit-shifting, and had some interesting points that, like my discussion of foreign-to-foreign tax shifting, reached the normative bottom line, perhaps less generally useful than either of us might have liked, that "it depends" and "it's hard to say."  (But at least we both try to say something about the "it" that "it depends on").  He then expressed skepticism about patent boxes, as a tax preference design, even if one wants to tax-favor domestic R&D activity.

One audience member suggested that some of the presentations, presumably including mine, were a bit too negative and pessimistic with regard to how well OECD-BEPS is actually doing. I agreed that this might be so - I'm best informed on U.S. developments, not those occurring elsewhere, and this tends to make me a pessimist.

1 comment:

Veiled Criticism said...

I believe you are correctly pessimistic, Professor Shaviro. But let's see what 2016 will bring in terms of multilateral adoption - we will eventually need to discuss BEPS 2.0 (how international tax planning took advantage of the loopholes created by incompatible adoption of BEPS rules the first time around).

Lucas Carvalho (NYU ITP LLM, 2013).