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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.

In the most recent study cited by the OECD in the IF-BEPS by Jansky and Palansky, they found that although the U.S., India and Russia take the biggest hit, losing $32B, $24B and $16B annually, that lower-income countries on average lose at least as much as developed countries (relative to the size of their economies). At the same time, they are less able to implement effective tools to reduce the amount of profit shifted out of their countries. Therefore, what the news isn’t saying — but what my intuition says about Zuckerberg’s position — he’s globally conscious, knows that transfer pricing hurts developing countries the most and is committed to growing opportunity for the least well off at least at the same rate as opportunity grows for developed nations. This means that the least well off improve at a rate which at least meets the rate at which the U.S., India and Russia do. If a multilateral agreement is all that it takes to produce compliance and balance the scale with regard to base erosion and profit shifting, it makes the most sense to proceed with that approach.

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Gary Heald Jr

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