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                      Existing empirical analyses find BEPS occurring   especially in entity  that  is located in  high-tax-
                   through  multiple  channels of  international    rate  jurisdiction.  The  absence of  framework that
                   corporate tax  avoidance. They include hybrid    enable governments to see MNEs as one economic
                   mismatch   arrangements,  excessive  interest    entity  makes  them  difficult  to  attain  complete
                   deductions,  harmful tax practices; treaty abuses,   information about  the whole entities grouped  in
                   artificial  avoidance  of  permanent  establishment,   the  MNEs.  Consequently,  it  becomes  difficult  for
                   transfer pricing outcomes that are not aligned with   the tax  authority to  identify  which  transactions
                   value  creation, and other  circumvention of  any   are purely tax motivated with no or little business
                   applicable  anti-avoidance measures. Measurably,   substance. 16
                   the number  of  channels would  depend  on  which
                   countries  and  which  rules  apply  in  specific   Third,  the  existence  of  different  CIT-rate
                   circumstance faced by MNEs. 11                   between countries  affect the way MNEs allocate
                                                                    their profits. Rationally, MNE will concentrate their
                   2.1  Factors Motivating BEPS                     profit  in  low  or  no-tax  jurisdiction  compared  to
                                                                    countries with higher CIT rate. Without cooperative
                      Essentially, any business model is built with the
                                                                    or tax-rate harmonization, every country will
                   motive to maximize profit generation. The model
                                                                    always keep their  card closed,  aiming to protect
                   is built  in a  way to provide platform for every
                                                                    each own tax base, or if possible, increasing their
                   economic decision that  would  enable  additional
                                                                    tax base by attracting corporate asset and profit to
                   profit  and  reduce  the  costs.  Taking  this  to  tax                  17
                                                                    be shifted to their countries.
                   matters, this perspective allow us to perceive that
                   the  term  ‘profit’  here  is  defined  as  the  after-tax   Fourth,  closely related with  the third factor,
                   profit.  Any form of tax would reduce the corporate   the  existence  of  tax  haven  (preferential  tax
                   income along with other costs – e.g. operating cost   regime)  that  directly  provide  opportunities  for
                   – and thus should be similarly perceived in a way   MNEs  to  artificially  shift  their  profit.  Usually,
                   that it should be minimized as low as possible.  those  jurisdictions  are  geographically small  with
                                                                    no competitive advantage  in terms  of natural
                      This perception is strongly reinforced as there   resources and  low  dependency  to tax  revenue.
                   are  growing opportunities  provided  to  lower  the   Their  competitive  advantage  lies  on its ability
                   tax  liabilities. In global  context, especially by the   to lower their  tax  rate to a level where they are
                   MNEs, the increasing opportunities can be utilized   competitive enough to attract  fund to be  moved
                   by artificially allocating their profit among affiliated   there.  In  effect,  the  most  benefited  jurisdictions
                   MNE across to reduce the aggregate tax liabilities. 13  are certainly the tax haven countries who are not
                                                                    only  offering  low  or  no  CIT , but  also providing
                      There  are  at  least  five  factors  that  provide
                                                                    information privacy security. 19
                   the incentives for MNEs to practice BEPS.  First,
                   jurisdiction  to tax  held by every  country that
                                                                       Fifth,  different  tax  treatment  between debt
                   has each of their own objectives.  Every country
                                                                    and equity. Both of them are funding source for
                   have diverse tax systems and various factors that
                                                                    any MNEs for their operational activities. Funding
                   influences the tax designs, including culture, social,
                                                                    from the former raises interest payment, while the
                   economy and political  stance of  the country.
                                                                    latter creates dividend payment. In most countries,
                   Subsequently, loopholes between tax systems are
                                                                    including Indonesia, expenditures caused from
                   inevitable, thus incentivizing MNEs to exploit the
                                                                    interest payment are deductible component from
                   mismatch to shift their profit.
                                                                    tax  liability, while expenditures  originated from
                                                                    dividend  payment  are not. This  trigger MNEs to
                      Second, separate accounting approach that
                                                                    make  internal  loan  between  their  affiliates  to
                   perceive  each  MNE  affiliate  as  exclusive  entity.  It
                                                                    create maximum deductibles that  would lower
                   then motivate MNEs to make internal transactions
                                                                    their overall tax liability.
                   that are tailored in a way to reduce the tax liability,
                   11. Dhammika Dharmapala, “What Do We Know About Base Erosion   16. Arnaud de Graaf. “International Tax Policy Needed to Counterbalance
                   and Profit Shifting? A Review of the Empirical Literature”, Coase Sandor   the Excessive Behavior of Multinationals”, EC Tax Review, Vol. 22, Issue
                   Institute dor Law & Economics Working Paper No. 702 (2014): 14-16.  2 (2013): 106.
                   12. Michael Keen dan Kai Konrad, “The  Theory of  International  Tax   17.  See  Arthur  J.  Cockfield,  “Introduction:  The  Last  Battleground of
                   Competition and  Coordination”,  in  Handbook  of Public  Economics,   Globalization”, in Globalization and Its Tax Discontents: Tax Policy and
                   Volume 5, ed. A. Auerbach et al (2013), 257-328.  International Investment, ed. Arthur J. Cockfield (Toronto: University of
                   13. OECD, Addressing the Tax Challenges of the Digital Economy, Action   Toronto Press, 2010): 5.
                   11 – 2015 Final Report (Paris: OECD Publishing, 2015), 86.    18. Lihat Lorraine Eden dan Robert T. Kurdle, “Tax Havens: Renegade
                   14. Martin F. de Wilde, “Some Thoughts on a Fair Allocation of Corporate   States in the International Tax Regime?” Law and Public Policy, Vol. 27,
                   Tax in A Globalizing Economy”, Intertax Vol. 38, Issue 5 (2010): 281-  No. 1 (2005): 100-127.
                   282.                                             19. Charles E.  McLure, Jr.,  “Will the OECD Initiative on Harmful Tax
                   15. Lihat Jill C. Pagan dan J. Scott Wilkie, Transfer Pricing Strategy in A   Competition Help Developing Countries  and Transition Countries?”
                   Global Economy (Amsterdam: IBFD Publication, 1993), 27.    Bulletin for International Taxation, Vol. 59, No. 3 (2005): 92.
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