(New York Representative Charles B. Rangel, Member of the US Ways and Means Committee)
Yesterday, as part of their continuing work on comprehensive US tax reform, the Ways and Means Committee of the US Congress convened a hearing on the use of tax havens by U.S. and foreign multinational corporations to avoid tax; shift profits outside the United States; and erode the U.S. tax base.
What follows are five(5) key points from the OECD’s testimony to the Committee, presented by Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration.
For his full presentation click here:
1.The ability of some taxpayers to reduce their taxes by separating their income from the jurisdictions in which they operate creates an unlevel playing field, which undermines competition and economic efficiency. This, in turn, leads to an inefficient allocation of resources by distorting investment decisions towards activities that have lower pre-tax rates of return, but higher after-tax rates of return.
2. Every jurisdiction is free to set up its corporate tax system as it chooses. States have the sovereignty to implement tax measures that raise revenues to pay for the expenditures they deem necessary. An important challenge relates to the need to ensure that tax does not produce unintended and distortive effects on cross-border trade and investment nor that it distorts competition and investment within each country by disadvantaging domestic players. In a globalised world where economies are increasingly integrated, domestic tax systems designed in isolation are often not aligned with each other, thus creating room for mismatches. These mismatches may result in double taxation and may also result in double non-taxation.
3. The OECD has long recommended that countries should reduce the distortive impacts of their tax regimes thus improving economic growth by increasing the tax base and lowering the tax rate.
4. Broadly speaking base erosion and profit shifting (BEPS) focuses on moving profits to where they are taxed at lower rates and expenses to where they are relieved at higher rates.Among other things, one of the key pressure areas giving rise to opportunities for BEPS is the availaility of harmful preferential regimes.
5. An OECD Action Plan is to be presented to the G20 next month which will recommend a comprehensive and coordinated strategy for countries concerned with BEPS. At the same time that the OECD steps up its efforts to address double non-taxation it must also continue its work to eliminate double taxation. In this respect, the report suggests that a comprehensive approach should also consider possible improvements to eliminate double taxation, such as increased efficiency of mutual agreement procedures and arbitration provisions.
For the testimony of the two other witnesses, Mr. Edward Kleinbard
Professor of Law, University of Southern California Gould School of Law click here:
and for Mr. Paul Oosterhuis Partner, Skadden Arps Slate Meager & Flom LLP, click here: