1. Tax Avoidance in a global economy Mark Nieuweboer (Institute for Taxation and Economics)

2. 2.5%

3. Subjects  Fragmentation and globalisation  Aggressive tax planning  The case against tax avoidance

4. The law applies equally for all  Tax system  Resistance against paying taxes  Free riders  If the law applies equally to all, how can one taxpayer legally pay less than the other?

5. Fragmentation leads to arbitration  Fragmentation  State  Taxpayer  Income  Time  Arbitration

6. Case study: United States v Isham (1873)

7. Globalisation  World trade agreements  Liberalisation of capital markets and the euro  Information & communication  Technology

8. Tax avoidance is profitable  Competition between states  Competition between companies  Tax systems have not globalized

9. Base Erosion and Profit Shifting  Disconnect real activities from reported income  Global value chain  Drain profits through funding  Profit repatriation schemes

10. Connection between profits and activities  Global Value Chain  Transfer pricing  Functions, risks & assets used  Disproportional value for intangibles and risks?

11. Case study: quality coffee or high value brand?

12. Drain profit through debt funding  Interest charge is tax deductible  Interest income is highly mobile  Instruments:-  Base companies in ‘real’ tax havens  Conduit companies  Hybrid mismatches

13. Profit repatriation schemes  Prevent ‘leakage’ of profits  Instruments:-  Defer distribution of income ()  Hybrid mismatches  Conduit companies

14. Tax avoidance is bad, because it…  drains the public budget  frustrates economic policy  distorts competition  is unfair and creates inequality  is economically inefficient  does not contribute to good citizenship  is not transparant  is not democratically legitimized

15. Tax avoidance is not bad, because it…  has minimal effect on budget  allows for fiscal price differentiation  makes tax competition between states less harmful  facilitates foreign direct investments  protects the tax revenues  protects smaller economies  requires less government resources

16. Economic effects of anti-avoidance policy  Increase in tax revenue  Incidence of corporate income tax  Capital outflow  Elimination of means does not eliminate the needs  Decrease welfare

17. Initiatives  Information  Automatically exchange information between authorities  Publish what you pay / country-by-country reporting  Disclosure rules  Harmonisation  CCCTB  Uniform qualification rules  Isolate tax havens  Domestic anti-abuse rules

18. What can we do?  Undo globalisation  Change the corporate tax paradigm  Eliminate the differences between all tax systems through harmonization  Coordinated anti-avoidance rules  Uniliateral anti-avoidance rules  Nothing…

19. “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Adam Smith, Wealth of Nations (1776)