Tax governance Flashcards
States have tax sovereignty what does this mean
They can decide their own tax measures
International tax governance models:
Unilateralism
Solve the problem by the State itself
* E.g. US Foreign Account Tax Compliance Act (FATCA)
* Requires foreign financial institutions to gather and disclose
information regarding the foreign financial assets of US resident
* E.g. Digital service tax (DST)
* UK, Italy, France, Austria
* No need for physical presence
* Tax profits from advertising, online marketplace, subscription to
streaming services
Bilateralism
Allocation of taxing rights between source and resident state to
prevent double taxation and to avoid double non taxation.
* E.g. enter into double tax convention (DTC)
* Always between trade partners
* Over 3000 bilateral tax treaties worldwide
* Some countries have broad treaty network, some do not
* OECD Model Tax Convention: favors developed countries
(resident state)
* UN Model Tax Convention: favors developing countries (source
state)
multilateralism
States have common patterns of conduct through
the organization of institutions
multilateralism refers to an alliance of multiple countries pursuing a common goal.
The OECD multilateralism
- G20 & OECD: BEPS Action Plans (2015)
- Inclusive framework: 140 countries
- Monitor the implementation of BEPS Minimum standards
- Peer review mechanisms
- Initiated by developed countries
- Expanded to include developing countries
BEPS minimum standards
- Action 5: harmful tax practices
- Action 6: prevention of tax treaty abuse
- Action 13: country-by-country reporting
- Action 14: mutual agreement procedure
Multilateral instrument (MLI)
To prevent treaty abuse & have better dispute resolution
* Based on BEPS project
* 90 jurisdictions (2020)
* Joined parties can choose tax treaties to be modified by MLI
* They do not need to change each bilateral treaty again
* Once opt in MLI, the treaty automatically change
* Flexible to have reservations: what to do and not to do
* New model of tax convention
World Trade Organization (WTO)?
Deals with rules of trade between nations
Objective: open and non-discriminatory multilateral trading system
Subsidy
a financial contribution made by a government or any public body, which confers a benefit that is specific
The role of UN
UN: represent more for developing countries
* But limited role on tax cooperation
* UN Tax Committee does not get substantial support from
developing countries
* Lack of support by developed countries in the UN
* Difficult to reach consensus so far
* Can play a better role considering its large membership
Location savings india and china
Location savings
* Lower costs for MNEs
* e.g. raw materials, labor, rent, transportation and infrastructure
* However, India & China did not get most profits
* They only work as manufacturers
* Claim: allocation of profits to the country of location savings
* How to make the voice: 2013 & 2017 UN Transfer Pricing Manual
* OECD has to include this into the rule
True inclusive framework:
include more countries, esp. developing
countries in the decision-making process
