March 20th, 2013

New OECD Report Calls For Crippling New Corporate Tax Rules

Team AEC

by Lorena Unaza

According to Andrew Quinlan*, the OECD through a recent report titled “Addressing Base Erosion and Profit Shifting”, called for a drastic rethinking of the tax norm in an international level with the excuse that the governments are no longer gaining as much revenues as they did from the multinational corporation taxes, costs of which are passed to the workers, consumers and shareholders. Since 1980, average global individual and corporate taxes have been increased in order to improve the incentive in the productive sector.

On the other hand, this had a negative consequence for the government as its tax incomes were significantly shrank. All these reforms were the result of the tax competition, which is the only force working for the workers’, consumers’ and taxpayers’ side. The report on base erosion and profit shifting complains about “double non-taxation” which takes place when companies take advantages of differences in national tax polices by moving their assets to countries with lower tax rates and less burdensome regulations.

The OECD began its anti-tax competition project in 1998 with a paper on “Harmful Tax Competition” which reaffirmed the claim that having “no or low effective tax rates” is one of the basics factors that identify a “harmful regime”. In fact, what OECD’s economists want to do, is to establish a new system, according to it, the companies will stay in a country and pay the tax rate that the government impose. This formula apportionment appeals to governments with high corporate tax rates because it would increase their revenues, while jurisdictions with pro-growth policies would lose. This creates a perverse incentive for governments to adopt uncompetitive tax rates that would be bad for everyone, but tax collectors. This creates a perverse incentive for governments to adopt uncompetitive tax rates that would be bad for everyone, but tax collectors.

OECD