In his paper, Lukas shows how the liberalization of the common market facilitated cross-border mergers and transactions between related firms. Policymakers knew this would intensify tax competition among member states. Yet, fundamental disagreement between capital importing and capital exporting countries paired with the unanimity requirement in tax matters kept them from harmonizing their corporate tax rules. As a result of the persisting mismatches between national tax systems and the free movement of capital, tax avoidance is today easier inside the common market than in the rest of the world.
The common consolidated corporate tax base (CCCTB), which the European Commission currently proposes, may provide a remedy to profit shifting inside the EU, if adopted. It foresees the EU-wide introduction of unitary taxation with formulary apportionment. That is, a multinational group’s total profit in the common market is calculated by aggregating the revenues and expenses of its European subsidiaries. As a result, a profit that is shifted from one subsidiary to the other will always be included in the group’s result, no matter in which member state it is recorded. Subsequently, the group’s profit is divided among member states based on sales, local workforce, and fixed assets. Intellectual property and other intangible assets are explicitly excluded. Continue reading “The Friedrich-Ebert-Foundation publishes a policy paper on tax avoidance in the common market by COFFERS researcher Lukas Hakelberg”
The GUE/NGL group in the EU parliament published a report July 5th 2017 by Saila Stausholm of Copenhagen Business School and Richard Murphy of City, University London, entitled ‘The Big Four: a study in opacity’. The report is the first of its kind investigating the structure of the Big Four firms, and finds that while it is difficult to establish precisely how many offices and staff each of the Big Four firms have in each country due to their secrecy, it is clear is that the size of their operations in a jurisdiction is not always proportional to its population or GDP. For example, the Big Four have more staff in Luxembourg in proportion to the size of the local population than in any other country; the Cayman Islands come second in this ranking and Bermuda third, indicating that they are heavily overrepresented in tax havens.
The ownership structure of the Big Four, in which they are legally independent networks despite their global brand and central management organizations, further reduces their regulatory cost and risk by providing a ring-fencing mechanism between their presence in tax havens and elsewhere.
Together, these findings suggests that providing professional services directly related to the secrecy jurisdictions are a big part of the business model for the Big Four. The report suggests ways to increase transparency of these firms and commit them to separate auditing services and tax advice.
The report has attracted the attention of several European newspapers.
Link to the rapport can be found here
Link to artikler can be found below:
Leyla Ates’s recently published a country report on Turkey entitled “Assessing BEPS: origins, standards and responses” within the framework of the 71st Congress of IFA which will take place in Brazil later this year (August 27-September 01, 2017). In her report, she identifies a number of specific issues pertaining to Turkey, including the problem of dedicating scare administrative resources to initiates that are not necessarily domestic priorities, even though Turkey is aligned in general policy terms with the BEPS principles.
The International Fiscal Association (IFA) is a leading non-governmental, international non-profit organization devoted to the study of international tax law. All country reports and the report of general reporters are published in Volume 102a, Cahiers de Droit Fiscal International. This volume’s aim is to gain insights from the BEPS project on how to improve the outcomes of future tax cooperation efforts. As well-known base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. To tackle BEPS, the OECD has initiated the BEPS project in 2013.
The online versions of the Cahier is available on the website of IFA’s sister organization, the International Bureau of Fiscal Documentation (IBFD).
Together with his co-author Max Schaub, COFFERS researcher Lukas Hakelberg just published an article in Regulation & Governance on the redistributive impact of the Foreign Account Tax Compliance Act (FATCA) and the multilateral automatic exchange of information (AEI) regime it precipitated.
The authors perform a difference-in-differences analysis comparing banks’ deposit and debt security liabilities to foreign non-banks in tax havens and non-havens before and after the adoption of FATCA in 2010. They find that tax havens on average lost more portfolio investment to the introduction of the AEI than to the 2008 financial crisis. In contrast, portfolio investment in non-havens grew rapidly between 2010 and 2014. This divergence becomes even stronger when including the US in the non-haven group, which suggests that its decision not to reciprocate the AEI has recently afforded the country a competitive advantage in the attraction of hidden capital.
You can access the article here.
Lukas Hakelberg and Thomas Rixen from COFFERS working package 3 at the University of Bamberg wrote an accessible popular science piece on the purported end of tax havens for the social science supplement of the German Bundestag’s weekly newspaper (Aus Politik und Zeitgeschichte).
They show how tax competition and tax havens emerged after governments had removed institutional barriers to international capital mobility but failed to harmonize their tax policies accordingly. By defending their de jure sovereignty in tax policymaking, governments unleashed competitive pressures that still limit their de facto sovereignty in the taxation of capital.
International initiatives towards more cooperation in tax matters have only been successful, where affected interest groups in powerful OECD countries lacked influence on the political process. This explains why we have recently seen progress – brought about by coercive pressure – in the fight against tax evasion by households, but relatively little change in the fight against tax avoidance by multinational firms.
You can read the full piece here (in German).
As the German legislative process for the implementation of the 4th EU anti-money laundering directive hits the home straight, the draft law has become under increasing pressure from researchers and civil society. In a public hearing in the finance committee of the German Bundestag on Monday, 24th April, Tax Justice Network, Transparency International and others testified to the urgent need of improvements of the current legal text. TJN’s written statement can be read and downloaded here. Continue reading “Loopholes in German draft law regarding beneficial ownership registration likely in breach of the 4th EU Anti-Money Laundering Directive”
CBS/COFFERS PhD fellow Saila Stausholm went to the IMF in Washington, D.C. to give a presentation about her paper on tax incentives, entitled “Give us a break: the impact of tax holidays on developing countries”. Her research looks at the phenomenon of tax holidays and its effect on developing countries in terms of economic and social outcomes. In the presentation she showed how new data documents a recent increase in the use of tax holidays throughout all four regions surveyed: Latin America, Asia, Africa and the Caribbean. She presented her finding that the effect of tax holidays on FDI is negligible and decreasing, and importantly, that the attracted FDI does not translate into neither real capital accumulation nor economic growth. Her research shows that tax holidays are negatively correlated with tax revenues, and as revenues go down, spending on education decreases. This indicates that there is a race to the bottom when it comes to tax incentives and the competition for investment, which may act as a transfer mechanism from the poor to the pockets of corporations.
The animated map shows how the use of tax holidays changes over the course of the period surveyed – red indicating that the country offers a tax holiday, and green that they do not (white that they are not in the sample). There is a lot of variation over time and across regions, however, over the last 5 years the use of tax holidays has been increasing in all parts of the developing world.
The OECD’s Global Forum is set to publish the terms of reference for peer reviews on automatic exchange of information pursuant to the OECD’s Common Reporting Standard (CRS) in the near future. The terms of reference for that peer review process in many ways will define how the system of Automatic Exchange of Information works in practice. If assessments are too lenient or if they only focus on the legal framework (but not on what happens in practice nor manages to identify avoidance schemes), automatic exchange of information is unlikely to be successful. TJN has put together a report setting out what the terms of reference should contain to ensure that an effective system of information exchange is implemented. Chief among these elements are specific statistics to ensure compliance, identify avoidance schemes and allow evaluation by independent and excluded parties (e.g. developing countries and civil society).
The report describes TJN’s proposed template for statistics and explains how they can be used to identify avoidance schemes and cases of non-compliance.
Alex Cobham, research director of Tax Justice Network and COFFERS researcher, recently published jointly with TJN’s Andres Knobel a brief analysis of a new OECD specification on Country-by-Country Reporting (CbCR) – a topic very dear to COFFERS.
Their analysis shows that OECD’s new terms of reference to assess the implementation by countries of BEPS Action 13 related to CbCR may penalise countries, especially developing ones, that try to obtain by their own means the CbCR’s valuable data needed to tackle multinational tax avoidance.
The analysis can be read here: http://www.taxjustice.net/2017/03/07/19628/
A new article in a Review of International Political Economy special section on Global Wealth Chains edited by COFFERS researchers Leonard Seabrooke and Duncan Wigan. Here, with Dick Bryan and Mike Rafferty, Duncan explores conceptual and regulatory challenges posed by the rise of the knowledge economy and intangible assets, such a intellectual property, in terms of fiscal systems and the capacity to tax international firms. Using a framework focused on measuring (by accountants), managing (by corporations) and monitoring (by scholars and regulators), the article explores the longer term implications of internationalised capital in intangible and abstract forms.
Link to article can be found here