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Archive for Gary Heald Jr

U.S. Concerns About OECD/G20 IF-BEPS Sparks Controversy – Mark Zuckerberg(Facebook) Sides With OECD On IF-BEPS

Gary Heald Jr on OECD - BEPS

Today, Facebook announced that they support global tax reform, even if it means they have to pay more tax and pay it in different places under a new framework.

As discussed previously, the OECD/G20 has been working toward a resolution with regard to the extreme abuses in international tax (transfer pricing) base erosion and profit shifting. Until about December 3rd, 2019, the U.S. all but led the way in the discussions. Amid international tensions with tariffs as well as the potential for damage to American MNE’s to whom the new rules would apply, the U.S. floated the idea of adding a “Safe Harbor” provision to the rules, allowing the U.S. to opt-out of some or even all of the agreement. A Safe Harbor is where a boat goes to get out of the storm — it essentially allows it to opt out, when waters get too rough. The Safe Harbor would allow Facebook the ability to avoid more tax, so why would they support the OECD/G20 IF-BEPS and not the US Treasury on the safe harbor proposal?

On one hand, the Safe Harbor provision is problematic because as it stands the OECD/G20 have constructed the system in such a way as to require the entire multilateral agreement to be adopted and executed by each member state in order for the full system to work. If one state does not adopt the rules, then that state has the potential to become the tax haven to which MNE’s flee to avoid tax. The fact that Facebook is already in the United States reveals that even amid discussions for including the Safe Harbor protection, a new generation of American MNE is emerging which is more globally conscious and believes in a more fair system of taxation. Put differently, Zuckerburg could say nothing, lobby the U.S. to stay out of the agreement and reap the benefits that would come with the U.S. maintaining a position as a tax haven for digitalized MNE’s.
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Introduction: Organization For Economic Co-Operation And Development Inclusive Framework On The Base Erosion And Profit Shifting Project


In 2018, 79 countries lost $125B in corporate tax revenue through profit shifting and base erosion. The greatest monetary losses were experienced by India, Russia and the U.S. at $24B, $16B and $32B. These are major loss amounts, but when the least-well-off countries lose even a fraction of this revenue, it has a marginal cost impact much greater than than the losses born by countries who are economic powerhouses. It is incumbent on all of us to level the playing field to make things fairer for developing nations to increase their rate of access to opportunity, to be at least commensurate with the level of increase experienced by other nations, but for their losses.

There is no doubt that enhanced systems of tax avoidance coupled with economic digitalization have changed the international tax ecosystem. For now, it’s an environment where transfer pricing opportunities are ubiquitous and extremely lucrative. In response, the OECD & G20 have been working diligently to tighten the reins on transfer pricing through the Inclusive Framework Base Erosion and Profit Shifting Project. Recently, a deadline has been for the Inclusive Framework to produce a workable plan available for implementation by January of 2021. None of this is without challenge because at its core, taxation is a state-based enterprise.
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