European Politico-economics QA Mega-thread - Page 543

A project that ran from 2013 to 2015, the 'Base Erosion and Profit Shifting' action plan "a kind of international collaborative effort to try and really tighten up some of the worst loopholes"

[I hope there aren't any big mistakes, of course the punctuation is all mine and I'm sorry for it... The interviewer rambled a lot so I've re-asked his questions more simply]

"In the paper the U.S. treasury tries to present it more [a.] as a defence of the international rules and to some extent [b.] a defence of U.S. revenues, but, in fact, [b. response] it's so unlikely that the set of possibilities will align that any of these cases will actually have any serious U.S. Revenue implications because, once you've managed to get your effective tax rate down to 5% or 1% in Luxembourg or Ireland, why would you possibly repatriate your income to pay 35% in the U.S?."

… "[a. response]To the extent that they're defending the international rules, perhaps, but on the other hand we know from the OECD BEPS process [BEPS is: "the project that ran from 2013 to 2015, the 'Base Erosion and Profit Shifting' action plan, which was a kind of international collaborative effort to try and really tighten up some of the worst loopholes"] that the U.S. went quite a long way to prevent progress in a number of areas, so they've already taken a position there and they understand that the European position, by and large, is for something more progressive. What's left then is actually the idea that the U.S. Treasury is largely doing the bidding of this group of relatively tax aggressive U.S. Headquartered multi-nationals in a way that probably won't have any real benefit for the U.S. itself but, to the extent that those companies are seen as national champions, it is seen as somehow in the interest, even if actually those companies, as our research shows, are pretty tax aggressive against the U.S. Itself."

Question: Could governments from all round the world force these companies to pay more tax or are they always going to find way to keep their tax bill very low?

“Absolutely it's possible and I think we'll see, particularly as the OECD BEPS project is increasingly seen ... not to have delivered and this conflict is a result of that. It's basically a difference in approach, the U.S. sees tax for it's multinationals at least as largely being a cost of doing business that they'd like to reduce and it's a way of subsidising their own multi-nationals if they can achieve that. Where as Europe is very much looking at this as: 'There's an available stream of revenues here which they're not getting a fair share of' and that difference in philosophy makes it very hard to see how the international rules as they are can hang together. So I think we will see Europe, perhaps accelerated by the lack of power that the U.K, will now have, go further down this road looking at a common consolidated corporate tax base more seriously once again – thinking about ways of making sure, in effect, that multi-nationals profits have to be declared for tax purposes in the places where their real activities take place.”

Question: So has the UK up to now been fighting in Brussels for a relatively low tax approach?

"Yea, I think if you look at the big European nations I think the ones that have been closest to the US approach has been the U.K. and so their position within European discussions has been relatively helpful for the US. If that's gone with the Brexit vote, then I think we'll see an increasing clarity of the division between the U.S and the remaining EU member states."

Question: Very quickly, the particular story today is Brussels trying to get more money out of apple, do you think they'll succeed in that particular thing this week – or this year?

"Yea, I think we'll see the state aid cases, starting with Apple, come to their conclusion and I think we'll see revenue redistributions in the order of the low Billions of dollars. The question is whether we'll see the next set of cases follow these first pioneering ones, or if the European commission will say 'do you know what, we'd rather protect our relationship with the U.S.' I think that's unlikely, I think they'll press ahead, but that's what we need to wait and see."

[I tried to put "quotes" around everything that's direct from the article and italics on quotes in the article from the white paper.]

THE WHITE PAPER STARTS BY EXPLAINING WHY IT EXISTS.
"Were the white paper not such an aggressive document, it would be almost curious to see such a justification laid out. But here it seems necessary. The argument made is that the ongoing cases have 'considerable implications for the United States—both for the U.S. government and its companies'" because they

1. Undermine the BEPS project;
2. “[C]all into question the ability of Member States to honor their bilateral tax treaties with the United States”;
3. May lead to tax repayments that ” effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers”;
4. May have “a chilling effect on U.S.-EU cross-border investment”;
5. Set “an unwelcome precedent for tax authorities around the world to take similar retroactive actions that could affect U.S. and EU companies alike.”

The article responds
1. BEPS has already been substantially undermined. “But, the Treasury does have a point here: if the EU had wanted to curtail such activity as is being revealed in the state aid cases of Apple, Fiat, Starbucks and Amazon, why not ensure that BEPS did so?” … perhaps because “the US was an important blocker in key areas of BEPS”
2. (and 4 and 5) “constitute forms of threat. If the Commission pushes ahead with further cases, it risks seeing the US question member states’ bilateral tax treaties; discourage US companies from investing; and consider retaliatory, retrospective action against EU companies.“
3. the companies’ U.S. tax liability would be reduced dollar for dollar by these recoveries when their offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform. the article answers in 3 parts: a) “it is hard not to see the Commission reflecting on this with considerable scepticism. … why not address it directly … simply abrogate the deferral rules that have led to the creation of a two trillion dollar offshore cash pile?” b) “ if the repayments are themselves correct (as the Commission would argue they will be), then any US losses would simply reflect a the rightful reallocation of taxing rights – as opposed to a snatch and grab raid. The culprits would be the previously unrecognised profit-shifters, rather than the Commission.” c) “In reality .. the likelihood that companies arranged low-to-zero effective tax rates in Europe, in order to repatriate the proceeds and then pay tax at (difference to) the US rate, seems exceedingly low.”


THE WHITE PAPER MOVES ONTO LEGAL ARGUMENTS.
Heavy chopping here, but if you're that interested then read the article or the white paper directly.

“The legal arguments make up the bulk of the paper [and] entirely coincidentally, looks rather like the basis of a legal brief for companies that might wish to mount a challenge to the Commission. … We would not, of course, be surprised to hear echoes of these in individual companies’ appeals.”

WILL THE EU HOLD THE LINE OR BACK DOWN?
“the discouragement of US companies’ additional investment in some prominent EU member states is quite possible. Raising of issues over member states’ bilateral tax treaties would take the conflict to quite a new level.” also “In no scenario does it now seem likely that we will see further cooperation to salvage some of the potential gains from the BEPS process, at least not any time soon.”

THE POSSIBILITY OF SOME INTERESTING TAX POLICY "SPILLOVERS"
“First, the EU position on whether or not to require public country-by-country reporting should be watched closely." TJN explains country by country reporting (short) – though they seem to conclude a move here is less likely than in the following two areas: “beneficial ownership” and “the automatic exchange of financial information.” the following is a specific quote on automatic exchange of financial information:

“only with US embrace of the principle of automaticity through Obama’s FATCA laws, was the resistance of major secrecy jurisdiction like Switzerland defeated.” However the US U-turned which led to them (currently) "being set to provide information to almost no other state – despite demanding it from each and every one.“ in discussing a possible response in this area the article mentions “one of the main political reasons against developing a ‘tax haven’ blacklist based on the automatic exchange of information, was that it would have caught the United States.” implying that releasing the blacklist with the U.S. on it might be one possible E.U. response.

I'll put the CONCLUSION outside the spoiler because DRAMA.