- general taxes on corporations; corporate income taxes; dividend imputation; private companies; independent contractors
- see also Assets; Capital gains; Environment; International transactions; Trusts
Matt Grudnoff and David Richardson, The Australia Institute (February 2017). A full third of the benefit of a company tax cut would be enjoyed by just 15 companies in Australia. Once phased in the cut would be worth $6.7 billion per year to these companies. Most of these companies are ‘oligopolies’ that dominate their markets and have little incentive to reinvest proceeds of a tax cut in jobs and productivity.
The Australia Institute (February 2017). New polling conducted by ReachTEL for The Australia Institute of the electorates represented by Malcolm Turnbull and Tony Abbott reveals strong opposition for cutting the tax rate, particularly for larger companies. Both electorates registered more support for increasing the company tax rate than cutting it. In the Prime Minister’s electorate of Wentworth 43% supported an increase of company taxes, 33% supported a cut and 14% said keep rates the same.
There was high support for cutting the tax rate for small companies (46%), but only 17% support for a cut for all businesses in Wentworth and 20% in Warringah.
OECD (February 2017). The OECD has released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of the Action 5 transparency framework. The Action 5 standard for the compulsory spontaneous exchange of information on tax rulings (the “transparency framework”) is one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews. The documents released form the basis on which the peer review processes will be undertaken. The compilations include the Terms of Reference which sets out the criteria for assessing the implementation of the minimum standard, and the Methodology which sets out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.
OECD (February 2017). The OECD has released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of Action 13 Country-by-Country Reporting. The Action 13 standard on Country-by-Country Reporting is one of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews. The compilation includes the Terms of Reference which sets out the criteria for assessing the implementation of the minimum standard, and the Methodology which sets out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process.
David Richardson, The Australia Institute (January 2017). The available evidence suggests that, with the proposed company tax cuts, Australia is on the brink of handing a large gift to foreign investors while the evidence suggests Australia will not get even the dubious benefits of an increase in foreign investment.
The Australia Institute (October 2016). This nationally representative poll shows that the majority of Australians surveyed support a super profits tax on Australian banks.
John Daley, Brendan Coates and William Young, Grattan Institute (September 2016). This paper evaluates the Government’s plan to cut the company tax rate from 30 to 25 per cent over 10 years.
Melissa Ogier, Tax and Transfer Policy Institute (September 2016). Multinational enterprises (MNEs) operating by way of wholly owned subsidiaries are responsible for an increasing percentage of global trade. This paper looks at how the existing rules based on the arm’s length principle allocate a MNE’s profit between the taxing jurisdictions in which it operates.
Frank Clemente, Hunter Blair and Nick Trokel, Economic Policy Institute and Americans for Tax Fairness (September 2016).
Financial Accountability and Corporate Transparency Coalition (September 2016). Investors are at risk due to companies failure to disclose their tax practices.
Kimberly A. Clausing, Equitable Growth (September 2016). The U.S. system of corporate taxation is in desperate need of reform. Observers note that both the high statutory rate (35 percent) and the purported “worldwide” nature of the system places it out of line with its trading partners. This characterisation is misleading because it contradicts the underlying reality. Under the current U.S. corporate tax system, effective tax rates are far lower than statutory rates, and the foreign incomes of multinational firms often face a lighter burden than they would under the tax systems of U.S. trading partners. A key goal of potential reforms to U.S. corporate taxation should be to better align the tax system’s stated features with its true characteristics.
OECD (August 2016). A discussion draft which deals with branch mismatch structures under Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements) of the BEPS Action Plan. The Report on Neutralising the Effects of Hybrids Mismatch Arrangements (Action 2 Report) sets out recommendations for domestic rules designed to neutralise mismatches in tax outcomes that arise in respect of payments under a hybrid mismatch arrangement. The recommendations in Chapters 3 to 8 of that report set out rules targeting payments made by or to a hybrid entity that give rise to one of three types of mismatches:
- deduction / no inclusion (D/NI) outcomes, where the payment is deductible under the rules of the payer jurisdiction but not included in the ordinary income of the payee;
- double deduction (DD) outcomes, where the payment triggers two deductions in respect of the same payment; and
- indirect deduction / no inclusion (indirect D/NI) outcomes, where the income from a deductible payment is set-off by the payee against a deduction under a hybrid mismatch arrangement.
Alan D. Viard and Eric Toder, Urban Brookings Tax Policy Center (August 2016). The US tax rate is the highest in the developed world, it collects less corporate tax revenue as a share of gross domestic product than many of its trading partners. The tax both discourages firms from investing in the US and enables multinationals to avoid tax by reporting profits in low-tax countries.
The problem is that the US can impose corporate tax only on income companies earn within its borders and income of companies legally based in the US. Unfortunately, the geographic source of a company’s income and its legal residence are not economically meaningful concepts, which makes it easy for companies to avoid taxes.
OECD (August 2016). The report on Action 4, Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, establishes a common approach to tackling BEPS involving interest, but highlights a number of factors which suggest that a difference approach may be needed to address risks posed by entities in the banking and insurance sectors. These include the fact that banks and insurance companies typically have net interest income rather than net interest expense, the different role that interest plays in banking and insurance compared with other sectors, and the fact that banking and insurance groups are subject to regulatory capital requirements that restrict the ability of groups to place debt in certain entities. The Report therefore provides at paragraphs 188 to 190 that countries may exclude entities in banking and insurance groups, and regulated banks and insurance companies in non-financial groups, from the scope of the fixed ratio rule and group ratio rule, with work to be conducted in 2016 to identify approaches suitable for addressing the BEPS risks posed by these sectors, taking into account their particular characteristics.
Citizens for Tax Justice (July 2016). Fortune 500 companies are holding $2.4 trillion offshore as “permanently invested” profits. By shifting US profits to foreign subsidiaries and declaring them to be permanently reinvested, corporations can avoid paying US taxes on these earnings indefinitely.
OECD (July 2016). This report consists of two parts. Part I is a report by the OECD Secretary-General regarding (a) the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project; (b) tax transparency; (c) tax policy tools to support sustainable and inclusive growth; and (d) tax and development. Part II is an updated Progress Report to the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Eric Toder and Alan Viard, Urban Brookings Tax Policy Center (June 2016). This report updates and revises the authors’ 2014 proposal to replace the corporate income tax with taxation at ordinary income rates of dividends and net accrued capital gains of American shareholders. The new proposal retains a 15 percent corporate income tax, gives taxable shareholders a credit for corporate taxes paid, imposes a 15 percent tax on interest income of non-profits and retirement plans, and addresses stock price volatility and shifts between private and publicly-traded status. The reform encourages domestic investment and sharply reduces incentives for corporate inversions. It is approximately revenue neutral and makes the tax system more progressive.
Sol Picciotto, International Center for Tax and Development (June 2016). This paper explores the issues raised for international tax rules of explicitly treating multinational enterprises (MNEs) as single or unitary firms. It first briefly explains why reform of international corporate taxation is important particularly for developing countries, then outlines the flaws in the current system.
OECD (May 2016). Public comments are invited on technical issues identified in a request for input related to the development of a multilateral instrument to implement the tax-treaty related BEPS measures.
The Australia Institute (June 2016). This paper describes a serious funding hole in the Government’s company tax cut modelling.
The Australia Institute (May 2016). New research, based on US Internal Revenue Service (IRS) data, shows that the proposed company tax cut would see the Australian tax system delivering billions of dollars to the US Treasury.
John Daley and Brendan Coates, Grattan Institute (May 2016). A long-term plan to cut the company tax rate from 30% to 25% is the centrepiece of the Coalition’s economic plan for jobs and growth. The Coalition maintains the change will boost GDP by more than 1% in the long-term, at a budgetary cost of $48.2 billion over the next 10 years.
But the very Treasury research papers relied on by the Coalition tell a more modest story than the headlines. Using these papers, we show that the net benefit to Australians in the real world will be only about half of the headline benefit, and it will be a long time before we are any better off at all.
Steven M Rosenthal and Lydia Austin, Urban Brookings Tax Policy Center (May 2016). In this report, Rosenthal and Austin demonstrate that the share of U.S. stocks held by taxable accounts has declined sharply over the last 50 years, and they urge lawmakers to carefully consider this shareholder base erosion when determining how best to tax corporate earnings.
J M Dixon and J Nassios (April 2016). This paper investigates the impact of a cut to the company tax rate using a miniature version of the Vic-Uni computable general equilibrium model of the Australian economy with additional detail on ownership of physical capital. Because of Australia’s system of dividend imputation, a change to the company tax rate only affects the final post-tax rate of return for foreign investors. Therefore a cut to the company tax rate would transfer government revenue to foreigners, and add to pressure on government to reduce spending or to raise personal taxes.
Eric Toder, Urban Brookings Tax Policy Centre (April 2016). Eric Toder testified before the US Senate Committee on Finance during a hearing entitled “Navigating Business Tax Reform.” In his testimony, Toder presented his research on the state of the corporate income tax and a review of current legislative proposals. He outlines two approaches that would allow for a reduced corporate income tax rate: increased taxation of shareholder income and introduction of new revenue sources.
Citizens for Tax Justice (April 2016). This report illustrates how profitable 500 companies in a range of sectors have successfully manipulated the US tax system to avoid paying tax.
Citizens for Tax Justice (April 2016). Recent revelations that a Panamanian law firm helped set up more than 200,000 offshore shell corporations has heightened awareness of the vast amount of income and wealth flowing into tax and secrecy havens worldwide. The countries through which this firm helped funnel the global elites’ assets also act as tax havens for multinational corporations. Recently released data from the Internal Revenue Service show that U.S. corporations claim that 59 percent of their foreign subsidiaries’ pretax worldwide income is being earned in ten tiny tax havens.
Oxfam (April 2016). Oxfam analysis reveals that 51 of the 68 companies that were lent money by the World Bank’s private lending arm in 2015 to finance investments in sub-Saharan Africa use tax havens. Together these companies, whose use of tax havens has no apparent link to their core business, received 84 percent of the International Finance Corporation’s investments in the region last year.
OECD (March 2016). Public discussion draft on the policy considerations relevant to the treaty entitlement of investment vehicles that do not qualify as “collective investment vehicles” within the meaning of the 2010 OECD Report The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles.
The Australia Institute (March 2016). International and Australian data on tax rates and macroeconomic indicators provides no evidence of link between corporate tax cuts and a ‘growth dividend’.
Citizens for Tax Justice (February 2016). President Obama has proposed a federal “transition tax” on the offshore profits of all US based multinational corporations. The plan would tax these profits at a 14 percent rate immediately, rather than at the 35 percent rate that should apply absent the “deferral” loophole. This proposal would give huge tax cuts to many corporations.
Tax Justice Network, Oxfam, Global Alliance for Tax Justice and Public Services International (November 2015). Overall it is estimated that, in order to reduce their tax bills, US multinationals shifted between $500 and 700 billion—a quarter of their annual profits—out of the United States, Germany, the United Kingdom and elsewhere to a handful of countries including the Netherlands, Luxembourg, Ireland, Switzerland and Bermuda in 2012. In the same year, US multinational companies reported US$ 80 billion of profits in Bermuda – more than their profits reported in Japan, China, Germany and France combined.
Claire Godfrey, head of policy for Oxfam’s Even it Up Campaign said: “Rich and poor countries alike are haemorrhaging money because multinational companies are not required to pay their fair share of taxes where they make their money. Ultimately the cost is being borne by ordinary people – particularly the poorest who rely on public services and who are suffering because of budget cuts.”
Rosa Pavanelli, general secretary of Public Services International said: “Public anger will grow if the G20 leaders allow the world’s largest corporations to continue dodging billions in tax while inequality rises, austerity bites and public services are cut.”
The G20 Heads of State are expected to consider a package of measures they claim will address corporate tax avoidance at their annual meeting in Turkey on 15 and 16 November.
Alex Cobham, director of research at Tax Justice Network, said: “The corporate tax measures being adopted by the G20 this week are not enough. They will not stop the race to the bottom in corporate taxation, and they will not provide the transparency that’s needed to hold companies and tax authorities accountable. It’s in the G20’s own interest to support deeper reforms to the global tax system.”
Twelve countries – the United States, Germany, Canada, China, Brazil, France, Mexico, India, UK, Italy, Spain and Australia – account for roughly 90 percent of all missing profits from US multinationals. For example, US multinationals make 65 percent of their sales, employ 66 percent of their staff and hold 71 percent of their assets in America but declare only 50 percent of their profits in the country.
While G20 countries lose the largest amount of money, low income developing countries such as Honduras, the Philippines and Ecuador are hardest hit because corporate tax revenues comprise a higher proportion of their national income. It is estimated, for example, that Honduras could increase healthcare or education spending by 10-15 percent if the practice of profit shifting by US multinationals was stopped.
Jordan Brennan, Canadian Centre for Policy Alternatives (November 2015). This study examines the relationship between the Canadian corporate income tax (CIT) regime and various dimensions of economic growth. The author finds that CIT cuts have not only failed to lead to faster growth, but there is evidence to suggest that—far from spawning higher levels of business investment and GDP growth—corporate income tax reform has indirectly fostered slower growth.
Parliamentary Budget Office (December 2015). This report provides an independent analysis of the revenue and distributional impacts of five indicative GST reform scenarios that have been canvassed in public policy discussions.
David Richardson, The Australia Institute (December 2015). This paper attempts to critically examine proposals to cut company tax rates by looking at the circumstances of some of the main company tax-payers, namely the top 15 listed companies in Australia. The conclusion is that none of these companies are likely to significantly change their behaviour as a result of any cut in company tax.
Citizens for Tax Justice (October 2015). U.S.-based multinational corporations are allowed to play by a different set of rules than small and domestic businesses or individuals when it comes to the tax code. Rather than paying their fair share, many multinational corporations use accounting tricks to pretend for tax purposes that a substantial portion of their profits are generated in offshore tax havens, countries with minimal or no taxes where a company’s presence may be as little as a mailbox. Multinational corporations’ use of tax havens allows them to avoid an estimated $90 billion in federal income taxes each year.
Congress, by failing to take action to end to this tax avoidance, forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.
This study examines the use of tax havens by Fortune 500 companies in 2014. It reveals that tax haven use is ubiquitous among America’s largest companies and that a narrow set of companies benefits disproportionately.
OECD (August 2015). This OECD report second edition reflects the wealth of practical experience gained by 47 countries gained in relation to voluntary disclosure programmes. In addition, the guidance on the design and implementation of the programmes has been updated, particularly taking into account the views of private client advisers.
Citizens for Tax Justice (July 2015). On July 30th, the US Senate Permanent Subcommittee on Investigations (PSI) will hold a hearing on the impact of the US tax code on foreign acquisitions of US businesses. It is likely that Subcommittee Chairman Sen. Rob Portman will use the hearing as an opportunity to make a case for lowering the US corporate tax rate and moving to a territorial tax system in order to make US companies more competitive, as he proposed earlier this month in an international tax reform framework along with Sen. Chuck Schumer.
Citizens for Tax Justice (July 2015). The U.S. system of taxing multinational corporations’ earnings encourages companies to direct more investment abroad, either in reality or on paper. The fact that the earnings of the foreign subsidiaries of U.S. corporations are not taxed until they are officially transferred to the domestic parent company leads to an incentive to “permanently reinvest” funds in low-tax jurisdictions and indefinitely defer paying U.S. taxes. This incentive has resulted in multinationals parking huge sums of profits in tax havens (such as Luxembourg, Bermuda, and the Cayman Islands). This report explains and compares several proposals to address this issue, including a repatriation holiday, deemed repatriation, and ending the deferral of taxes on U.S. multinational corporations’ foreign earnings.
Citizens for Tax Justice (June 2015). Last week the Connecticut legislature agreed on a budget for fiscal year 2016 that includes loophole-closing provisions designed to make sure that profitable multi-state corporations will pay their fair share of the corporate income tax. Since then, a few big corporations including General Electric have launched a lobbying blitz designed to reverse these changes. But as this CTJ report shows, GE has been astonishingly successful in reducing or even zeroing out their state income taxes across the US.
India Keable-Elliott and Tom Papworth, CentreForum (April 2015). Equity investments are taxed four times – through Stamp Duty, Corporation Tax, Income Tax and Capital Gains Tax – while interest payments on debt are treated as a business expense and are thus tax deductible.
This ‘debt bias’ stifles innovative SMEs in the early stages of their development, preventing them creating jobs and growth. Early stage fims need investors who are willing to share the risks and rewards of providing capital, so equity is more suitable than debt. But the tax bias pushes the cost of equity capital up, making some investments unprofitable and giving an advantage to to old, established firms.
‘Unbiased capital: making tax work for business’ recommends creating an Allowance for Corporate Equity (ACE), which would permit an imputed rate of return on equity to be deducted against corporate profits. This would result in taxes falling solely on economic rents and not returns on investment. The report also urges the abolition of Stamp Duty Reserve Tax, which increases the bias towards debt, while driving investment away from the UK to countries abroad.
OECD (June 2015). The OECD has released a package of measures for the implementation of a new Country-by-Country Reporting plan developed under the OECD/G20 BEPS Project.
OECD (June 2015). Action 8 of the BEPS Action Plan (“Assure that transfer pricing outcomes are in line with value creation: Intangibles”) identifies that work needs to be undertaken to develop “transfer pricing rules or special measures for transfer of hard-to-value intangibles”. This discussion draft sets out an approach to hard-to-value intangibles and proposes revisions to the guidance in Section D.3 of the 2014 BEPS Report “Guidance on Transfer Pricing Aspects of Intangibles”. The revised guidance explains the difficulties faced by tax administrations in verifying the arm’s length basis on which pricing was determined by taxpayers for transactions involving a specific category of intangibles. The Discussion Draft also proposes an approach based on the determination of the arm’s length pricing arrangements, including any contingent pricing arrangements, that would have been made between independent enterprises at the time of the transaction. This approach is applied when specific conditions are met and it is intended to protect tax administrations against the negative effects of information asymmetry.
BEPS Monitoring Group (May 2015).
BEPS Monitoring Group (May 2015).
Matt Grudnoff, The Australia Institute (April 2015). Franking credits are worth about $30 billion per year in Australia. About $10 billion go to households and another $10 billion go to superannuation funds, trusts and charities. The remaining $10 billion go to other Australian companies.
The international evidence shows that Australia is extremely generous when it comes to franking credits. But which Australians is the government being generous to? NATSEM have modelled for The Australia Institute the amount and distribution of franking credits, revealing that they flow overwhelmingly to very high income earning households.
Eric Toder, Urban Brookings Tax Policy Center (April 2015). Eric Toder testified about tax reform and small business, before the US House Committee on Small Business on 15 April 2015.
OECD (April 2015). Public comments are invited on an OECD discussion draft which deals with Action 11 (Improving Analysis of BEPS) of the BEPS Action Plan.
Citizens for Tax Justice (April 2015). This CTJ report illustrates how profitable Fortune 500 companies in a range of sectors of the U.S. economy have been remarkably successful in manipulating the tax system to avoid paying even a dime in tax on billions of dollars in U.S. profits.
Citizens for Tax Justice (March 2015). It’s been well documented that major U.S. multinational corporations are stockpiling profits offshore to avoid U.S. taxes. Congressional hearings over the past few years have raised awareness of tax avoidance strategies of major technology corporations such as Apple and Microsoft, but, as this report shows, a diverse array of companies are using offshore tax havens, including the pharmaceutical giant Amgen, the apparel manufacturer Nike, the supermarket chain Safeway, the financial firm American Express, banking giants Bank of America and Wells Fargo, and even more obscure companies such as Advanced Micro Devices and Group 1 Automotive.
All told, American Fortune 500 corporations are avoiding up to $600 billion in U.S. federal income taxes by holding more than $2.1 trillion of “permanently reinvested” profits offshore. In their latest annual financial reports, twenty-eight of these corporations reveal that they have paid an income tax rate of 10 percent or less in countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.
OECD (April 2015). Public comments are invited on an OECD discussion draft which deals with Action 12 (Mandatory Disclosure Rules) of the BEPS Action Plan.
Helen Miller and Thomas Pope, Institute for Fiscal Studies (February 2015). Corporate tax has rarely received as much attention as in recent years. The UK coalition government has enacted a series of policy changes – the most prominent being an 8 percentage point cut in the main rate – with an explicit aim of increasing the competitiveness of the UK’s corporate tax system. Concurrently, there have been prominent debates about the types of policies individual governments use to attract mobile investments, about corporate tax avoidance and about how the international corporate tax system can be improved.
Rosanne Altshuler, Stephen Shay and Eric Toder, Urban Brookings Tax Policy Centre (January 2015). The United States has a worldwide system that taxes the dividends its resident multinational corporations receive from their foreign affiliates, while most other countries have territorial systems that exempt these dividends. This report examines the experience of four countries – two with long-standing territorial systems and two that have recently eliminated taxation of repatriated dividends. The report finds that the reasons for maintaining or introducing dividend exemption systems varied greatly among them and do not necessarily apply to the United States. Moreover, classification of tax systems as worldwide or territorial does not adequately capture differences in how countries tax foreign-source income.
Citizens for Tax Justice (December 2014). After President Barack Obama’s veto threat last week ended discussion of a $450 billion package of tax breaks mostly benefiting businesses, the House of Representatives approved a smaller bill, H.R. 5771, that would extend most of the tax cuts for one year at a cost of $42 billion. While the President deserves credit for stopping a much bigger corporate giveaway, even the $42 billion bill is an absurd waste of money from a Congress that has been unable to find a way to fund basic public investments like highways and bridges.
OECD (November 2014). Public comments are invited on a discussion draft which deals with follow-up work mandated by the Report on Action 6 (“Prevent the granting of treaty benefits in inappropriate circumstances”) of the BEPS Action Plan.
The Australia Institute (November 2014). The Senate Community Affairs References Committee inquiry into the extent of income inequality in Australia asked The Australia Institute for some background briefing on how the role of dividend imputation in Australia was relevant to the committee’s deliberations. This brief provides some supplementary information on dividend imputation and franking credits.
OECD Discussion Draft (October 2014). Public comments are invited on a discussion draft which includes the preliminary results of the work carried on with respect to issues related to the artificial avoidance of PE status and includes proposals for changes to the definition of permanent establishment found in the OECD Model Tax Convention.
United Voice and the Tax Justice Network – Australia (October 2014). The report finds:
- An average effective tax rate of 23% – well below the corporate tax rate of 30%
- 29% have an effective tax rate of 10% or less
- 14% have an effective tax rate of 0%
- The loss of an estimated $8.4 billion in annual revenue compared to the 30% tax rate
- In 2013, 57% of ASX 200 companies disclosed subsidiaries in secrecy jurisdictions (tax havens) – but this could be much higher as reporting is not mandatory
OECD (September 2014). The spread of the digital economy poses challenges for international taxation. This report sets out an analysis of these tax challenges. It notes that because the digital economy is increasingly becoming the economy itself, it would not be feasible to ring-fence the digital economy from the rest of the economy for tax purposes. The report notes, however, that certain business models and key features of the digital economy may exacerbate BEPS risks. These BEPS risks will be addressed by the work on the other Actions in the BEPS Action Plan, which will take the relevant features of the digital economy into account. The report also analyses a number of broader tax challenges raised by the digital economy, and discusses potential options to address them, noting the need for further work during 2015 to evaluate these broader challenges and potential options.
OECD (September 2014). This report sets out recommendations for domestic rules to neutralise the effect of hybrid mismatch arrangements and includes changes to the OECD Model Tax Convention to address such arrangements. Once translated into domestic law, the recommendations in Part 1 of the report will neutralise the effect of cross-border hybrid mismatch arrangements that produce multiple deductions for a single expense or a deduction in one jurisdiction with no corresponding taxation in the other jurisdiction. Part 1 of the report will be supplemented by a commentary, which will explain the recommended rules and illustrate their application with practical examples. Part 2 of the report sets out proposed changes to the Model Convention that will ensure the benefits of tax treaties are only granted to hybrid entities (including dual resident entities) in appropriate cases. Part 2 also considers the interaction between the OECD Model Convention and the domestic law recommendations in Part 1.
OECD (September 2014). Preferential regimes continue to be a key pressure area in international taxation. The OECD’s 2013 BEPS report recognises that these need to be dealt with more effectively and the work of the Forum on Harmful Tax Practices (FHTP) needs to be refocused with an emphasis on substance and transparency. This is an interim report that sets out the progress made to date.
OECD (September 2014). This report includes proposed changes to the OECD Model Tax Convention to prevent treaty abuse. Countries participating in the BEPS Project have agreed on a minimum standard to prevent treaty shopping and other strategies aimed at obtaining inappropriately the benefit of certain provisions of tax treaties. The report also ensures that tax treaties do not inadvertently prevent the application of legitimate domestic anti-abuse rules. The report clarifies that tax treaties are not intended to be used to generate double non-taxation and identifies the tax policy considerations that countries should consider before deciding to enter into a tax treaty with another country. The model provisions included in the report provide intermediary guidance as additional work is needed, in particular in relation to the limitation on benefits rule.
OECD (September 2014). This document contains revisions to the OECD Transfer Pricing Guidelines to align transfer pricing outcomes with value creation in the area of intangibles. The changes clarify the definition of intangibles and provide guidance for related parties; including transactions involving intangibles and the transfer pricing treatment of local market features and corporate synergies. Some transfer pricing issues relating to intangibles are closely related to other issues that are to be addressed during 2015, most notably in relation to the allocation of risk among MNE group members and recharacterisation of transactions. Because of those interactions some sections of this document are in intermediate form and will be finalised in 2015.
OECD (September 2014). This document contains revised standards for transfer pricing documentation and a template for country-by-country reporting of revenues, profits, taxes paid and certain measures of economic activity. These new reporting provisions, and the transparency they will encourage, will contribute to the objective of understanding, controlling, and tackling BEPS behaviours. Countries participating in the BEPS project will carefully review the implementation of these new standards and will reassess no later than the end of 2020 whether modifications should be made to require reporting of additional or different data. Effective implementation of the new reporting standards and reporting rules will be essential. Additional work will be undertaken to identify the most appropriate means of filing the required information with and disseminating it to tax administrations.
OECD (September 2014). This report identifies the issues arising from the development of a multilateral instrument that modifies bilateral tax treaties. Without a mechanism for swift implementation, changes to model tax conventions only widen the gap between the content of these models and the content of actual tax treaties. Developing such a mechanism is necessary not only to tackle base erosion and profit shifting, but also to ensure the sustainability of the consensual framework to eliminate double taxation. This is an innovative approach with no exact precedent in the tax world, but precedents for modifying bilateral treaties with a multilateral instrument exist in various other areas of public international law. Drawing on the knowledge of experts in public international law and taxation, the Report concludes that a multilateral instrument is desirable and feasible, and that negotiations for such an instrument should be convened quickly.
Citizens for Tax Justice (September 2014). The pace of corporate inversions has increased in the last decade but only recently has this practice begun to make headlines with known American brands such as Burger King announcing plans to become foreign companies for tax purposes. A company inverts when, technically, it merges with and becomes a subsidiary of a foreign company. The practice is under fire because many American corporations undergo inversions to subsequently reduce their U.S. tax bill, either through earnings stripping to avoid U.S. taxes on future profits, or, by avoiding U.S. taxes on profits already earned and accumulated offshore.
This document focuses on the latter, tax avoidance on profits already accumulated offshore, and argues that this problem can be addressed by requiring payment of the U.S. tax that has been deferred on these offshore profits at the point when a corporation officially becomes controlled by a foreign company, whether through inversion or through other means. This reform would be akin to the requirement that individuals pay income taxes on unrealized capital gains when they renounce their U.S. citizenship.
Kimberly Clausing, Urban-Brookings Tax Policy Centre (August 2014). Recently, there has been a spate of corporate inversions, where US multinational corporations have combined with foreign companies, arranging their corporate structure to locate the residence of the resulting corporation in a foreign country with an attractive corporate tax climate. Several features of the US tax system provide strong incentives for corporate inversion: a high statutory tax rate, a worldwide system of taxation, and limits on income shifting. Corporate inversions allow more flexible access to foreign cash stockpiles and easier shifting of income out of the US tax base. The recent surge in inversions has likely resulted from the large accumulation of unrepatriated foreign cash together with pessimism about the prospect of policy changes that would reduce the US tax burden associated with cash repatriations. If unfettered, corporate inversions are likely to undermine the US tax base, so swift policy action is likely warranted; inversions can be effectively addressed in a targeted fashion.
Citizens for Tax Justice (August 2014). Several proposals have been offered to address the crisis of American corporations “inverting.” These companies reincorporate as offshore companies to avoid U.S. taxes even as they continue to operate and be managed in the U.S. and benefit from the public investments that American taxpayers support. This report describes these proposals and explains why some are much stronger and more effective than others.
Eric Toder and Alan Viard, Urban-Brookings Tax Policy Center and the American Enterprise Institute (August 2014). It is widely recognised that the current U.S. corporate income tax is flawed, particularly in its treatment of foreign‐source income. These flaws are amplified by the high U.S. statutory tax rate. Unfortunately, current reform proposals fail to resolve the fundamental contradictions in the current corporate income tax structure.
The current system and the reform proposals attempt to base corporate taxation on the source of the corporate income, the residence of the corporation, or a combination of those two factors. The problem is that neither source nor corporate residence can be easily defined. Any viable reform must either find an agreed‐upon way to define those terms or must restructure the tax system in a way that avoids the need to define them.
In this report, the authors describe the challenges facing the corporate income tax and discuss two structural reform options that could address them. One option would seek international agreement on how to allocate income of multinational corporations among countries. The other option would eliminate the corporate income tax, but would tax American shareholders of publicly traded companies at ordinary income tax rates on their dividends and accrued capital gains. The authors discuss the benefits and limitations of each option.
OECD (May 2014). Senior members from the OECD’s Centre for Tax Policy and Administration (CTPA) gave the latest update on the BEPS Project and its’ September 2014 deliverables, including:
- Transfer Pricing Documentation and Template for Country-by-Country Reporting
- Tax Treaty Abuse
- The Tax Challenges of the Digital Economy
- Hybrid Mismatch Arrangements
Citizens for Tax Justice (May 2014). A few days after Americans filed their tax returns last month, the Internal Revenue Service released data on the offshore subsidiaries of U.S. corporations. The data demonstrate, in an indirect way, that these companies are not playing by the same rules as the US citizens.
Citizens for Tax Justice (March 2014). US State corporate tax avoidance in the Fortune 500, 2008 to 2012.
Citizens for Tax Justice (March 2014). The President proposes to eliminate or limit several special breaks and loopholes enjoyed by businesses, but put all of the resulting revenue savings towards lowering the corporate tax rate from 35 percent to 28 percent and providing other breaks to businesses (like making permanent the tax credit for research).
Rachel Griffith, Helen Miller and Martin O’Connell, Journal of Public Economics (March 2014). Intellectual property accounts for a growing share of firms’ assets. It is more mobile than other forms of capital, and could be used by firms to shift income offshore and to reduce their corporate income tax liability. We
consider how influential corporate income taxes are in determining where firms choose to legally own intellectual property. We estimate a mixed (or random coefficients) logit model that incorporates important observed and unobserved heterogeneity in firms’ location choices. We obtain estimates of the full set of location specific tax elasticities and conduct ex ante analysis of howthe location of ownership of intellectual property will respond to changes in tax policy. We find that recent reforms that give preferential tax treatment to income arising from patents are likely to have significant effects on the location of ownership of new intellectual property, and could lead to substantial reductions in tax revenue.
Citizens for Tax Justice (February 2014). “Corporate lobbyists incessantly claim that our corporate tax rate is too high, and that it’s not ‘competitive’ with the rest of the world,” said Robert McIntyre, Director of Citizens for Tax Justice and the report’s lead author. “Our new report shows that both of these claims are false. Most of the biggest companies aren’t paying anywhere near 35 percent of their profits in taxes and far too many aren’t paying U.S. taxes at all. Most multinationals are paying lower tax rates here in the United States than they pay on their foreign operations.”
OECD (February 2014). Responding to a mandate from G20 leaders to reinforce action against tax avoidance and evasion and inject greater trust and fairness into the international tax system, the OECD has unveiled today a new single global standard for the automatic exchange of information between tax authorities worldwide. Developed by the OECD together with G20 countries, the standard calls on jurisdictions to obtain information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
Citizens for Tax Justice (February 2014). International Business Machines (IBM) has paid U.S. corporate income taxes equal to just 5.8 percent of its $45.3 billion in U.S. profits over a five year period from 2008 through 2012. This finding is consistent with recent revelations by reporters Alex
Barinka and Jesse Drucker of Bloomberg News that suggest IBM engages in gimmicks to make its U.S. profits appear (to the IRS) to be earned in low-tax or no-tax countries, in order to avoid federal corporate income taxes.
Eric Toder, Urban Brookings Tax Policy Center (January 2014). In the U.S. both political parties are calling for corporate tax reform without agreement on specifics. Proposals to broaden the corporate tax base to pay for lower rates or to eliminate taxes on corporate repatriations while trying to prevent income shifting do not address the main problems of taxing multinational corporations in a global economy. This article discusses the need for more fundamental structural reforms and offers up two ideas – securing international agreement on better rules to allocate profits of multinationals among taxing jurisdictions or, alternatively, replacing the U.S. corporate tax with full taxation of dividends and accrued capital gains of U.S. shareholders.
U.S. Public Interest Research Group (January 2014). US State taxpayers across the country could save over $1 billion from a simple reform to crack down on offshore tax dodging, according to this report. The reform, which has already proven effective in Montana and passed in Oregon, would require companies to treat profits booked to notorious tax havens as domestic taxable income.
Citizens for Tax Justice (January 2014). The Senate Finance Committee’s discussion draft on international tax reform fails to accomplish what should be three goals for tax reform.
1. Raise revenue from the corporate income tax and the personal income tax.
2. Make the tax code more progressive.
3. Tax American corporations’ domestic and offshore profits at the same time and at
the same rate.
The discussion draft would, in a proclaimed revenue-neutral manner, impose U.S. corporate taxes on offshore corporate profits in the year that they are earned. But it would do so at a lower rate than applies to domestic corporate profits. The goal of revenue-neutrality causes the discussion draft to fail the first goal of raising revenue as well as the second, because any increase in corporate income tax revenue would make our tax system more progressive, as explained below. The discussion draft also fails to meet the third goal. Although it would tax domestic corporate profits and offshore corporate profits at the same time, it would subject the offshore profits to a lower rate, preserving some of the incentive for corporations to shift investment (and jobs) offshore or to engage in accounting gimmicks to make their U.S. profits appear to be generated in offshore tax havens.
Citizens for Tax Justice (November 2013). Since 2010, American Express has boosted itself as a supporter of small businesses, by promoting “Small Business Saturday” as a counterpart to Black Friday. But American Express is no friend of American small business. Not only does it charge merchants high swipe fees, but it also uses and wants to expand offshore tax loopholes that most small businesses can’t use and want to close.
Tax Transparency 2013 Report on Progress
OECD (2013). The Global Forum is the multilateral framework within which work in the area transparency and exchange of information has been carried out by both OECD and non-OECD economies since 2000. In 2006 the Global Forum published a review of the legal and administrative frameworks in the areas of transparency and exchange of information for tax purposes covering 82 jurisdictions, entitled Tax Co-operation: Towards a Level Playing Field – 2006 Assessment by the Global Forum on Taxation. This publication was followed by four annual assessments, with the 2010 publication covering 93 jurisdictions. Following the restructuring of the Global Forum, a program of in-depth peer reviews was launched in 2010.
This 2013 Report on Progress describes the progress made since the Global Forum launched its peer review mechanism in 2010.
To date, 124 peer review reports have been published, complemented by 18 supplementary reports, covering 100 jurisdictions. The ratings for the first 50 jurisdictions that have undergone Phase 2 reviews, assessing the practices of transparency and exchange
of information, have also been completed in November 2013, and are presented in part I as well as in the annex to this report. All peer review reports and the ratings can be accessed through at: www.eoi-tax.org. Part II of this report summarises some of the results of the Global Forum, showing the impact that the Global Forum’s work is having on international tax cooperation. Finally, this 2013 Report on Progress includes the statement of outcomes of the Global Forum meeting held in Jakarta, Indonesia in 2013 (Annex 6).
Boeing, Recipient of the Largest State Tax Subsidy in History, Paid Nothing in State Corporate Income Taxes Over the Past Decade
Citizens for Tax Justice (November 2013). On November 12th, Washington Governor Jay Inslee signed into law the largest state business tax break package in history for Boeing. The new law will give Boeing and its suppliers an estimated $8.7 billion in tax breaks between now and 2040. Even before this giant new subsidy, Boeing has already been staggeringly successful in avoiding state taxes. Over the past decade, Boeing has managed to avoid paying even a dime of state income taxes nationwide on $35 billion in pretax U.S. profits.
Twitter and Other Tech Firms Poised to Shelter $11 billion in Profits Using Stock Option Tax Loophole
Citizens for Tax Justice (November 2013). Tax breaks for executive stock options have become an increasingly effective corporate tax-avoidance tool. An April CTJ report identified 280 Fortune 500 corporations that disclosed benefiting from this tax break during the past three years. But for many newer firms that have chosen to pay their executives in the form of lavish stock options, the lion’s share of these tax breaks have yet to be realised. This CTJ report explains how twelve emerging tech firms (including Twitter, which has scheduled its IPO for this week) stand to eliminate all income taxes on the next $11.4 billion they earn—giving these companies $4 billion in tax cuts.
Risks to the Sustainability of Australia’s Corporate Tax Base Scoping Paper
Australian Government Treasury (July 2013). Australia collects more corporate tax as a share of GDP than most other OECD countries. In 2011 12, Australia had corporate tax receipts of $66.6 billion, or 4.5 per cent of GDP and 22 per cent of total tax receipts. This means that Australia has a strong interest in monitoring and, where necessary acting on, developments that pose a risk to the sustainability of its corporate tax base. A number of clear risks to the sustainability of the corporate tax regime have begun to emerge over the last decade. The increasing use of strategies to exploit gaps and inconsistencies in tax treaties, the increased ‘digitisation’ of industries and the challenges for the international community to effectively curb the harmful tax practices of some jurisdictions, have all highlighted shortcomings in the international tax framework. This paper examines those risks. In doing so, with the issue of tax base erosion and profit shifting firmly on the G20 agenda, and with Australia chairing the G20 in 2014, this paper will also help inform the leading role that Australia can and should play in framing multilateral discussions on international tax reform going forward.
The corporate income tax is a progressive source of revenue and the US Congress should increase this revenue by limiting or eliminating breaks that allow large, profitable corporations to avoid taxation. The most important of these are breaks for corporate profits that are generated offshore or claimed to be generated offshore. Lawmakers should also oppose proposals discussed today that would expand these breaks and result in more corporations relying on offshore tax havens.
On 14 May 2013 the Deputy Prime Minister and Treasurer announced a package of reforms to protect the corporate tax base from erosion and loopholes. One area of reform relates to the inconsistent tax treatment between multiple entry consolidated (MEC) groups and ordinary consolidated groups. To address this issue, the Government will amend the law to remove the tax advantages available to MEC groups.
Some observers have asked why we need a corporate income tax in addition to a personal income tax. The argument often made is that corporate profits eventually make their way into the hands of individuals (in the form of stock dividends and capital gains on sales of stock) where they are subject to the personal income tax, so there is no reason to also subject these profits to the corporate income tax. Some even suggest that the $4.8 trillion that the corporate income tax is projected to raise over the next decade could be replaced by simply raising personal income tax rates or enacting some other tax. This is a deceptively simple argument that ignores the massive windfalls that wealthy individuals would receive if there was no corporate income tax.
Apple Is Not Alone
Citizens for Tax Justice (June 2013)
Recent Congressional hearings on the international tax-avoidance strategies pursued by the Apple corporation documented the company's strategy of shifting U.S. profits to offshore tax havens. But Apple is hardly the only major corporation that appears to be engaging in offshore-tax sheltering: seventeen other Fortune 500 corporations disclose information, in their financial reports, that strongly suggests they have paid little or no tax on their offshore holdings.
The TJN-Aus agrees with the OECD that tax dodging by multinational companies can "produce unintended and distortive effects on cross-border trade and investments" and that "it distorts competition and investment within each country by disadvantaging domestic players".
Cutting corporate taxes will do nothing to spur economic growth, according to a new paper from EPI Director of Budget Research Tom Hungerford. In Corporate Tax Rates and Economic Growth Since 1947, Hungerford find no evidence that high corporate taxes have a negative impact on the economy. In fact, there is no correlation at all between corporate tax rates and economic growth.
There is growing concern ‘ in Australia and globally ‘ that many of the key rules of international taxation may not have kept pace with the evolution of the global economy. International tax reform is increasingly on the agenda of G20 Finance Ministers and Leaders. Last year the Government asked the Treasury to develop a Scoping Paper to examine the risks to the sustainability of Australia's corporate tax base from the way current international tax rules are able to be used to minimise or escape taxation. This analysis is being informed by a specialist reference group, made up of business representatives, tax professionals, academics and the community sector. The purpose of this Issues Paper is to seek views of stakeholders and the community more broadly to ensure the analysis in the Scoping paper captures and addresses the key issues. The Issues Paper outlines the challenges that changes in the global economy pose to the international tax system.
It is often argued that reductions in the corporate tax rate are necessary to create employment, increase investment and deliver a range of other benefits to the Australian community. However, despite the widespread support for this view, particularly among the business community, the theoretical and empirical case for such an expensive change in policy is weak. This paper is structured as answers to a series of questions about the design and impact of the taxation of corporate income in Australia however it begins with a brief historical overview of the tax treatment of profits in Australia.
Earlier this year, Citizens for Tax Justice reported that Facebook Inc. had used a single tax break, for executive stock options, to avoid paying even a dime of federal and state income taxes in 2012. Since then, CTJ has investigated the extent to which other large companies are using the same tax break. This short report presents data for 280 Fortune 500 corporations that, like Facebook, disclose a portion of the tax benefits they receive from this tax break.
This CTJ report illustrates how profitable Fortune 500 companies in a range of sectors of the U.S. economy have been remarkably successful in manipulating the tax system to avoid paying even a dime of tax on billions of dollars in profits. These ten corporations’ tax situations shed light on the widespread nature of corporate tax avoidance. As a group, the ten companies paid no federal income tax on $16 billion in profits in 2012, and they paid zero federal income tax on $57 billion in profits over the past five years. All but one paid less than zero federalincome tax in 2012; all paid exceedingly low rates over five years.
Activists around the world seek to expose a global system that fails to tax multinationals adequately and thus deprives governments of needed revenues, with profound effects for development in the world’s poorest nations. These tax activists have sparked a global movement, with groups all over the world seeking progress for development in poor countries by demanding greater transparency about how and how much multinational companies pay taxes.
It has become clear that we need to take a fresh look at how transnational corporations (TNCs) are taxed. This paper, building on long experience and analysis of the actual practice of tax administrations around the world, proposes a thorough reform of the system towards a fresh approach: Unitary Taxation. This would help place the international tax system on a foundation fit for the 21st century.
The project, quickly known as BEPS (Base Erosion and Profit Shifting) is looking at whether, and if so why, the current rules allow for the allocation of taxable profits to locations different from those where the actual business activity takes place. The aim is to provide comprehensive, balanced and effective strategies for countries concerned with base erosion and profit shifting.
Business Tax Working Group (November 2012)
The Business Tax Working Group (Working Group) was established following the Tax Forum in October 2011. The terms of reference ask the Working Group to make recommendations on how the business tax system could be improved to make the most of the challenges and opportunities arising from transformations in the broader economy, including the patchwork economy, and that aim to increase productivity while delivering relief to struggling businesses.
The purpose of this consultation guide is to provide stakeholders with an understanding of how the Working Group plans to involve the community in its consideration of business tax reform. This consultation guide sets out the principles that the Working Group will use to guide its thinking about the merits of particular base broadening options that could accompany a cut to the company tax rate.
The annual KPMG International Corporate and Indirect Tax survey compares corporate and indirect tax rates from over 125 countries.
The Business Council of Australia puts forward its proposals for changes to the tax system, including changes to the personal and company tax systems.
Catholic Social Services Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.
Miranda Stewart’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.
Community and Public Sector Union’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.
Australian Council of Trade Unions’ statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.
Australian Council of Social Services statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.
The Per Capita Tax Survey for 2011 has asked 1,300 Australians for their views on personal tax contributions, overall taxation levels, public service spending and new tax proposals such as the Minerals Resource Rent Tax and the carbon tax.
This paper seeks to describe the various ways in which the mining boom is changing the Australian economy. In particular, it highlights some of the negative consequences of the boom which are rarely acknowledged in public discussion of economic issues.
The Government’s unduly generous assistance to industry under its carbon emissions package may create a new protectionism. The whole community will pay for unjustified subsidies to the LNG and coal industries.
The IMF’s fiscal affairs department has posted a working paper titled “Taxing Financial Transactions: An Assessment of Administrative Feasibility”, which examines the practical issues countries should deal with in the introduction and application of a financial transactions tax (FTT).
Discussion paper released by the Australian Government in the leadup to the National Tax Forum in October 2011, particularly dealing with the six sessions to be included at the forum: Personal tax, transfer payments, business tax, state taxes, environmental and social taxes, and tax system governance.
An overview of taxation in the European Union, by type of tax (consumption, labour income, company income and capital income), by level of government (federal, state, local), and by country.
A report exploring the total income tax rates on corporate profits in the US, which takes account of the corporate rate and the individual rates on dividends and capital gains, as well as on the share of after-tax profits corporations pay as dividends, the share of stock held in retirement and other nontaxable accounts, and the timing of capital gains realizations.
An excerpt from the OECD’s latest Tax Agenda brochure, outlining its current work in a variety of tax-related areas, including: Taxation of Multinational Enterprises.
The 2010 edition of PwC’s ‘Total Tax Contributions’ report. The study reveals structural problems with Australia’s tax system and the burden it imposes on Australian business in terms of both compliance and administration costs.
Donald Marron’s testimony before the Senate Committee on the Budget on reforming the tax code by cutting tax preferences. His testimony includes: how tax preferences pervade the US tax code, how the first step in any income tax reform should be to broaden the tax base by reducing or eliminating tax preferences and how policymakers can then use the resulting revenue to lower tax rates, reduce future deficits, or both.
The latest in an annual study measuring the ease of paying taxes across 183 economies worldwide, covering both the cost of taxes and the administrative burden of tax compliance. It finds that businesses in Australia pay an average of 25.9 cents of every dollar of profit in tax, compared with a global average of 18 percent.
A report that calculates the tax lost to the UK Government from tax avoidance and from tax planning by the very wealthy.
Perspectives on Company Tax
Ken Henry, Secretary to the Commonwealth Treasury (21 August 2009)
Speech to the Australia New Zealand Leadership Forum.
Tax Reform – Future Direction
David Parker, Executive Director – Revenue Group of the Treasury (17 September 2009)
Speech to the Minerals Council of Australia's Biennial Tax Conference on reforms generally, and the link between resource taxation and company tax.
Consultation paper prepared by Treasury regarding the reform and modernisation of the controlled foreign company (CFC) rules.
This report advocates strengthening the personal income tax system in order to achieve progressive tax reform. It covers topics such as personal income tax rates, consumption taxes, company income taxes, taxation and saving, taxation and the transfer system.
A Race to the Bottom: Globalisation and Company Tax
ACTU (September 2011). This paper looks at the case that despite globalisation, the case for taxing corporations remains strong.