Endemic tax evasion costing governments at least $200 billion a year
DEVELOPED countries throughout the world are stepping up efforts to curb base erosion and profit shifting (BEPS), a scheme used by multinational companies to avoid paying taxes estimated as high as $200 billion globally, especially when doing business across different jurisdictions.
At the 2015 Asia Pacific Tax Symposium hosted last week by law firm Du-Baladad and Associates and the consulting firm World Tax Services Alliance (WTS), the individual efforts of developed countries were cited to give participants ideas on how to curb BEPS in their own countries.
But WTS Director for Corporate and International Tax Sharon Arasu-Koh said more international cooperation is needed to more effectively address the problem of BEPS, since unilateral action by countries creates uncertainty and business risk.
For instance, the general anti-abuse rules (GAAR) proposed to be enacted in India is said to be too encompassing, raising doubts as to the practical application of such anti-BEPS legislation. Thus, India has deferred the implementation of the GAAR.
Arasu-Koh mentioned other unilateral efforts by developed countries to curb BEPS, including the imposition of indirect taxes, such as value-added tax (VAT), which is being done by South Korea to target nonresident distributors of digital content to South Korea’s consumers. But this indirect kind of taxation might not be effective in the Philippines since the VAT is being passed on to the consumers, such that it is the consumer that ultimately bears the burden.
In Australia, Arasu-Koh said, the Senate had been cracking down on multinational companies through congressional hearings to investigate on whether they are paying the correct taxes.
In Singapore the government is phasing out approved incentives in favor of incentives for businesses wherein Singapore is the profit generator and owner or holder of the intellectual property right.
China is also introducing GAAR, and has come up with new rules that will affect mergers and acquisitions, which could be used by some multinational corporations in their practices of intercompany pricing, transfers of patent licensing rights and shifting of management fees to ultimately shift profits and avoid paying taxes where they are due.
Internal Revenue Commissioner Kim Jacinto-Henares, who represents the Philippines in the Committee on Fiscal Affairs of the Organisation for Economic Co-operation and Development (OECD), said the Philippines is pushing for more international strategies to decrease BEPS and recover the foregone revenues. The Philippines was recently allowed to join the said OECD committee to help develop international strategies against BEPS.
The International Monetary Fund estimates that some $200 billion a year is lost to BEPS by multinational corporations.
Henares said BEPS used to be a problem of developing countries, but the developed countries that hosted the multinational corporations are now also hurt by these same entities they helped create.
“For the longest time, I’ve always said BEPS is a problem encountered by us, a developing country, because the multinationals do business here and yet they don’t pay taxes. But we’re just a developing country and nobody listened to us. Now the developed countries are finding out that they created a monster, not knowing that the monster they created doesn’t recognize any master,” she said.
