Global inequalities in taxing rights: An early evaluation of the OECD tax reform proposals

Abstract

The current OECD process to reform the international rules governing corporate tax, aimed to achieve a consensus solution by 2020, has finally recognised the need to introduce elements of formulary apportionment to allocate the profits of multinationals and is framed explicitly in terms of redistributing taxing rights between countries. In this paper we provide the first public evaluation of the redistribution of taxing rights associated with the leading proposals of the OECD, IMF and the Independent Commission for the Reform of International Corporate Taxation (ICRICT). The first key finding is that that reallocation of taxing rights towards “market jurisdictions”, as it is currently understood, is likely to be of little benefit to non-OECD countries. Indeed, the proposal is likely to reduce revenues for a range of lower-income countries. Second, all of the proposals deliver a much broader distribution of benefits if some element of taxing rights is apportioned according to the location of multinationals’ employment, and not only of sales.

BEPS Policy Failure—The Case of EU Country-By-Country Reporting1

“…20] suggest that CRD IV reporting has been of benefit in the fight against tax avoid-ance, this survey shows it could achieve much more. A similar conclusion has, at least as far as data issues are concerned, been reached by Cobham et al [13] with regards to initial reporting of OECD-based CBCR data. What appears clear is that tax avoidance by profit-shifting will not be beaten until reliable accounting underpins the effort.…”

“…up approach might provide better quality information to assist the appraisal of where the economic substance of transactions really arises, which is the objective of CBCR. Similarly, reporting both tax provisions in a profit and loss account and tax paid is useful, not least because of the comparison between the two that is enabled, although, unfortunately, CRD IV does not require both, unlike the OECD CBCR requirement studied recently by Cobham et al [13] and Garcia Bernardo et al [22]. The point is that there is not error on display here, but that there is instead a lack of precision in defining the required disclosures that has given rise to the preparation of inconsistent data that are undermined the objective of this process, which was to reliably indicate whether profit-shifting was taking place, where and by whom on a consistent and comparable basis.…”

Profit Shifting of Multinational Corporations Worldwide

“…To our knowledge, there are several research papers using CBCR data from the US (Clausing 2020b;Cobham et al 2019;De Mooij et al 2019;Garcia-Bernardo et al 2021) and Germany (Fuest et al 2021), and this is the first paper using the OECD CBCR data.…”

“…On the other hand, Janský and Palanský (2019) compare five sets of country-level estimates -Clausing (2016), Cobham andJanský (2018, 2019), Tørsløv et al (2020) and their own estimatesand four of the five do not suggest that lower-income countries are disproportionately affected by profit shifting.…”

Exploring Residual Profit Allocation

“…In particular, part A of that proposal differs from the schemes analyzed here in that it would not allocate any explicit taxing rights over routine profits, would allocate only part of the residual on a formulaic basis (related to sales revenue), would apply only to a subset of companies, and would be overlain on top of the existing system. This paper therefore does not assess the conceptual or empirical features of the unified approach (an early assessment of the latter being provided by Cobham, Faccio and Fitzgerald (2019)).…”