Interesting OECD-BEPS conference today at NYU Law School. The whole thing should be streamable on the NYU Law School website by sometime next week. But herein a quick summary regarding the day's 4 panels:
PANEL ONE, on which I participated, discussed the EU state aid cases. From Hein Vermeulen and Dennis Weber I learned that it's very wide open at this point whether the European Court of Justice will sustain the European Commission. I wonder if the US outcry, including via the Treasury White Paper, is strengthening the EC's hand, by making a reversal look like bowing to American pressure rather than reflecting the conflicting currents in EU jurisprudence.
Itai Grinberg, who has been very critical of the EC (whereas I say the US should not be so overwrought about it) was the other panelist. After our colloquy, I get the sense that we disagree far LESS than I had thought, even though our bottom lines differ. Perhaps the video will help show this.
Here are the slides for my talk. While linked to my EU state aid paper, they also talk quite a bit about the source concept, as in "How should we think about the source of Apple's income?"
I use the words "origin basis and destination basis" here, reflecting how they've been used, for example, in VAT / X-tax type discussions. People in international income tax policy debate often use somewhat different words to mean similar things. One could reconcile the lingo a bit by saying that origin basis means taxing it in the production jurisdiction, while destination basis means taxing it in the market jurisdiction. It's also sometimes put in terms of residence country taxation vs. source country taxation, but I didn't use that terminology because, when you're asking where the source of income is, it causes confusion to use the term "source jurisdiction" for one of the two possibilities. Plus, the residence jurisdiction can differ from that of economic production, given cross-border choices in corporate residence.
PANEL TWO discussed country-by-country reporting of profits, employees, etcetera. There appeared to be wide agreement, extending to speakers on other panels, that this is potentially a "game-changer." It may tend to move the location of reported profits to being far closer to that which would be suggested by formulary apportionment (FA), even if FA isn't formally adopted. After all, if you report lots of sales in a given high-tax jurisdiction, it may be hard to resist agreeing that profits arose there. And if you want to support a higher profit allocation to a given low-tax jurisdiction, it may help to put more employees there.
The move in an FA direction tends to require more distortion in association with profit-shifting (since it requires than transfer pricing's paper-shuffling), but it presumably greatly reduces taxpayer discretion. I wonder if it will create a new motive of tax competition to lower one's corporate tax rate - so that companies will want to locate enough employees in one's country to justify allocating profits there. This of course is not unrelated to how Ireland reached agreement to help Apple.
PANEL THREE discussed treaties and less-developed / least-developed countries. It covered some of the challenges and difficulties involved with trying to broaden the participatory sphere from OECD countries to the rest, and explored the relative roles that the UN and OECD can play.
PANEL FOUR discussed how the US has been implementing (or not) OECD-BEPS, and suggested that we are already substantially compliant. The US may have lost politically in OECD-BEPS, since we wanted stronger CFC rules but didn't get them, and were far less enthused about strengthening "source country" (meaning destination-based or market country) taxation and perhaps to a degree did get that. At least one panelist believed that we win from CBCR. I would assume the reasoning here would be that US companies will have to report more profits in the US post-CBCR, arguably to our benefit, although they might also have to report more profits in market countries rather than tax havens, arguably (or at least directly) to our detriment.