Oxford Summer Tax Conference 2016 - Session 1 - Michael Graetz

Today marks the latest in the Oxford University Centre for Business Taxation Summer Tax Conferences. The first session of the day started with Michael Graetz of Columbia University and Yale University.

He started the conference with his thoughts on the current landscape, and the place BEPS had had in the reform process. 

Here is a summary of his comments:

Where we are

We are less than a month from the 3 year anniversary of BEPS launch and in run up to OECD meeting in Kyoto of as many as 120 countries.

BEPS project different from any previous effort, in that it was generated, promoted and largely applauded at Prime Ministerial level. As a result, BEPS had to succeed, or at least declare victory

Tax avoidance has come to be seen by the public in the US and Europe as a symptom of the unfairness of global sophisticated economy. International tax policy finds itself caught in political whirlwinds.

We think of firms competing, but nations are in competition rather than collaborating. BEPS may reverse this, but probably not in relation to corporate taxes.

The challenges of tax reform is like “writing on the surface of a lake”, with the facts changings as quickly as tax can be reformed.

OECD recent BEPS project challenged none of the underlying fundamental principles that have been in place for a long time. Obama administration was determined to strengthen residence based taxation, in the face of BEPS efforts to strengthen source based principle. The world when these rules first came into place was a simpler place.

We have a 20^th century tax regime trying to govern a 21^st century economy.

What happens if we continue on existing path?

1. Nations will continue to compete, and will offer low rates and incentives. We will see patent boxes and other incentive surviving, and in fact thriving. And the UK and US will continue to attract headquarters activities.

2. Countries will try to shift their taxes onto MNE headquartered elsewhere.

3. We will continue to see BEPS type loophole closing efforts.

4. MNEs will continue to engage in complex tax planning, staying at least one step ahead. This will require new dispute resolution and collaboration between tax authorities. Weak tax administrations will cause more and more problems for MNEs

5. We will see a range of back up measures such as minimum taxes to ease pressure on Transfer Pricing. Transfer Pricing will not be more rational or certain than it was before BEPS.

6. BEPS effort to link tax consequences to location of real activity will introduce greater distortions into decisions about where to locate activities.

7. The complexity of multiple avenues to tax reduction will increase reliance on general anti-avoidance measures and lot of litigation and uncertainty.

8. Moves to destination based consumption taxes will have more and more countries attempting to broaden their tax base to be more like New Zealand VAT than EU VAT.

9. Countries will look to tax location specific activities such as natural resources, deep water ports etc, but countries must not over do it.

10. Due to concerns about inequality, we will see a move to greater taxes of capital wealth of individuals. However, it will be impossible to jettison corporation taxation.

11. Countries will search for new sources of revenue including excise taxes, possibly on fossil fuel consumption.

12. People like us, have nothing to fear! There will be plenty of work for all.

I suspect aggressiveness in tax avoidance is contagious as a way of competing. This is not just a US problem.

It is not surprising with the US having a nearly 40% statutory rate and the UK heading to 18%, Irish 12.5% and patent boxes, there is movement of income around the world.

The US has created a great incentive to locate all your deductions in the US, and to locate all your patent income "somewhere else".

It is hard to look at this systems and say "It sure is functioning well"!