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DDTC Working Paper 1717

                   •  The  separation  of  taxable  profits  from  the   it cannot give us idea about how MNEs channeled
                      location  of the value  creating  activity is   the activities and how  they behave in certain or
                      particularly linked to intangible assets.     specific  condition.  Meanwhile,  micro  approach
                      Despite  the  existence  of  results  confirming   could give us more information about this, but it
                   BEPS existence and magnitude for certain group of   does not provide aggregate impact of the practices.
                   countries, assessing the scale of magnitude as well
                                                                       Therefore, to gain maximum  knowledge that
                   to a specific country would be critically important.
                                                                    can be reaped, we should utilize relevant research
                   It is not obvious whether any measured magnitude
                                                                    approach within  a  structured framework  so that
                   should be viewed as being “large”  or “small”  for
                                                                    every research could produce building blocks that
                   policy purposes, but  the most crucial  necessity
                                                                    can be used for further research. More importantly,
                   for a  government is to monitor its development
                                                                    identifying data  limitation  and  the possibility to
                   in  aggregate  or  in  specific  scope  to  identify  the
                                                                    have the data would be beneficial in determining
                   behavior  and map countermeasures  with a
                                                                    what  set of research could be potentially done
                   structured strategy and clear priority. 27
                                                                    in  the future and  what  actions  are necessary
                      Any policies that are purposed to counter BEPS   for government to provide procedure to ensure
                   obviously  need  framework that can measure  the   important data are accessible for research purpose.
                   scale of such activities. A measurable  magnitude
                                                                    4.1.  Defining BEPS for Research Purpose
                   with mapped behavior would help policy makers
                   in formulating framework through  which  BEPS       Before measuring BEPS  practices, we should
                   countermeasures can be designed and developed.   first understand the basic technical nature of them.
                   Measuring  BEPS  could  be  one starting  step to   The relationship between MNEs behavior  and
                   acknowledge how much revenue lost caused from    government as tax  policy maker is multifaceted.
                   such practices. Several efforts have been made only   Decisions  of  government  regarding  corporate
                   developed countries or European region, while    taxation  affect  the decisions  of multinational
                   according  to  Crivelli,  de  Mooij,  and  Keen  (2015),   firms  regarding  where  to  locate  economic
                   developing  countries are ones who suffered the   activity  and  where  to  book  profits.  On  the  other
                   most.  Acknowledging the magnitude of BEPS and   spectrum, multinational firm decisions also impact
                   the determinants for its each scheme are crucial to   governments, affecting the amount of revenue that
                   plot the behavior and find specific way to counter   they receive and ultimately the tax policy design.
                                                                       Multinational  firms  then  have  both  financial
                   4. Assessing Data and Research Tool              and  real  responses to the taxation  of corporate
                   Options                                          income. Financial responses to corporate taxation
                                                                    include efforts to shift income to more lightly taxed
                                                                    locations.  For  instance,  multinational  firms  may
                      Practically, studies on BEPS are yet to produce
                                                                    alter the transfer prices assigned to international
                   solid results  that  can  explain the magnitude  of
                                                                    trade with affiliates, alter the structure of affiliate
                   BEPS practices. This could not be separated with
                                                                    finance,  or  change  the  location  of  royalties  and
                   the fact that in Indonesia,  as in most  developing        30
                                                                    intangibles.  Real  responses  to international
                   countries , data inadequacy is the main obstacle
                                                                    tax  incentives include locating  more assets,
                   for researcher or policy maker to measure BEPS.
                                                                    employment, and economic  activity in low tax
                   Different  approaches  used  in  measuring  BEPS
                                                                    countries. While both financial and real types are
                   would generate different results that  could
                                                                    likely to affect government tax revenue, they have
                   elucidate different dimension of  BEPS.  Relatedly,
                                                                    distinct policy implication.
                   each of them has their own limitation. For instance,
                   macro perspective approach would  generate us       Most  of existing  analyses  are limited to a
                   result showing aggregate impact caused by BEPS   single  country or MNEs  headquartered in a
                   activities. The most usual  proxies representing   single country, where access to company surveys,
                   the impact are CIT revenue or CIT base. However,   corporate tax returns, or company trade data are
                                                                    made  available  to  researchers  on  a  confidential
                   27. See,  for example, Thiess Buettner  and Georg Wamser, “Internal   basis,  or  based  on  analyses  of  MNE  affiliates  in
                   Debt and  Multinational Profit  Shifting:  Empirical Evidence  from  Firm-  multiple  countries from a  limited number of
                   Level Data”, National Tax Journal No. 66(1) (2013): 63-96. They found   financial databases. Unfortunately, similar data is
                   indication that  German CFC  rule is  effective  in  shifting profit through
                   internal debt.                                   not available  for  Indonesia,  and  thus the results
                   28. Ernesto Crivelli, Ruud De Mooij and Michael Keen, “Base Erosion,   from those studies are specific to those countries’
                   Profit Shifting and Developing Countries”, IMF Working Paper WP/15/118   MNEs, and would not necessarily be representative
                   29. GIZ Sector  Programme Public  Finance,  Addressing Tax Evasion
                   and  Tax  Avoidance  in  Developing  Countries  (Eschborn: Deutsche   30. Kimberly  A. Clausing, “Multinational Firm  Tax Avoidance and Tax
                   Gesellschaft, 2010).                             Policy”, National Tax Journal Vol. LXII, No. 4 (2009): 703-704.
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