Does a more transparent international tax environment provide the same outcomes as transfer pricing would but in a less arbitrary way?
Source: Australian Tax Forum Journal Article
Published Date: 1 Aug 2015
Effective tax planning involving transfer pricing is made possible due to discrepancies between the tax regimes offered by different countries. The mobility of intangible assets and the significant profits yielded by exploitation of intangibles make tax planning using transfer pricing of intangibles the most controversial and thorny issue in international taxation. The double Irish Dutch sandwich structure is used to illustrate how differences between different tax regimes are exploited, allowing multinationals to minimise their tax bills.
International efforts to tackle revenue losses have been led by the OECD, recently culminating in the base erosion and profit shifting (BEPS) project. However, a historical review of the OECD's work on tackling harmful tax practices reveals the limitations of any of such attempt. Adoption of a tax regime always falls within a state's sovereignty and cannot be interfered with by any other country or organisation. Despite their participation in the BEPS project, many OECD countries and European Union (EU) member states are adopting preferential tax regimes and lower corporate income taxes to attract investment in relation to intangible development and exploitation. Examination of the OECD's campaign against harmful tax practices and the latest developments in the area of information exchange illustrate the difficulty of reaching a consensus on a substantial standard, and the diverse national interests in setting their own tax polices. Nevertheless, improving transparency can be regarded as a compromise to tackle harmful tax practices. Measures to improve transparency have been reinforced by the OECD's Action plan on base erosion and profit shifting (BEPS Action Plan).
The existing preferential regimes for research and development and commercialisation of intangibles force multinational enterprises to consider the tax consequences of their global operation. However, these enterprises are facing a more transparent international tax environment and better-equipped tax authorities, which makes arbitrary tax planning of transfer pricing less possible.
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Details
- Published By: Jingyi Wang
- Published On:1 Aug 2015
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